how to solve economic crisis in the philippines

The Philippines economy in 2024: Stronger for longer?

The Philippines ended 2023 on a high note, being the fastest growing economy across Southeast Asia with a growth rate of 5.6 percent—just shy of the government's target of 6.0 to 7.0 percent. 1 “National accounts,” Philippine Statistics Authority, January 31, 2024; "Philippine economic updates,” Bangko Sentral ng Pilipinas, November 16, 2023. Should projections hold, the Philippines is expected to, once again, show significant growth in 2024, demonstrating its resilience despite various global economic pressures (Exhibit 1). 2 “Economic forecast 2024,” International Monetary Fund, November 1, 2023; McKinsey analysis.

The growth in the Philippine economy in 2023 was driven by a resumption in commercial activities, public infrastructure spending, and growth in digital financial services. Most sectors grew, with transportation and storage (13 percent), construction (9 percent), and financial services (9 percent), performing the best (Exhibit 2). 3 “National accounts,” Philippine Statistics Authority, January 31, 2024. While the country's trade deficit narrowed in 2023, it remains elevated at $52 billion due to slowing global demand and geopolitical uncertainties. 4 “Highlights of the Philippine export and import statistics,” Philippine Statistics Authority, January 28, 2024. Looking ahead to 2024, the current economic forecast for the Philippines projects a GDP growth of between 5 and 6 percent.

Inflation rates are expected to temper between 3.2 and 3.6 percent in 2024 after ending 2023 at 6.0 percent, above the 2.0 to 4.0 percent target range set by the government. 5 “Nomura downgrades Philippine 2024 growth forecast,” Nomura, September 11, 2023; “IMF raises Philippine growth rate forecast,” International Monetary Fund, July 16, 2023.

For the purposes of this article, most of the statistics used for our analysis have come from a common thread of sources. These include the Central Bank of the Philippines (Bangko Sentral ng Pilipinas); the Department of Energy Philippines; the IT and Business Process Association of the Philippines (IBPAP); and the Philippines Statistics Authority.

The state of the Philippine economy across seven major sectors and themes

In the article, we explore the 2024 outlook for seven key sectors and themes, what may affect each of them in the coming year, and what could potentially unlock continued growth.

Financial services

The recovery of the financial services sector appears on track as year-on-year growth rates stabilize. 6 Philippines Statistics Authority, November 2023; McKinsey in partnership with Oxford Economics, November 2023. In 2024, this sector will likely continue to grow, though at a slower pace of about 5 percent.

Financial inclusion and digitalization are contributing to growth in this sector in 2024, even if new challenges emerge. Various factors are expected to impact this sector:

Inclusive finance: Bangko Sentral ng Pilipinas continues to invest in financial inclusion initiatives. For example, basic deposit accounts (BDAs) reached $22 million in 2023 and banking penetration improved, with the proportion of adults with formal bank accounts increasing from 29 percent in 2019 to 56 percent in 2021. 7 “Financial inclusion dashboard: First quarter 2023,” Bangko Sentral ng Pilipinas, February 6, 2024.
Digital adoption: Digital channels are expected to continue to grow, with data showing that 60 percent of adults who have a mobile phone and internet access have done a digital financial transaction. 8 “Financial inclusion dashboard: First quarter 2023,” Bangko Sentral ng Pilipinas, February 6, 2024. Businesses in this sector, however, will need to remain vigilant in navigating cybersecurity and fraud risks.
Unsecured lending growth: Growth in unsecured lending is expected to continue, but at a slower pace than the past two to three years. For example, unsecured retail lending for the banking system alone grew by 27 percent annually from 2020 to 2022. 9 “Loan accounts: As of first quarter 2023,” Bangko Sentral ng Pilipinas, February 6, 2024; "Global banking pools,” McKinsey, November 2023. Businesses in this field are, however, expected to recalibrate their risk profiling models as segments with high nonperforming loans emerge.
High interest rates: Key interest rates are expected to decline in the second half of 2024, creating more accommodating borrowing conditions that could boost wholesale and corporate loans.

Supportive frameworks have a pivotal role to play in unlocking growth in this sector to meet the ever-increasing demand from the financially underserved. For example, financial literacy programs and easier-to-access accounts—such as BDAs—are some measures that can help widen market access to financial services. Continued efforts are being made to build an open finance framework that could serve the needs of the unbanked population, as well as a unified credit scoring mechanism to increase the ability of historically under-financed segments, such as small and medium-sized enterprises (SMEs), to access formal credit. 10 “BSP launches credit scoring model,” Bangko Sentral ng Pilipinas, April 26, 2023.

Energy and Power

The outlook for the energy sector seems positive, with the potential to grow by 7 percent in 2024 as the country focuses on renewable energy generation. 11 McKinsey analysis based on input from industry experts. Currently, stakeholders are focused on increasing energy security, particularly on importing liquefied natural gas (LNG) to meet power plants’ requirements as production in one of the country’s main sources of natural gas, the Malampaya gas field, declines. 12 Myrna M. Velasco, “Malampaya gas field prod’n declines steeply in 2021,” Manila Bulletin , July 9, 2022. High global inflation and the fact that the Philippines is a net fuel importer are impacting electricity prices and the build-out of planned renewable energy projects. Recent regulatory moves to remove foreign ownership limits on exploration, development, and utilization of renewable energy resources could possibly accelerate growth in the country’s energy and power sector. 13 “RA 11659,” Department of Energy Philippines, June 8, 2023.

Gas, renewables, and transmission are potential growth drivers for the sector. Upgrading power grids so that they become more flexible and better able to cope with the intermittent electricity supply that comes with renewables will be critical as the sector pivots toward renewable energy. A recent coal moratorium may position natural gas as a transition fuel—this could stimulate exploration and production investments for new, indigenous natural gas fields, gas pipeline infrastructure, and LNG import terminal projects. 14 Philippine energy plan 2020–2040, Department of Energy Philippines, June 10, 2022; Power development plan 2020–2040 , Department of Energy Philippines, 2021. The increasing momentum of green energy auctions could facilitate the development of renewables at scale, as the country targets 35 percent share of renewables by 2030. 15 Power development plan 2020–2040 , 2022.

Growth in the healthcare industry may slow to 2.8 percent in 2024, while pharmaceuticals manufacturing is expected to rebound with 5.2 percent growth in 2024. 16 McKinsey analysis in partnership with Oxford Economics.

Healthcare demand could grow, although the quality of care may be strained as the health worker shortage is projected to increase over the next five years. 17 McKinsey analysis. The supply-and-demand gap in nursing alone is forecast to reach a shortage of approximately 90,000 nurses by 2028. 18 McKinsey analysis. Another compounding factor straining healthcare is the higher than anticipated benefit utilization and rising healthcare costs, which, while helping to meet people's healthcare budgets, may continue to drive down profitability for health insurers.

Meanwhile, pharmaceutical companies are feeling varying effects of people becoming increasingly health conscious. Consumers are using more over the counter (OTC) medication and placing more beneficial value on organic health products, such as vitamins and supplements made from natural ingredients, which could impact demand for prescription drugs. 19 “Consumer health in the Philippines 2023,” Euromonitor, October 2023.

Businesses operating in this field may end up benefiting from universal healthcare policies. If initiatives are implemented that integrate healthcare systems, rationalize copayments, attract and retain talent, and incentivize investments, they could potentially help to strengthen healthcare provision and quality.

Businesses may also need to navigate an increasingly complex landscape of diverse health needs, digitization, and price controls. Digital and data transformations are being seen to facilitate improvements in healthcare delivery and access, with leading digital health apps getting more than one million downloads. 20 Google Play Store, September 27, 2023. Digitization may create an opportunity to develop healthcare ecosystems that unify touchpoints along the patient journey and provide offline-to-online care, as well as potentially realizing cost efficiencies.

Consumer and retail

Growth in the retail and wholesale trade and consumer goods sectors is projected to remain stable in 2024, at 4 percent and 5 percent, respectively.

Inflation, however, continues to put consumers under pressure. While inflation rates may fall—predicted to reach 4 percent in 2024—commodity prices may still remain elevated in the near term, a top concern for Filipinos. 21 “IMF raises Philippine growth forecast,” July 26, 2023; “Nomura downgrades Philippines 2024 growth forecast,” September 11, 2023. In response to challenging economic conditions, 92 percent of consumers have changed their shopping behaviors, and approximately 50 percent indicate that they are switching brands or retail providers in seek of promotions and better prices. 22 “Philippines consumer pulse survey, 2023,” McKinsey, November 2023.

Online shopping has become entrenched in Filipino consumers, as they find that they get access to a wider range of products, can compare prices more easily, and can shop with more convenience. For example, a McKinsey Philippines consumer sentiment survey in 2023 found that 80 percent of respondents, on average, use online and omnichannel to purchase footwear, toys, baby supplies, apparel, and accessories. To capture the opportunity that this shift in Filipino consumer preferences brings and to unlock growth in this sector, retail organizations could turn to omnichannel strategies to seamlessly integrate online and offline channels. Businesses may need to explore investments that increase resilience across the supply chain, alongside researching and developing new products that serve emerging consumer preferences, such as that for natural ingredients and sustainable sources.

Manufacturing

Manufacturing is a key contributor to the Philippine economy, contributing approximately 19 percent of GDP in 2022, employing about 7 percent of the country’s labor force, and growing in line with GDP at approximately 6 percent between 2023 and 2024. 23 McKinsey analysis based on input from industry experts.

Some changes could be seen in 2024 that might affect the sector moving forward. The focus toward building resilient supply chains and increasing self-sufficiency is growing. The Philippines also is likely to benefit from increasing regional trade, as well as the emerging trend of nearshoring or onshoring as countries seek to make their supply chains more resilient. With semiconductors driving approximately 45 percent of Philippine exports, the transfer of knowledge and technology, as well as the development of STEM capabilities, could help attract investments into the sector and increase the relevance of the country as a manufacturing hub. 24 McKinsey analysis based on input from industry experts.

To secure growth, public and private sector support could bolster investments in R&D and upskill the labor force. In addition, strategies to attract investment may be integral to the further development of supply chain infrastructure and manufacturing bases. Government programs to enable digital transformation and R&D, along with a strategic approach to upskilling the labor force, could help boost industry innovation in line with Industry 4.0 demand. 25 Industry 4.0 is also referred to as the Fourth Industrial Revolution. Priority products to which manufacturing industries could pivot include more complex, higher value chain electronic components in the semiconductor segment; generic OTC drugs and nature-based pharmaceuticals in the pharmaceutical sector; and, for green industries, products such as EVs, batteries, solar panels, and biomass production.

Information technology business process outsourcing

The information technology business process outsourcing (IT-BPO) sector is on track to reach its long-term targets, with $38 billion in forecast revenues in 2024. 26 Khriscielle Yalao, “WHF flexibility key to achieving growth targets—IBPAP,” Manila Bulletin , January 23, 2024. Emerging innovations in service delivery and work models are being observed, which could drive further growth in the sector.

The industry continues to outperform headcount and revenue targets, shaping its position as a country leader for employment and services. 27 McKinsey analysis based in input from industry experts. Demand from global companies for offshoring is expected to increase, due to cost containment strategies and preference for Philippine IT-BPO providers. New work setups continue to emerge, ranging from remote-first to office-first, which could translate to potential net benefits. These include a 10 to 30 percent increase in employee retention; a three- to four-hour reduction in commute times; an increase in enabled talent of 350,000; and a potential reduction in greenhouse gas emissions of 1.4 to 1.5 million tons of CO 2 per year. 28 McKinsey analysis based in input from industry experts. It is becoming increasingly more important that the IT-BPO sector adapts to new technologies as businesses begin to harness automation and generative AI (gen AI) to unlock productivity.

Talent and technology are clear areas where growth in this sector can be unlocked. The growing complexity of offshoring requirements necessitates building a proper talent hub to help bridge employee gaps and better match local talent to employers’ needs. Businesses in the industry could explore developing facilities and digital infrastructure to enable industry expansion outside the metros, especially in future “digital cities” nationwide. Introducing new service areas could capture latent demand from existing clients with evolving needs as well as unserved clients. BPO centers could explore the potential of offering higher-value services by cultivating technology-focused capabilities, such as using gen AI to unlock revenue, deliver sales excellence, and reduce general administrative costs.

Sustainability

The Philippines is considered to be the fourth most vulnerable country to climate change in the world as, due to its geographic location, the country has a higher risk of exposure to natural disasters, such as rising sea levels. 29 “The Philippines has been ranked the fourth most vulnerable country to climate change,” Global Climate Risk Index, January 2021. Approximately $3.2 billion, on average, in economic loss could occur annually because of natural disasters over the next five decades, translating to up to 7 to 8 percent of the country’s nominal GDP. 30 “The Philippines has been ranked the fourth most vulnerable country to climate change,” Global Climate Risk Index, January 2021.

The Philippines could capitalize on five green growth opportunities to operate in global value chains and catalyze growth for the nation:

Renewable energy: The country could aim to generate 50 percent of its energy from renewables by 2040, building on its high renewable energy potential and the declining cost of producing renewable energy.
Solar photovoltaic (PV) manufacturing: More than a twofold increase in annual output from 2023 to 2030 could be achieved, enabled by lower production costs.
Battery production: The Philippines could aim for a $1.5 billion domestic market by 2030, capitalizing on its vast nickel reserves (the second largest globally). 31 “MineSpans,” McKinsey, November 2023.
Electric mobility: Electric vehicles could account for 15 percent of the country’s vehicle sales by 2030 (from less than 1 percent currently), driven by incentives, local distribution, and charging infrastructure. 32 McKinsey analysis based on input from industry experts.
Nature-based solutions: The country’s largely untapped total abatement potential could reach up to 200 to 300 metric tons of CO 2 , enabled by its biodiversity and strong demand.

The Philippine economy: Three scenarios for growth

Having grown faster than other economies in Southeast Asia in 2023 to end the year with 5.6 percent growth, the Philippines can expect a similarly healthy growth outlook for 2024. Based on our analysis, there are three potential scenarios for the country’s growth. 33 McKinsey analysis in partnership with Oxford Economics.

Slower growth: The first scenario projects GDP growth of 4.8 percent if there are challenging conditions—such as declining trade and accelerated inflation—which could keep key policy rates high at about 6.5 percent and dampen private consumption, leading to slower long-term growth.

Soft landing: The second scenario projects GDP growth of 5.2 percent if inflation moderates and global conditions turn out to be largely favorable due to a stable investment environment and regional trade demand.

Accelerated growth: In the third scenario, GDP growth is projected to reach 6.1 percent if inflation slows and public policies accommodate aspects such as loosening key policy rates and offering incentive programs to boost productivity.

Focusing on factors that could unlock growth in its seven critical sectors and themes, while adapting to the macro-economic scenario that plays out, would allow the Philippines to materialize its growth potential in 2024 and take steps towards achieving longer-term, sustainable economic growth.

Jon Canto is a partner in McKinsey’s Manila office, where Frauke Renz is an associate partner, and Vicah Villanueva is a consultant.

The authors wish to thank Charlene Chua, Charlie del Rosario, Ryan delos Reyes, Debadrita Dhara, Evelyn C. Fong, Krzysztof Kwiatkowski, Frances Lee, Aaron Ong, and Liane Tan for their contributions to this article.

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The Philippines Growth Dialogues

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What does 2023 hold for the Philippines’ economy?

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On the verge of a digital banking revolution in the Philippines

The Philippine economy under the pandemic: From Asian tiger to sick man again?

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August 2, 2021

In 2019, the Philippines was one of the fastest growing economies in the world. It finally shed its “sick man of Asia” reputation obtained during the economic collapse towards the end of the Ferdinand Marcos regime in the mid-1980s. After decades of painstaking reform — not to mention paying back debts incurred under the dictatorship — the country’s economic renaissance took root in the decade prior to the pandemic. Posting over 6 percent average annual growth between 2010 and 2019 (computed from the Philippine Statistics Authority data on GDP growth rates at constant 2018 prices), the Philippines was touted as the next Asian tiger economy .

That was prior to COVID-19.

The rude awakening from the pandemic was that a services- and remittances-led growth model doesn’t do too well in a global disease outbreak. The Philippines’ economic growth faltered in 2020 — entering negative territory for the first time since 1999 — and the country experienced one of the deepest contractions in the Association of Southeast Asian Nations (ASEAN) that year (Figure 1).

Figure 1: GDP growth for selected ASEAN countries

And while the government forecasts a slight rebound in 2021, some analysts are concerned over an uncertain and weak recovery, due to the country’s protracted lockdown and inability to shift to a more efficient containment strategy. The Philippines has relied instead on draconian mobility restrictions across large sections of the country’s key cities and growth hubs every time a COVID-19 surge threatens to overwhelm the country’s health system.

What went wrong?

How does one of the fastest growing economies in Asia falter? It would be too simplistic to blame this all on the pandemic.

First, the Philippines’ economic model itself appears more vulnerable to disease outbreak. It is built around the mobility of people, yet tourism, services, and remittances-fed growth are all vulnerable to pandemic-induced lockdowns and consumer confidence decline. International travel plunged, tourism came to a grinding halt, and domestic lockdowns and mobility restrictions crippled the retail sector, restaurants, and hospitality industry. Fortunately, the country’s business process outsourcing (BPO) sector is demonstrating some resilience — yet its main markets have been hit heavily by the pandemic, forcing the sector to rapidly upskill and adjust to emerging opportunities under the new normal.

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Second, pandemic handling was also problematic. Lockdown is useful if it buys a country time to strengthen health systems and test-trace-treat systems. These are the building blocks of more efficient containment of the disease. However, if a country fails to strengthen these systems, then it squanders the time that lockdown affords it. This seems to be the case for the Philippines, which made global headlines for implementing one of the world’s longest lockdowns during the pandemic, yet failed to flatten its COVID-19 curve.

At the time of writing, the Philippines is again headed for another hard lockdown and it is still trying to graduate to a more efficient containment strategy amidst rising concerns over the delta variant which has spread across Southeast Asia . It seems stuck with on-again, off-again lockdowns, which are severely damaging to the economy, and will likely create negative expectations for future COVID-19 surges (Figure 2).

Figure 2 clarifies how the Philippine government resorted to stricter lockdowns to temper each surge in COVID-19 in the country so far.

Figure 2: Community quarantine regimes during the COVID-19 pandemic, Philippine National Capital Region (NCR ), March 2020 to June 2021

If the delta variant and other possible variants are near-term threats, then the lack of efficient containment can be expected to force the country back to draconian mobility restrictions as a last resort. Meanwhile, only two months of social transfers ( ayuda ) were provided by the central government during 16 months of lockdown by mid-2021. All this puts more pressure on an already weary population reeling from deep recession, job displacement, and long-term risks on human development . Low social transfers support in the midst of joblessness and rising hunger is also likely to weaken compliance with mobility restriction policies.

Third, the Philippines suffered from delays in its vaccination rollout which was initially hobbled by implementation and supply issues, and later affected by lingering vaccine hesitancy . These are all likely to delay recovery in the Philippines.

By now there are many clear lessons both from the Philippine experience and from emerging international best practices. In order to mount a more successful economic recovery, the Philippines must address the following key policy issues:

Build a more efficient containment strategy particularly against the threat of possible new variants principally by strengthening the test-trace-treat system. Based on lessons from other countries, test-trace-treat systems usually also involve comprehensive mass-testing strategies to better inform both the public and private sectors on the true state of infections among the population. In addition, integrated mobility databases (not fragmented city-based ones) also capacitate more effective and timely tracing. This kind of detailed and timely data allows for government and the private sector to better coordinate on nuanced containment strategies that target areas and communities that need help due to outbreak risk. And unlike a generalized lockdown, this targeted and data-informed strategy could allow other parts of the economy to remain more open than otherwise.
Strengthen the sufficiency and transparency of direct social protection in order to give immediate relief to poor and low-income households already severely impacted by the mishandling of the pandemic. This requires a rebalancing of the budget in favor of education, health, and social protection spending, in lieu of an over-emphasis on build-build-build infrastructure projects. This is also an opportunity to enhance the social protection system to create a safety net and concurrent database that covers not just the poor but also the vulnerable low- and lower-middle- income population. The chief concern here would be to introduce social protection innovations that prevent middle income Filipinos from sliding into poverty during a pandemic or other crisis.
Ramp-up vaccination to cover at least 70 percent of the population as soon as possible, and enlist the further support of the private sector and civil society in order to keep improving vaccine rollout. An effective communications campaign needs to be launched to counteract vaccine hesitancy, building on trustworthy institutions (like academia, the Catholic Church, civil society and certain private sector partners) in order to better protect the population against the threat of delta or another variant affecting the Philippines. It will also help if parts of government could stop the politically-motivated fearmongering on vaccines, as had occurred with the dengue fever vaccine, Dengvaxia, which continues to sow doubts and fears among parts of the population .
Create a build-back-better strategy anchored on universal and inclusive healthcare. Among other things, such a strategy should a) acknowledge the critically important role of the private sector and civil society in pandemic response and healthcare sector cooperation, and b) underpin pandemic response around lasting investments in institutions and technology that enhance contact tracing (e-platforms), testing (labs), and universal healthcare with lower out-of-pocket costs and higher inclusivity. The latter requires a more inclusive, well-funded, and better-governed health insurance system.

As much of ASEAN reels from the spread of the delta variant, it is critical that the Philippines takes these steps to help allay concerns over the country’s preparedness to handle new variants emerging, while also recalibrating expectations in favor of resuscitating its economy. Only then can the Philippines avoid becoming the sick man of Asia again, and return to the rapid and steady growth of the pre-pandemic decade.

Appendix D: Recommendations

how to solve economic crisis in the philippines

The Philippines’ Dilemma: How to Manage Tensions in the South China Sea

The maritime dispute between China and the Philippines is simmering against the backdrop of strategic competition between Beijing and Washington. To keep tensions below boiling point, Manila should push for a Code of Conduct in the South China Sea as well as greater regional cooperation.

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Principal Findings

What’s new? Five years after President Rodrigo Duterte’s pivot to China, tensions between Manila and Beijing are rising again in the South China Sea, compounded by increasing Sino-U.S. competition. The maritime disputes with China and other claimant states persist with little prospect for resolution.

Why does it matter? Armed conflict directly involving the Philippines is unlikely. But there is growing potential for incidents at sea to escalate . Despite President Duterte’s China-friendly stance, Manila continues to struggle with Beijing’s continuous efforts to assert sovereignty over most of the South China Sea.

What should be done? The Philippines should push for a substantive and effective Code of Conduct between ASEAN and China, while continuing to pursue bilateral talks with Beijing on maritime disputes. Manila should also try to boost regional cooperation on issues of common concern, such as fisheries management and law enforcement.

Executive Summary

The Philippines is a key player in the South China Sea territorial disputes, which are getting sharper due to China’s growing assertiveness and the claimant states’ competition over resources. Rather than appealing to international law as a bulwark against China’s claims, President Rodrigo Duterte has instead pursued a more pragmatic approach that avoids confronting China in the hope of reaping economic benefits. But five years on, it appears that his pivot may not have entirely paid off. The simmering maritime dispute between Manila and Beijing is increasingly linked to geopolitical competition between China, on one hand, and the U.S. and its allies, on the other. Given the growing risk of escalatory incidents at sea, Manila should push for a substantive and effective Code of Conduct between China and the Association of Southeast Asian Nations (ASEAN) to manage maritime tensions while keeping open a diplomatic channel with Beijing to reduce misunderstandings. It should also strive to foster regional cooperation, for example on the question of fisheries management.

Eager to loosen ties with the U.S. and broaden his strategic options, Duterte has throughout his presidency minimised the issue of territorial sovereignty in the South China Sea and instead sought economic benefits from China. Consistent with this approach, he downplayed Manila’s victory in a 2016 arbitration, awarded by a tribunal established under the 1982 UN Convention on the Law of the Sea (UNCLOS), which refuted Beijing’s extensive claims of sovereignty and “historic rights” over the Sea. Manila has since pursued a flexible strategy, often perceived by local and international observers alike as erratic, aiming to strengthen ties with Beijing for the sake of economic growth. By proceeding cautiously, the Philippines hoped to prevent the maritime dispute from damaging its bilateral relationship with the region’s dominant economic and military power.

Five years into Duterte’s presidency, however, irritants remain. China’s ships prowl the Philippine exclusive economic zone without interruption, and Filipino boats often cannot reach traditional fishing grounds at Scarborough Shoal due to Chinese harassment. Tangible economic benefits from overtures to Beijing, especially promised infrastructure projects, have fallen short of expectations and major gains are not expected before Duterte’s term ends in 2022. Many in the Philippines are increasingly sceptical of rapprochement with China if it entails giving up claims to various disputed maritime features.

Since late 2019, Manila has been less willing to ignore Beijing’s assertiveness in the South China Sea. It has sent diplomatic protest notes to China in response to perceived territorial violations in the Sea. More consequentially, Duterte has reversed his abrupt February 2020 cancellation of the Visiting Forces Agreement with the U.S., which allows the U.S. to station military personnel in the Philippines and conduct joint exercises with Manila. In June 2020, Duterte suspended the cancellation. The U.S. subsequently began terming China’s claims in the Sea “unlawful”, reaffirmed its alliance with the Philippines and confirmed that the Mutual Defence Treaty between Manila and Washington encompasses attacks on Philippine forces or vessels in the Sea. A March 2021 quarrel around Whitsun Reef in the disputed Spratly Islands, which saw Chinese ships mass by the hundreds, led to another wave of anti-China sentiment in the Philippines and appears to have further strained relations. On 30 July 2021, Duterte unfroze the Visiting Forces Agreement, thus bringing it formally back into force.

Developing a coherent vision for the South China Sea while managing a treaty alliance with the U.S. and episodic tensions with neighbours, one of which is a rising great power, is particularly challenging. On one hand, Manila is tied to Washington by an alliance and longstanding cultural affinities. On the other, geography and economic imperatives impel the archipelago to find a modus vivendi with Beijing. At the same time, the Philippines must all the while maintain constructive relations with other South East Asian claimants. In addition, conflicting interests among and within the bureaucratic establishment and the military, as well as the interplay of elite positioning and Philippine public opinion, often result in apparent contradictions in government policy.

Manila, facing deadlock in a dispute it cannot resolve alone, should try to foster cooperation by discussing issues of common interest – such as fisheries management, law enforcement challenges and scientific research on environmental problems – in formal and informal interactions with neighbouring countries. Partnerships with other littoral states on joint management of resources could serve as a stepping stone for broader cooperation. In the interest of peace and stability in the South China Sea, Manila should both double down on its efforts to advance Code of Conduct negotiations and keep up bilateral dialogue with Beijing to sort out misunderstandings and manage disagreements. It should, for instance, negotiate rules of access to Scarborough Shoal, long a source of friction with China. It should also strengthen risk management mechanisms in case tensions between claimant states or the U.S. and China increase. None of these steps will resolve the increasingly entrenched maritime dispute, but they could help keep the risk low that incidents at sea will escalate toward conflict.

Manila/Brussels, 2 December 2021

To access this timeline of The Recent History of the South China Sea as a separate article page, please click here .

I. Introduction

In the South China Sea, the Philippines is party to a long-running quarrel that is a source of friction, and could even trigger an open confrontation, between China and the United States. [fn] For background, see Crisis Group Asia Reports N°275, Stirring up the South China Sea (IV): Oil in Troubled Waters , 26 January 2016 ; N°267, Stirring Up the South China Sea (III): A Fleeting Opportunity for Calm , 7 May 2015 ; N°229, Stirring up the South China Sea (II): Regional Responses , 24 July 2012; and N°223, Stirring Up the South China Sea (I) , 23 April 2012. Hide Footnote The dispute – to which Brunei, China, Malaysia, Taiwan and Vietnam are also party – is driven by competing claims to land features and the maritime entitlements they generate, including overlapping exclusive economic zones (EEZ). [fn] The EEZ of a coastal state, in which the state is entitled to the marine and undersea resources, stretches 200 nautical miles (nm) from its baseline, itself determined by the low-tide coastline (or, in some cases, by offshore features). A coastal state can claim full sovereignty over land, sea and air only within a zone extending 12nm offshore. For more details, see Crisis Group Asia Report N°315, Competing Visions of International Order in the South China Sea , 29 November 2021, pp. 2-3. Hide Footnote The Philippine claim focuses on the Spratly Islands and the maritime space around them, including Scarborough Shoal, a small ring of rocks and reefs more than 200km west of Luzon, the Philippines’ largest and most populous island. [fn] The Spratlys and Scarborough Shoal are commonly referred to as part of the South China Sea. Around June 2011, however, the Philippines began using the term West Philippine Sea for the area in its official communications. President Benigno Aquino III officially renamed the body of water through Administrative Order 29 of 5 September 2012, issued after a standoff with China at Scarborough Shoal. The Philippines claims specific islands and areas of the sea rather than the Spratlys as a whole. Hide Footnote

Manila’s claim to the Spratlys goes back at least half a century. It conflicts with China’s narrative of its own historic rights, expressed in the so-called nine-dash line, a boundary drawn on Chinese maps in 2009, but without clear historic or legal grounds, definition or delineation, and that lays claim to some 85 per cent of the South China Sea. The other littoral states are likewise affected, with Vietnam more emphatic than the rest in defending its interests against China. Both Beijing and Hanoi dispute Manila’s claims, as do, to a lesser degree, Malaysia, Brunei and Taiwan. [fn] Indonesia is not a claimant in the South China Sea dispute, but it remains an important player as maritime zones generated by its Natuna Islands appear to overlap with China’s claims. Hide Footnote

The Philippines’ location accounts for both the U.S. and the Chinese strategic interest in the archipelago. Midway between mainland South East Asia and Indonesia, the region’s other archipelago, the country is composed of 7,641 islands and has the world’s fifth-longest coastline, with most of its provinces bordering the sea. [fn] Control over the South China Sea implies dominance over the Malacca and Sunda Straits, both crucial chokepoints for global trade, as well as the Sulu and Taiwan Straits. Hide Footnote Its proximity to the Taiwan Strait puts it close to a “powder keg of conflict”. [fn] Crisis Group online interview, retired diplomat, 23 July 2020. Some of the Philippine outposts in the Spratlys are also close to Itu Aba, the largest natural land feature in the archipelago, which is occupied by Taiwan and is the forwardmost of Taipei’s defences. Ralph Jennings, “Wary of Beijing, Taiwan doubles down on South China Sea island”, Voice of America, 29 March 2021. Hide Footnote It also stands between a segment of China’s coast and access to the Pacific Ocean, thereby constituting a crucial part of what is often referred to as the “first island chain” that delimits China’s near sea. [fn] The first island chain refers to a chain of archipelagos stretching from Indonesia through Japan to the Kamchatka Peninsula in Russia. The concept has been known in both U.S. and Chinese strategic circles for decades, defined as a natural barrier that is disadvantageous for China since it contains Beijing’s maritime power and access to the Pacific while serving as a forward defence perimeter for U.S. forces in Asia. Hide Footnote

The Philippines is thus a key player in the geopolitical contest playing out in the region. For Beijing, it could either become a stepping stone toward regional hegemony or an obstacle to such ambitions. Likewise, for Washington, it could continue to facilitate the U.S. forward presence in the South China Sea or become a stumbling block for its Indo-Pacific strategy. All these scenarios entail political costs and benefits for Manila. As Foreign Secretary Teodoro Locsin has said: “No other country feels the significant impact of the rivalry between the two superpowers more than the Philippines, the U.S. being its only defence treaty ally and China its biggest neighbour and top economic partner – with the U.S. second”. [fn] Recto Mercene, “Locsin: PHL to keep strong ties with both US and China”, Business Mirror , 27 October 2020. Hide Footnote

This report provides a view of the Philippine perspective on developments in the South China Sea since 2016, against the backdrop of China’s geopolitical ascendancy, heightened U.S.-China tensions and Rodrigo Duterte’s presidency. [fn] This report uses English-language terms for features in the South China Sea. Hide Footnote It is published along with a report on Vietnamese perspectives on the South China Sea dispute, and an overview detailing the rising frictions between the U.S. and China as they relate to the Sea. [fn] See Crisis Group Report, Competing Visions of International Order in the South China Sea , op. cit.; and Crisis Group Asia Report, Vietnam Tacks Between Cooperation and Struggle in the South China Sea , forthcoming. Hide Footnote It is based on more than 140 interviews and online discussions in Manila with current and former government officials, diplomats, academics, analysts and military officers, many of whom requested anonymity. Research was largely conducted remotely given travel restrictions caused by the COVID-19 pandemic, though the report includes input from a local researcher who visited Masinloc, the Philippine town closest to Scarborough Shoal.

II. Reefs and Ruptures

A. the philippine claim over time.

The Philippines’ efforts to assert its claims in the South China Sea date back to the presidency of Ferdinand Marcos, the dictator who ruled the country from 1965 to 1986. [fn] In 1956, a Filipino adventurer, Tomas Cloma, sailed out to the Spratlys seeking his fortune and laid claim to 33 features that he called Freedomland. Authorities arrested Cloma in 1974. Manila then asked him to formally transfer ownership of the features to the government, after which it asserted its sovereignty there. Hide Footnote Marcos sent the military in two waves (from 1970 to 1971, and from 1977 to 1980) to occupy several features in the Spratly archipelago. [fn] Marites Danguilan Vitug, Rock Solid: How the Philippines Won Its Maritime Case Against China (Manila, 2018), p. 10. In 1975, Vietnam occupied Southwest Cay, a feature where the Philippines had previously stationed an “on-and-off detachment”. Ibid., p.12. Hide Footnote In 1972, the Marcos government officially incorporated the islets into the Philippines’ westernmost Palawan province as the Kalayaan Island Group. [fn] In 1976, Manila created the Western Command, a military district covering the Spratlys. Hide Footnote In 1978, it formally created both a separate Kalayaan municipality in Palawan province and a Philippine exclusive economic zone. [fn] See Presidential Decree No. 1599 , 1978. Although the UN Convention on the Law of the Sea (UNCLOS) was signed in 1982, UN members had been negotiating over the EEZ concept for years before the close of talks. Hide Footnote As a result, Manila has controlled nine of the Spratlys’ land features since the late 1970s. [fn] These are: Second Thomas Shoal (Ayungin), Thitu (Pagasa) Island, Nanshan (Lawak) Island, Northeast Cay (Parola Island), Flat (Patag) Island, Loaita (Kota) Island, Commodore (Rizal) Reef, West York (Likas) Island and Loaita Cay (Panata Island). Other Spratly features are controlled by Taiwan, China, Vietnam and Malaysia. Hide Footnote It remained on the sidelines when armed conflict erupted between Vietnam and China around the Paracel Islands in 1988. At the time, the Philippines was less concerned with China occupying features in the Spratlys (in 1988 and 1989) and Beijing’s heightened naval patrols than with Vietnam’s presence in the contested waters around them. [fn] Crisis Group online interview, military officer, 10 November 2020. Hide Footnote

China’s 1995 seizure of Mischief Reef, in the middle of the Spratlys, marked a major shift in the contest for control of those features. Seeing an opportunity after a Philippines Senate vote in 1991 compelled the U.S. to withdraw from its Philippine bases, China built light structures on the reef. [fn] In addition, China maintained a naval presence and constructed navigational aid facilities and a military observation post on the reef. Vitug, Rock Solid , op. cit., pp. 29-30. Hide Footnote The construction was a “shock” to the Philippines, deeply affecting its sense of security, particularly after Chinese troops occupied the new structures. [fn] Crisis Group online interview, academic, 6 August 2020. It was the first time that China had acted against the territorial entitlements of an Association of Southeast Asian Nations (ASEAN) member. Despite Manila’s lobbying, its fellow members issued only a muted statement on the incident. Hide Footnote Despite the 1951 Philippine-U.S. Mutual Defence Treaty, Washington remained neutral in Manila’s ensuing quarrel with Beijing and gave its ally no clear assurances of support. [fn] Longstanding U.S. policy was that the Mutual Defence Treaty did not cover contested territories in the South China Sea. Hide Footnote Questions accordingly arose among Philippine policymakers and diplomats about the utility of the strategic alliance with the U.S. [fn] “The Treaty was always subject to interpretation”. Crisis Group online interview, former Philippine diplomat, 3 August 2020. Hide Footnote

In August 1995, Beijing and Manila signed a bilateral Code of Conduct to curb tensions in the aftermath of the Mischief Reef incident, though any respite was short-lived. The Chinese naval presence in the disputed areas and bellicose rhetoric from both sides continued to exacerbate tensions and soon highlighted the agreement’s ineffectiveness. In 1997, fishermen from both countries squabbled around Scarborough Shoal. [fn] Scarborough Shoal, known in the Philippines as Bajo de Masinloc, is 220km or 120nm from the Philippine province of Zambales. Hide Footnote President Fidel Ramos’ government responded by seeking a closer partnership with Vietnam and launching a modernisation of the Philippine armed forces. This effort was, however, beset with difficulties due to mismanagement and the impact of the Asian financial crisis on government finances. [fn] Crisis Group online interview, defence analyst, 30 June 2020. Hide Footnote The dispute continued with ebbs and flows from 1998 to 2010, during the presidencies of Joseph Estrada and Gloria Macapagal-Arroyo. [fn] Appendix B describes the various Philippine presidents’ policies in more detail. Hide Footnote

It was Benigno Aquino’s presidency (2010-2016), however, that significantly changed the dispute’s dynamics, particularly after another Scarborough Shoal incident in 2012. Following an altercation between Chinese and Filipino fishermen in the area, the Philippine navy dispatched a ship to arrest the Chinese as poachers. Although Manila later replaced the vessel with a coast guard ship, Beijing retaliated by deploying more naval assets, leading to a month-long standoff. [fn] At the height of the standoff, China banned Philippine banana imports and encouraged its companies to reduce investment in the archipelago. Hide Footnote The U.S. tried to broker a simultaneous withdrawal by both sides, but the verbal agreement Washington struck with a Chinese representative fell through. [fn] Crisis Group Report, Stirring Up the South China Sea (III) , op. cit., p. 16. Hide Footnote While both countries did call their vessels home, the Chinese quickly returned and have occupied the shoal ever since. [fn] Crisis Group online interview, journalist, 24 September 2020. Some observers have suggested that the U.S. did not consider intervening directly in the standoff as it was not an armed conflict and posed no direct threat to U.S. ships. See Humphrey Hawksley, Asian Waters (New York, 2018), p.71. Hide Footnote The incident once again raised uneasy questions in Manila about Washington’s stance despite the Philippines’ status as a U.S. treaty ally. Manila also unsuccessfully appealed to the U.S. for a guarantee of assistance if China used force. [fn] Crisis Group Report, Stirring Up the South China Sea (II) , op. cit., p.9. During the standoff, the U.S. also failed to clarify whether the Mutual Defence Treaty covered the South China Sea. In a speech on the occasion of the 70th anniversary of the alliance in September 2021, Philippine Defence Secretary Delfin Lorenzana recounted that during the standoff, the U.S. “ruled out any robust intervention to assist the Philippines”. “The U.S.-Philippines Mutual Defense Treaty at 70”, Center for Strategic and International Studies (webinar), 8 September 2021. Hide Footnote

As a former Philippine official summed up the doubts: “Our position turned from what we thought was strategic clarity, as a partner and ally, to strategic ambiguity”. [fn] Crisis Group online interview, 1 November 2020. Hide Footnote

B. The 2016 Arbitration Award

As direct negotiation with China on the maritime dispute led nowhere, Aquino pursued the legal option, filing a case challenging China’s territorial claims under Annex VII of the UN Convention on the Law of the Sea (UNCLOS). [fn] The tribunal acknowledged the Philippine effort to seek a resolution through dialogue. “We tried to talk”, a diplomat said. Crisis Group online interview, 18 September 2020. Hide Footnote The Permanent Court of Arbitration hosted the proceedings. Manila resorted to the international tribunal to resolve questions of interpretation bearing on Beijing’s maritime claims, including the validity of claims rooted in historic rights as manifested by the nine-dash line. The Philippine decision to take the legal route reportedly “was like a shock” for Beijing. [fn] Crisis Group online interview, academic, 23 August 2020. ASEAN and most of its member states were conspicuously silent on the arbitration. Though Hanoi supported Manila’s submission, the Philippines was otherwise on its own. Hide Footnote China cancelled several high-level events and summits and issued a travel advisory that diminished tourism in the Philippines. Overall, Beijing’s response was “very disproportionate”, according to a former Philippine official. [fn] Crisis Group online interview, 25 September 2020. Hide Footnote

On 12 July 2016, the Court finally delivered a ruling in the Philippines’ favour. The central finding was that China’s nine-dash line and assertion of “historic rights” have no basis in international law. [fn] As China did not participate in the arbitration, it avoided having to clarify the nine-dash line’s path. Although Vietnam claims the entire Spratlys, it did not object to the award. Hide Footnote The Court declared Scarborough Shoal a traditional fishing ground of Chinese (including from Taiwan), Philippine and Vietnamese fishermen, and ruled that China had violated international law by denying Filipinos access to the area. Importantly, the Court also ruled that no feature in the Spratlys could be legally classified as an island capable of generating an EEZ or a continental shelf. [fn] Crisis Group Report, Competing Visions of International Order in the South China Sea , op. cit., pp. 2-3. Hide Footnote Instead, all features were found to be “rocks” or “low-tide elevations” under UNCLOS. [fn] An important merit of the arbitration was the definition of what constitutes an “island” under international law, particularly the necessity of sustaining human habitation. Hide Footnote A ruling on sovereignty over the Spratlys and their associated maritime zones was, however, outside the tribunal’s jurisdiction. Likewise, territorial sovereignty over Scarborough Shoal remains ambiguous, as both Chinese and Philippine claims persist. [fn] A coastal state’s rights over its EEZ and continental shelf are “sovereign rights” that are not equivalent to sovereignty. Sovereign rights are recognised for the purpose of exploration and exploitation of the living and non-living resources in these areas. Crisis Group correspondence, legal scholar, 9 October 2020. Hide Footnote

Though the ruling did not generate an explicit jurisprudential precedent, as it only binds the Philippines and China, “the practical reality is that the pronouncement of the arbitral tribunal will be difficult to disregard, let alone challenge in any future litigation or negotiated agreement in respect of the South China Sea”. [fn] Crisis Group email correspondence, legal scholar, 25 September 2020. A Philippine government official said: “We do not have control any more, since international law now owns the arbitration. The genie is out of the bottle”. Crisis Group online interview, 18 September 2020. Hide Footnote The award spawned an immense body of literature and became an important reference point in international law.

But while Manila won the legal argument, the Aquino administration appeared to have given little if any thought to the possibility that China might refuse to enforce a ruling that went against its interests. [fn] Crisis Group online interview, South China Sea expert, 14 August 2020. Hide Footnote Beijing did just that, declaring the award “null and void”. An Aquino-era diplomat recalled: “It was a victory in the legal sense. But the question was: how do we implement it?” [fn] Crisis Group online interview, former diplomat, 11 September 2020. Hide Footnote Moreover, as the Philippines had acted independently of the Association of Southeast Asian Nations (ASEAN), which did not support the case for fear of antagonising China, Manila “bore the brunt” of Beijing’s ire. [fn] Crisis Group correspondence, legal scholar, 25 September 2020. ASEAN’s lukewarm support for the Philippines at the time frustrated Manila. Later, Vietnam and Malaysia observed the proceedings. Hanoi submitted a document to the tribunal in late 2014 reiterating its claims and formally opposing the nine-dash line. Hide Footnote Although the Philippines tried to drum up international support for the arbitration in the run-up to the decision, most foreign governments did little to support the ruling beyond lauding the victory of international law. [fn] Australia and Japan gave strong messages of support, but the European Union, for example, was cautious in its phrasing, providing a “soft” statement, according to former Philippine officials. Crisis Group online interview, 4 November 2020. See also Robin Emmott, “EU's statement on South China Sea reflects divisions”, Reuters, 15 July 2016. Hide Footnote Part of the reason lay in the fact that President Rodrigo Duterte took office in June 2016; his administration was much more cautious in encouraging international support and using the victory against China.

III. Enter Duterte

A. the pivot to china.

That Rodrigo Duterte would adopt an idiosyncratic foreign policy was clear from the start of his term in 2016. Inheriting Aquino’s arbitration victory, the Duterte administration noted the achievement but remained ambivalent about pressing its advantage, taking the view that triumphalism would anger Beijing. [fn] Crisis Group Commentary, “ South China Sea Ruling Sweeps Away Diplomatic Ambiguities ”, 19 July 2016. Hide Footnote Some observers agreed it was necessary to shift away from Aquino’s uncompromising stance. “Toning down the rhetoric and calibrating the response was good”, one said. [fn] Crisis Group online interview, Richard Javad Heydarian, academic, 24 September 2020. Hide Footnote But Duterte’s decision not to use the ruling at all led to missed opportunities at generating more robust international support. Instead, Manila gained only sympathy. [fn] Crisis Group online interview, journalist, 24 September 2020. Crisis Group correspondence, legal scholar, 25 September 2020. Hide Footnote

Duterte’s approach owed as much to his lack of foreign policy experience and parochial political style as to his personal dislike of the U.S. Facing U.S. and EU criticism in his administration’s first months on account of his brutal campaign to curb drug trafficking, Duterte moved closer to Beijing. [fn] Many Chinese publications stress that Beijing and Manila “reached consensus on shelving the decision of the South China Sea arbitration”. See, for example, Wu Shicun, “Preventing Confrontation and Conflict in the South China Sea”, China International Strategy Review , vol. 2 (2020), pp. 36-47. Hide Footnote In August 2016, he sent former President Fidel Ramos as special envoy to Hong Kong to set a less confrontational course in the South China Sea dispute. [fn] The Philippine delegation’s counterparts in Beijing were Wu Shicun, president of China’s National Institute for South China Sea Studies, and Fu Ying, China’s former vice foreign minister. Hide Footnote Ramos secured a non-binding communiqué emphasising cooperation and peaceful dispute resolution, with references to equal access for both countries’ fishermen to Scarborough Shoal, prospective cooperation on environmental protection and a long-term vision of demilitarisation in the Sea. [fn] Crisis Group online interview, former Philippine official, 2 November 2020. Ramos supported Aquino’s push for the arbitration, but emphasised as early as January 2013 the need to engage China diplomatically as “it was creating facts on the ground.” See Vitug, Rock Solid , op. cit., p. 162. Hide Footnote

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Notwithstanding the rapprochement with Beijing and his distaste for the U.S., Duterte did not neglect other bilateral ties. He maintained a strong relationship with Japan, a traditional partner in development cooperation, the Philippines’ largest source of foreign direct investment and a supporter of the peace process in the Bangsamoro, the southern region where the government has fought a series of insurgencies. [fn] For background on this peace process, see Crisis Group Asia Reports N°313, Southern Philippines: Keeping Normalisation on Track in the Bangsamoro , 15 April 2021; N°306, Southern Philippines: Tackling Clan Politics in the Bangsamoro , 14 April 2020; and N°301, The Philippines: Militancy and the New Bangsamoro , 27 June 2019. Hide Footnote Under Duterte, Tokyo committed to developing the Philippines’ maritime capabilities, particularly its coast guard. [fn] Crisis Group interviews, Japanese officials, Manila, 21 October 2019. Hide Footnote The president also courted Russia, reflecting his desire to bolster ties with powers beyond the U.S. and China, but with limited success. [fn] Crisis Group online interviews, defence analyst, 30 June 2020; retired diplomat, 23 July 2020. Hide Footnote

A side effect of these new foreign policy initiatives was a slowdown of multilateral efforts in dealing with the South China Sea, particularly the ASEAN-China negotiations over a Code of Conduct to better manage maritime tensions among littoral states. [fn] The idea of a multilateral Code of Conduct stems from developing a clearer and more precise instrument than the 2002 non-binding Declaration between China and the Philippines, which was fairly general. Consultations on the Code have been going on since 2013. Hide Footnote “Duterte spoiled the process”, said a commentator, referring to Manila’s predominantly bilateral engagement with Beijing at the expense of a proactive multilateral approach. [fn] Crisis Group online interview, academic, 9 September 2020. Hide Footnote For Duterte, combining a quest for closer ties with multiple international actors and detente with Beijing was a way to achieve a “safe middle ground” through balancing and accommodation. [fn] Aileen Baviera, “Debating the National Interest in Philippine Relations with China: Economic, Security and Socio-cultural Dimensions”, National Security Review (2017), p. 158. Hide Footnote Distracted by internal challenges, not least the battle in Marawi (a city in the Bangsamoro) that pitted government forces against Islamist militants for five months in 2017, the Philippines did not use its ASEAN chairmanship that year to advance the South China Sea agenda. Hoping to avoid the outright confrontation with Beijing that had occurred under Aquino, Duterte put the thorny issue of territorial disputes on the back burner.

B. A Quiet Sea?

The first months of Duterte’s presidency saw improvements in relations between Beijing and Manila, even though the broader dispute in the South China Sea simmered. China did not occupy further Philippine-claimed features or cause standoffs with coast guard or navy ships, direct confrontations between Philippine and Chinese vessels declined, and Filipinos were even briefly able to fish around Scarborough Shoal thanks to the informal agreement Ramos had secured during his visit to Beijing. [fn] Part of the de-escalation stemmed from a recalibration of maritime forces. While President Duterte continued to support the coast guard build-up that started under Aquino, he encouraged the Philippine navy to be lenient with Chinese fishermen fishing illegally and not to board their boats. See “Gaining Competitive Advantage in the Gray Zone: Response Options for Coercive Aggression Below the Threshold of Major War”, RAND Corporation, 2019, p. 114. Hide Footnote Manila faced issues with another claimant state in 2017, however, after a navy ship used force against a Vietnamese boat in Philippine coastal waters, resulting in the death of two fishermen and the arrest of several more, and leading to a diplomatic crisis with Hanoi. [fn] “Philippines assures Vietnam of ‘fair’ probe into fishermen’s deaths”, Rappler.com, 25 September 2017. Hide Footnote

But even under Duterte, China’s grey zone operations – calibrated actions at sea short of live-fire attacks but intended to coerce opponents – have remained the most serious challenge to Philippine maritime sovereignty. Despite the president’s cooperative stand, Beijing has maintained a consistent maritime presence in the Spratlys and at Scarborough Shoal. [fn] Crisis Group online interview, think-tank analyst, 22 September 2020. Hide Footnote Around Thitu Island, the largest Spratly feature Manila controls, Chinese coast guard vessels and fishing boats – some if not most of which analysts believe to be part of China’s maritime militia – engaged Filipino fishermen in standoffs from 2017 onward. [fn] Officially named the People’s Armed Forces Maritime Militia, this force consists of fishing boats that are supported by the Chinese government with funding and operational guidance, under the navy’s supervision. The maritime militia is particularly known for using grey zone tactics, which involve the use of water cannons, ramming and intimidation of other claimants’ vessels. Nathan Swire, “Water wars”, Lawfare (blog), 5 March 2019. Hide Footnote At Scarborough Shoal, power dynamics are even more uneven: China’s coast guard regulates access to the shoal, often chasing Filipino fishermen away. Manila has dealt with these issues quietly, tackling violations of the informal agreement negotiated by Ramos through diplomatic means. As in the cases described below, it has regularly filed diplomatic protests following such incidents, to which Beijing has often reacted by making minor concessions, halting some of its provocative actions, but not all.

The foreign and defence ministries have often sought to counterbalance Duterte’s stark pro-Beijing stance, and the Philippines has also taken incremental steps to strengthen its maritime position, irritating China. For example, it started repairing facilities at Thitu Island in 2018, after attempting to build new ones in nearby Sandy Cay a year earlier, an initiative that backfired by attracting Chinese vessels that have since remained in the area. [fn] Aquino had refrained from ordering reinforcement or repair of Philippine facilities on the island, assuming that China would use such works against the Philippines. Under Duterte, construction started with repair of a beach ramp. Hide Footnote

The July 2019 Reed Bank incident, in which a Chinese coast guard ship rammed a Philippine fishing vessel, also strained bilateral relations. With the Chinese vessel leaving the scene, the Filipino crew would have perished had Vietnamese fishermen not rescued them. After a joint investigation, Beijing offered a muted apology, but the incident fanned anti-China sentiment in Philippine public opinion. [fn] Crisis Group interviews, diplomat, 29 July 2020; foreign policy expert, 21 October 2019. Hide Footnote In the following months, the relationship soured. When Duterte visited China in September 2019, he raised the 2016 arbitral ruling directly with President Xi Jinping for the first time; he came back without making progress on securing promised Chinese investments, leading observers to speculate that both leaders had left the meeting disappointed. [fn] Crisis Group interview, 24 July 2020. Hide Footnote A few months after the Reed Bank incident, other littoral states also began to adopt more assertive positions toward China. [fn] Crisis Group Report, Competing Visions of International Order in the South China Sea , op. cit. Hide Footnote

Duterte again proved unpredictable when in February 2020 he suddenly ordered the termination of the Visiting Forces Agreement with the U.S., apparently in retaliation for the cancellation of a U.S. visa for Ronald dela Rosa, one of his main political allies and a supporter of his anti-drug campaign. Had it been implemented, the termination, which was to take effect after six months, would have created substantive difficulties for U.S. forces present in the Philippines. [fn] “Philippines’ Duterte tells US he is scrapping troop agreement”, The Guardian , 11 February 2020. The Visiting Forces Agreement is a document laying out details of the Mutual Defence Treaty, stipulating rights and obligations for U.S. service personnel in the Philippines and rules for U.S. access to the country for military exercises and other activities. Without the Agreement, it would be “cumbersome” to make the alliance operational. Crisis Group interview, U.S. official, 21 October 2020. Hide Footnote Chinese experts interpreted the episode as a blow to Washington’s efforts to contain Beijing’s assertiveness in the South China Sea. [fn] Li Kaisheng, “Manila’s termination of military pact will upset US meddling in South China Sea”, Global Times , 13 February 2020. Hide Footnote

Overall, Duterte’s economic pivot to China has had mixed results. [fn] Crisis Group online interviews, economic experts, August and November 2020. Hide Footnote Philippine-Chinese trade ties have grown under his presidency. [fn] So has foreign direct investment, but at a rate lower than in other South East Asian countries. Crisis Group online interview, economist, 28 October 2020. Hide Footnote But China’s Belt and Road Initiative (BRI), which both governments billed as a link to Duterte’s flagship Build, Build, Build program, has not lived up to the initial fanfare. [fn] The Build, Build, Build program is an economic initiative launched under Duterte that aims to boost infrastructure across the Philippines. Hide Footnote The large infrastructure that was envisioned remains unbuilt. As of June 2021, only a handful of smaller BRI projects are under way. [fn] “Chinese investments in the Philippines”, Rappler.com, 15 September 2020. Crisis Group online interviews, academics, 6 and 19 August 2020. Hide Footnote An analyst explained: “Both China and the Philippines oversold their partnership, raising expectations for the Philippine public that were unfulfilled”. [fn] Crisis Group online interview, Alvin Camba, assistant professor, University of Denver, 13 August 2020. Hide Footnote

C. Geopolitics Come Back to the Fore

In the last two years, the geopolitics of the South China Sea dispute have become more pronounced as Beijing has pressed its claims more vigorously and ties between Manila and Washington have strengthened, against the backdrop of the COVID-19 pandemic.

Beyond its devastating health effects on the Philippines’ population, the pandemic also dealt a major blow to the economy, directly affecting the armed forces’ modernisation program. [fn] Michael Toole, “The Philippines passes the 2 million mark as COVID-19 cases surge in Southeast Asia”, The Conversation, 9 September 2021. Hide Footnote Although initial assessments indicated that Manila would proceed with “game changing” acquisitions such as submarines, cruise missiles and more advanced aircraft and ships, procurement has slowed as the government redirects funds to address the pandemic’s effects. [fn] Crisis Group correspondence, sources close to the process, 31 May 2021. Hide Footnote Military modernisation, while supported by the opposition, seems unlikely to make headway before the end of Duterte’s term. [fn] Apart from two Korean-built missile frigates purchased in early 2021, the items that the armed forces are procuring are primarily for counter-insurgency purposes. Hide Footnote

Meanwhile, Manila felt compelled to respond to assertive actions Beijing was taking in the South China Sea. In February 2020, the foreign ministry filed a diplomatic protest after the navy reported that a Chinese warship had shown “hostile intent” by aiming its gun control radar at a Philippine vessel. [fn] Anna Bajo, “Wescom confirms China’s ‘harassment’ vs. Philippine navy vessel in February”, GMA News, 23 April 2020. Hide Footnote In the following months, it also protested the Chinese navy’s confiscation of gear from fishermen around Masinloc, close to Scarborough Shoal, and Beijing’s announcement of new administrative units in the South China Sea. [fn] On 12 April 2020, the State Council of China announced the creation of two new districts under Sansha City prefecture, located on Woody Island in the Paracels. Hide Footnote

More consequentially, on 2 June 2020, the Philippines suspended the Visiting Forces Agreement’s cancellation that it had announced a few months earlier, citing “political and other developments in the region”. [fn] Tweet by Teodoro Locsin, @teddyboylocsin, 6:55pm, 2 June 2020. Hide Footnote The reversal was a clear sign that, while the top leadership emphasised the independence of Manila’s foreign policy, the security apparatus continued to value collaboration with the U.S., particularly as concerns about China’s grey zone infractions raised the spectre of yet more assertive actions by Beijing. [fn] Crisis Group online interview, former military regional commander, 9 September 2020. In mid-July, for instance, the Philippine military renamed its top rank designations in accordance with the U.S. system. Hide Footnote Statements by Philippine officials implied a correlation between the decision and Beijing’s actions in the South China Sea over the preceding month. [fn] Crisis Group online interview, 28 July 2020. See also Sofia Tomacruz, “Duterte halted VFA termination due to South China Sea tensions”, Rappler.com, 22 June 2020; and Darryl Esguerra, “PH envoy to US: COVID-19, South China Sea ‘developments’, reasons not to end VFA”, Inquirer , 3 June 2020. Hide Footnote

Shortly after it had suspended the Agreement’s cancellation, Manila welcomed a statement by U.S. Secretary of State Michael Pompeo that clarified the U.S. position on the South China Sea. Notably, the statement affirmed the 2016 arbitration award and expressed support for “Southeast Asian allies and partners in protecting their sovereign rights to offshore resources”, with specific reference to the Philippines, including Scarborough and Second Thomas Shoals. [fn] “ U.S. Position on Maritime Claims in the South China Sea ”, U.S. Mission to ASEAN, 13 July 2020. Hide Footnote The thaw in U.S-Philippine relations benefited not only from the personal chemistry between Duterte and U.S. President Donald Trump, and concerns about China’s maritime actions, but also from U.S. assistance to contain the coronavirus outbreak in the islands. [fn] Crisis Group interview, Philippine official, 15 November 2020. Hide Footnote

Beijing, meanwhile, took a public relations hit in April 2020, when the Chinese embassy in Manila released a song, along with a music video, as a tribute to front-line workers trying to contain the pandemic in both countries. Filipinos criticised the song on social media for its reference to what the Chinese embassy called cooperation between “friendly neighbours across the sea”, saying China’s behaviour in the dispute belied this rhetoric. [fn] Glee Jalea, “Chinese embassy’s ‘Iisang Dagat’ tribute sparks outrage online”, CNN Philippines, 26 April 2020. Hide Footnote

Beijing’s continued activities also prompted Duterte to temper his hitherto starkly pro-Chinese public statements and instead stress Manila’s distinct position in the South China Sea dispute. [fn] In the last year of Duterte’s term, Manila remains too distracted by the pandemic and other challenges, such as natural disasters and internal conflicts, to formally overhaul its foreign policy. Manila’s unresolved dilemmas were epitomised in the wavering course regarding the anti-COVID-19 vaccination campaign, when Duterte seemed to bet on China and Russia as suppliers. The public and politicians are critical of the Sinovac deal and its perceived low effectiveness, even as Chinese (and Russian) vaccines kept the campaign afloat until the U.S. increased its vaccine shipments. “Roque turns around on finality of Sinovac deal”, Verafiles, 30 January 2021. Hide Footnote In particular, the president highlighted the arbitration award for the first time in front of an international audience at the UN General Assembly in September 2020, saying – without mentioning China – the Philippines “firmly rejects attempts to undermine it”. [fn] Statement of President Rodrigo Roa Duterte during the General Debate of the 75th Session of the UN General Assembly, 22 September 2020. Hide Footnote This unexpected shift led some analysts to believe that Duterte might recommit to the U.S. alliance. [fn] Crisis Group online interview, defence specialist, 2 September 2020. Hide Footnote Another sign of improvement in relations with the U.S. was Manila’s extension of the Visiting Forces Agreement (which it had previously slated for abrogation) for another six months on 11 November 2020 and then a third period on 14 June 2021. [fn] No major changes in the text seemed imminent and both sides were mulling over the inclusion of “implementing guidelines” to clarify ambiguous matters. Crisis Group telephone interview, diplomat, 29 May 2021. Hide Footnote On 30 July, Duterte formally restored the pact after U.S. Defence Secretary Lloyd Austin visited Manila. [fn] Manila and Washington are working on a “supplementary” agreement that is likely to tackle matters of criminal jurisdiction in cases where U.S. servicemen violate Philippine laws. Michael Punongbayan, “VFA addendum to cover US soldiers’ custody”, Philippine Star , 5 August 2021. In the run-up to the announcement, the U.S. also increased its arms sales to the Philippines. “U.S. Military Delivers Php183 Million in New Weapons and Equipment to AFP”, U.S. Embassy in the Philippines, 22 June 2021. On 24 June, the U.S. State Department approved $2.5 billion in sales of F-16 fighter aircraft, missiles and related equipment. Nick Aspinwall, “US clears F-16 sale to Philippines as South China Sea tensions brew”, The Diplomat , 30 June 2021. Hide Footnote

Relations with Washington keep warming with U.S. President Joe Biden in office, as the new administration does not seem to irritate the unpredictable Duterte. Biden’s secretary of state, Antony Blinken, reaffirmed the U.S. commitment to the alliance with the Philippines, reiterating U.S. support in case of armed confrontation in the South China Sea. [fn] Sofia Tomacruz, “New US top diplomat calls Locsin, vows support vs. China ‘pressure’”, Rappler.com, 28 January 2021. Hide Footnote Manila’s foreign secretary, Teodoro Locsin, reciprocated with optimistic remarks about the alliance. [fn] Tweet by Teodoro Locsin, @teddyboylocsin, 8:05am, 28 January 2021. Hide Footnote Joint military exercises have resumed, and the alliance received a further boost when the U.S. Marine Corps commandant, General David Berger, visited Manila in September. [fn] “US Marine Corps chief meets with Philippine counterparts in first visit since 2017”, Philippine Star , 13 September 2021. Hide Footnote

Meanwhile, Manila continues to push back against Beijing. The most prominent assertion of maritime rights in the Duterte era stemmed from Manila’s outspoken criticism of China in the wake of an incident at Whitsun Reef in March 2021. Hundreds of Chinese vessels, including maritime militia boats, massed at this outlier of the Union Banks in the Spratlys. [fn] Researchers identified at least fourteen vessels as belonging to the maritime militia. See “Caught on Camera: Two Dozen Militia Boats at Whitsun Reef Identified”, Asia Maritime Transparency Initiative, 21 April 2021; and Ryan Martinson, “No Ordinary Boats: Cracking the Code on China’s Spratly Maritime Militias”, Center for International Maritime Security, 17 May 2021. Hide Footnote Photos leaked by Philippine authorities provoked widespread public condemnation of the Chinese presence in the Philippines’ claimed EEZ. [fn] Philippine policymakers and commentators looked at Beijing’s move as another step in its protracted strategy to dominate the waters around the Spratlys and the South China Sea as a whole, as well as a test of the Biden administration’s intentions vis-à-vis the dispute. Crisis Group correspondence, South China Sea expert, 21 April 2021. Hide Footnote Manila filed a flurry of diplomatic protests and initiated navy and coast guard patrols and drills in the area. [fn] Philippine patrols coincided with entry of the U.S. Navy’s Theodore Roosevelt carrier strike group into the South China Sea on 4 April, a move that “certainly helped” push the Chinese vessels away from Whitsun Reef, even though the U.S. deployment may not have been a direct consequence of the Reef events. Crisis Group online interviews, 25 April and 5 May 2021. Hide Footnote In early April, Beijing shifted its vessels from Whitsun Reef to other features – a tactical victory for the Philippines, according to some officials, who argue that a “mix of diplomacy and deterrence” mitigated the situation to Manila’s satisfaction. [fn] Crisis Group communication, Philippine navy officer, 3 May 2021. Crisis Group interview, Philippine official, 25 April 2021. China’s vessels roamed the eastern portion of the Spratlys after the incident, approaching other Philippine features and Palawan Island. Frances Mangosing, “Chinese militia vessels spotted at Sabina Shoal off Puerto Princesa”, Inquirer , 5 May 2021. Hide Footnote “China was caught off guard by the backlash”, said a military officer. [fn] Crisis Group online interview, 30 April 2021. Hide Footnote Some observers fear the standoff at Whitsun Reef may be a preview of things to come, with Beijing further asserting itself as the 2022 Philippine presidential election draws near. [fn] Crisis Group online interview, 18 June 2021. The next presidential election is due in May 2022. Crisis Group interview, Philippine official, 30 May 2021. Hide Footnote

Given the warming ties between Manila and Washington, however, China may mull over options besides escalation, even if irritants persist. A recent editorial in the Global Times stated that Duterte had “promised not to harm China’s interest in geopolitics” during a call with Xi Jinping. [fn] “Duterte vows not to harm China’s interest during phone conversation with President Xi”, Global Times , 27 August 2021. Hide Footnote Given the source, which is an official Chinese mouthpiece, this report may indicate that Beijing prefers to avoid further confrontation. [fn] Crisis Group online interview, Philippine official, 10 October 2021. Hide Footnote Nonetheless, another incident occurred at Second Thomas Shoal on 16 November 2021, when two Chinese coast guard ships blocked Philippine boats resupplying a naval detachment at the BRP Sierra Madre , a ship grounded at the shoal in 1999 and manned by Philippine marines. [fn] On President Joseph Estrada’s watch, the Philippines grounded this old U.S. landing craft, which Washington had transferred to the Philippine navy, and stationed a small detachment of marines on board. Regarding the Chinese action, foreign ministry spokesperson Zhao Lijian said that after the Philippine boats “trespassed”, the Chinese coast guard vessels “performed their official duties” and “upheld China’s territorial sovereignty”. “China and Philippines communicating on boat trespassing; sea area remains peaceful: FM”, Global Times , 18 November 2021. Hide Footnote Washington released a statement in support of Manila and again reaffirmed the Mutual Defence Treaty’s vital role for the alliance. [fn] “ On the Situation in the South China Sea ”, press statement, U.S. Department of State, 19 November 2021. Australia, Canada, the European Union, France, Germany and Japan also issued statements of support to the Philippines. Hide Footnote Talks between Beijing and Manila eventually calmed tensions and, after a few days, the Philippine resupply mission resumed. [fn] Crisis Group telephone interview, Philippine official, 21 November 2021. Duterte raised the incident with Xi during the ASEAN-China summit held just a few days after the episode. Mara Cepeda, “In ASEAN summit with China, Duterte ‘abhors’ water cannon attack on PH vessels”, Rappler.com, 22 November 2021. Martin Sadongdong, “Military watchful as resupply mission to Ayungin Shoal resumes”, Manila Bulletin , 22 November 2021. Hide Footnote

IV. Manila’s Approach to Foreign Policy under Duterte: Pillars and Tensions

The Philippines’ strategy toward the South China Sea and other external challenges has in recent years been shaped first and foremost by President Duterte, but other entities, interests and individuals both in and out of government have played important roles, at times appearing to temper the president’s impulsive moves, and balancing some of his efforts to pivot toward Beijing and away from Washington. This has contributed to occasional contradictions in Manila’s South China Sea policy.

A. The President

As the head of state, the Philippine president is commander-in-chief of the armed forces and the country’s main foreign policy decision-maker, supported by his inner circle and advisers. The principle that the Philippines must have an independent foreign policy is enshrined in the Philippine constitution, but the meaning of that requirement is unclear, and each leader interprets it subjectively. [fn] Crisis Group online interview, former diplomat, 11 September 2020. Hide Footnote Therefore, as an academic pointed out, “the South China Sea policy changes with every president”. [fn] Crisis Group online interview, academic, 7 September 2020. Hide Footnote

Duterte’s foreign policy style is highly personalised, with key messages set by the president and his top advisers, none of whom are experts on foreign policy. [fn] Crisis Group interview, Manila, 17 October 2020. Hide Footnote There is no apparent effort to reconcile varying – sometimes even contradictory – ideas within the administration on the South China Sea dispute. The president’s approach is transactional and instinctive – as made evident by his overture to Beijing and brief flirtation with Moscow – and, throughout his presidency, he has seemingly more often reacted to events or acted out of impulse than pursued an articulated strategy. Government departments and agencies interpret his statements, and the handful of policy documents his term has produced, with a level of flexibility, leaving them room for manoeuvre. [fn] Duterte’s statements have occasionally been quite blunt and undiplomatic, leaving officials scrambling to assert that the president had actually meant to say something else. He once announced a “separation” from the U.S. and said the Philippines would be “massacred” if it went to war with China. Hide Footnote

Beijing, for its part, considers Duterte to be its main interlocutor. [fn] Crisis Group online interview, Chinese academic, 25 August 2020. An editorial in the Global Times raised the following point: “It is also worth noting that the Philippine president’s stance is in stark contrast to that of his foreign secretary”. Wang Wenwen, “Leaning on Washington leads to trouble on maritime affairs”, Global Times , 27 August 2020. Hide Footnote Its outreach to Duterte is its biggest asset in its Philippines policy but also its biggest weakness, as it has failed to invest in institutional linkages beyond the president, who is now less than a year away from leaving office. “China does not trust the Philippines strategically”, said an observer. [fn] Crisis Group online interview, Philippine academic, 6 August 2020. Hide Footnote

B. The Diplomats

Former journalist and speechwriter Teodoro Locsin became foreign secretary in October 2018. [fn] Locsin’s term followed short stints by Perfecto Yasay and Alan Peter Cayetano. Hide Footnote Driven by a strong desire to balance the Philippines’ national interest and territorial sovereignty with geopolitical pragmatism, Locsin’s policy has been more assertive toward China than that of his recent predecessors. His loyalty to the president has provided him with some room for manoeuvre.

Locsin’s push for extending the Visiting Forces Agreement past its scheduled cancellation, for example, put him at odds with the president at first, but he eventually prevailed when Duterte agreed to change course. [fn] “Asia Society: Philippines”, Asia Society (webinar), 26 October 2020. Hide Footnote Under Locsin’s leadership, the foreign ministry has filed diplomatic protests with Beijing whenever it is faced with perceived territorial violations in the South China Sea. [fn] “Diplomacy works quietly; protests are one tool”, said a diplomat formerly posted to the Philippines. Crisis Group online interview, 12 August 2020. As of 30 September 2021, the department had filed 211 such protests since Duterte took office, including 153 in 2021 alone. Joyce Rocamora, “72% of PRRD admin’s diplomatic protests vs. China filed in 2021”, Philippine News Agency, 22 October 2021. Hide Footnote At the same time, it has engaged China both multilaterally in the ASEAN Code of Conduct negotiations and one on one through channels such as the Bilateral Consultative Mechanism, a confidence-building measure between the two states launched in 2017 as a result of Duterte’s rapprochement with Beijing.

In 2021, Manila’s complaints about Chinese actions grew more vocal. In January, Secretary Locsin filed a protest after Beijing passed a law giving its coast guard authority to fire at vessels in areas it claims, even if they are in disputed waters. [fn] Christia Ramos, “Philippines protests new China coast guard law”, Inquirer , 27 January 2021. Hide Footnote Locsin then showed particularly strong resolve during the Whitsun Reef incident by publicly criticising Beijing and filing numerous protests. [fn] “Locsin issues expletive-laced tweet over China sea dispute”, Rappler.com, 3 May 2021. Hide Footnote

Lastly, the foreign ministry under Locsin succeeded in settling a longstanding maritime boundary disagreement with Indonesia in 2019 and explored a similar opening with Palau as well as closer cooperation with Vietnam in 2020. [fn] Sofia Tomacruz, “Beyond West Philippine Sea, diplomats defend waters behind the scenes”, Rappler.com, 18 October 2020. Manila and Jakarta have also launched efforts to delineate their continental shelf boundaries. Joyce Rocamora, “PH, Indonesia prepare for delimitation of sea boundaries”, Philippine News Agency, 2 November 2021. Hide Footnote

C. The Military

Traditionally pro-U.S., the Philippine armed forces have sought a delicate balance between Duterte’s sometimes accommodationist rhetoric toward China and their own felt need to protect Philippine sovereignty. [fn] Crisis Group interview, Philippine official, 15 November 2020. On the military’s pro-U.S. stance, see Gregory Winger, “Alliance Embeddedness: Rodrigo Duterte and the Resilience of the US-Philippine Alliance”, Foreign Policy Analysis , vol. 17, no. 3 (2021). Hide Footnote The military is central to Duterte’s domestic agenda of counter-insurgency aimed at defeating communist rebels and stabilising Mindanao. The national defence department thus has enjoyed some leverage in shaping Manila’s relations with Washington and Beijing and its South China Sea strategy. National Defence Secretary Delfin Lorenzana’s rhetoric has been assertive, at times proposing clarifications and interpretations of presidential statements that downplayed Beijing’s maritime actions. While maintaining Duterte’s overall objective of pursuing a policy of “friend to all, enemy to none”, Lorenzana has continued to pay particular attention to longstanding Philippine-U.S. ties. [fn] Lorenzana interpreted the Mutual Defence Treaty differently from Secretary Locsin, highlighting the possibility of the Philippines being entangled by the alliance should a U.S.-China clash occur. “It is not the lack of reassurance that worries me. It is being involved in a war that we do not seek and do not want”. Quoted in Paterno R. Esmaquel II, “Lorenzana-Locsin clash over Mutual Defence Treaty heats up”, Rappler.com, 5 March 2019. Hide Footnote

The armed forces are well aware of Manila’s dilemma in needing both to assert sovereign rights and nurture the relationship with China. “We are trying to show the flag as much as possible and conduct maritime patrols”, said a former military officer who is now a civilian official. [fn] Crisis Group online interview, 9 September 2020. Hide Footnote Defence officials tend to steer clear of controversial issues to avoid contradicting the commander-in-chief, but many feel the assertion of maritime rights does not really clash with the president’s approach to China policy. An officer said of Duterte: “He is hedging”. [fn] Crisis Group online interview, military officer, 30 April 2021. Hide Footnote

Against this backdrop, the military is increasingly less hesitant to follow up words with action. [fn] Frances Mangosing, “AFP eyes logistics hub in Pagasa island for uninterrupted WPS patrols”, Inquirer , 4 May 2021. Hide Footnote In response to the Whitsun Reef incident, for example, the Philippine navy repeatedly dispatched vessels to conduct patrols. [fn] Andrea Calonzo, “Philippines sends more ships to reef targeted by China”, Bloomberg, 13 April 2021. Between 1 March and 25 May, Philippine vessels patrolled the contested areas at least 57 times, according to data from the Asia Maritime Transparency Initiative. Hide Footnote The Western and Northern Commands, which respectively cover Palawan Island and Luzon and are jointly responsible for the West Philippine Sea, are developing greater capabilities as part of the armed forces’ overall modernisation. [fn] Crisis Group interview, military officer, 17 October 2020. These regional units consist of all three services – army, navy and air force – and are directly under the command of the armed forces chief. Hide Footnote For now, however, the shift to external defence as a strategic objective is aspirational, as domestic counter-insurgency remains paramount in the government’s view. [fn] Crisis Group online interview, Lieutentant General Cirilito Sobejana, former chief of the Philippine army, 17 September 2020. Hide Footnote

D. Other Security Actors

Headed by the chief of the National Security Council, former armed forces chief Hermogenes Esperon, the Task Force on the West Philippine Sea deals with maritime disputes, strategies related to the Philippine claims and their impact on relations with China and other claimants. While the Task Force tried, with some success, to play a coordinating role under Aquino, it has been less active under President Duterte. [fn] Crisis Group correspondence, former official, 16 November 2020. See Appendix B. Hide Footnote Nevertheless, its mandate complicates the bureaucratic architecture dealing with the South China Sea, occasionally resulting in uncertainty as to different agencies’ responsibilities in shaping policy. [fn] Crisis Group interviews, experts, 15 October 2020 and 18 May 2021; navy officer, 12 August 2020. During the Whitsun Reef incident and its aftermath, the Task Force played a key role in providing regular updates on China’s movements in the Spratlys, close to Philippine-claimed features. Hide Footnote

Another security actor, the coast guard, is on the front line warding off Chinese incursions and thus plays a major role in the maritime dispute. It patrols maritime areas, focusing on law enforcement around Palawan and supply runs to its detachment on Thitu Island in the Spratlys. The coast guard, like the navy, favours “calibrated” responses to incidents at sea, focusing on maritime patrols by a few assets rather than deploying large groups of vessels. [fn] Coast Guard Commandant Admiral George Ursabia, quoted in “Conceptualizing Archipelagic Security: Prospects for a Robust Philippine Maritime Response”, Office of Naval Strategic Studies (webinar), 19 May 2021. Hide Footnote While the two services are traditional rivals, a more cooperative relationship is evident in the Duterte era, partly thanks to personal ties between commanders. [fn] Crisis Group online interviews, coast guard officer, 21 October 2020; military official, 15 November 2020. Since the Philippine navy is not large, its functions are sometimes taken over by the coast guard, including patrols near disputed features as well as supply of Philippine-occupied features. Nonetheless, naval ships also patrol the South China Sea. Hide Footnote Duterte has also scaled up relations with Beijing through “coast guard diplomacy”, for example though a joint coast guard committee and relatively frequent bilateral exchanges. [fn] J.C. Gotinga, “China coast guard ship arrives in Manila for ‘friendly visit’”, Rappler.com, 13 January 2020. Duterte has followed Aquino’s path in boosting the coast guard’s capacities. See also Jay Tristan Tarriela, “Duterte’s coast guard diplomacy”, The Diplomat , 23 December 2019. Hide Footnote

The coast guard is also integrated into the National Coast Watch System, an inter-agency mechanism, established under President Aquino and staffed by former navy and coast guard personnel, responsible for maritime security operations across the Philippines. The mechanism is supported by the U.S. and Japan, underscoring Manila’s pragmatism in drawing support from various sources to boost its maritime law enforcement.

E. Political and Economic Elites

Thanks to the Philippines’ strategic partnership and close cultural ties with the U.S., the majority of the country’s political elite remains pro-U.S. at heart. Most politicians, however, also initially supported, or at least did not criticise, President Duterte’s pragmatic approach to Beijing. [fn] As the 2022 presidential election draws near, however, criticism is growing. Some of the presidential candidates have been questioning Duterte’s approach. See “Philippine president spars with Pacquiao over South China Sea”, Reuters, 9 June 2021. Hide Footnote A long-time political observer remarked: “Politicians are pragmatic about China. If it’s about [receiving] support, they will accept it”. [fn] Crisis Group online interview, political analyst, 28 September 2020. Several communiqués attest to links between Duterte’s party PDP-Laban and the Nacionalista Party, on the Philippine side, and the Chinese Communist Party. Beijing also looks upon presidential candidate Ferdinand “Bongbong” Marcos Jr. favourably, attributing to him a “pragmatic attitude” toward China. Li Kaisheng, “The US has fewer cards to stir up trouble for China in ASEAN”, Global Times , 21 November 2021. Hide Footnote

Local elites in coastal areas bordering the South China Sea are cognisant of maritime challenges and territorial disputes, but leave these matters to the national government. [fn] Crisis Group correspondence, political analyst, 5 October 2020. Hide Footnote Politicians in Luzon provinces such as Pangasinan, La Union and Zambales, as well the “last frontier” province of Palawan, are exclusively focused on local politics. [fn] Crisis Group online interviews, maritime analysts, 15 August 2020. Most of these provinces are peaceful, other than minor incidents of communist insurgency. Hide Footnote They may have different perspectives on foreign affairs, but “no one fights Manila in that respect”. [fn] Crisis Group online interviews, think-tank analyst, 22 September 2020; local journalist, Palawan, 23 October 2020. Hide Footnote

Business and economic elites, on the other hand, are forthcoming in expressing their foreign policy preferences. Some of the prominent families who play an important role in the national economy embraced the pivot to Beijing – without commenting on the foreign policy dimension – since it offered a potential quick infusion of capital. For example, the Davao-based entrepreneur Dennis Uy and other businessmen, including political players in previous administrations, served as go-betweens for Duterte’s opening to Beijing and subsequently benefited from contracts related to Chinese investments. [fn] Crisis Group interviews, foreign policy expert, Makati, 21 October 2019; Alvin Camba, assistant professor, University of Denver, 13 August 2020. Hide Footnote

Some experts pointedly wonder whether Beijing’s economic largesse in the Philippines hinges on Manila’s accommodation of its claims in the South China Sea. [fn] Alvin Camba and Janica Magat, “How Do Chinese Investors Respond to Territorial Disputes? Evidence from the Philippines and Implications on Economic Strategy”, Singapore Economic Review , 2019. Crisis Group online interview, academic, 6 August 2020. Hide Footnote Chinese analysts and academics often point to Manila’s “friendly attitude”, and de-escalation in the Sea in particular, as preconditions for cooperation. [fn] “Continuous Concerns in Philippines-China Relations in the Post-COVID-19 Period”, Philippine Association for Chinese Studies (webinar), 6 November 2020. Hide Footnote Against this backdrop, some Chinese investments in the Philippines have come under scrutiny for their national security implications. [fn] Two cases are noteworthy. One venture was the proposed development of Sangley airport in Cavite, south of Manila, that was supposed to involve a Chinese contracting company. While the local government was eager, the Philippine navy raised national security concerns, prompting Cavite’s governor to cancel the deal. Another Chinese investor, Dito Telecom, partially owned by China Telecom, won a lucrative contract to build an extensive network of communication towers, including in military camps, that raised anxiety about espionage. The government stayed firm in its commitment and the company is rolling out the telecommunication services, albeit slowly. Hide Footnote

F. Public Opinion

Opinion polls consistently indicate that the Philippine public is sceptical of China, which it increasingly perceives as a regional hegemon that uses bullying tactics and lacks sensitivity toward the archipelago. [fn] See, for example, “ Social Weather Stations Survey July 3-6 2020 ”, Social Weather Stations, 19 July 2020; “ Digital Sentiments on US-China Competition ”, WR Numero Research, 28 August 2020. Hide Footnote Two main factors seem to have contributed to this negative image over the last few years: first, the repeated maritime incidents in the South China Sea; and secondly, Chinese online gambling operations concentrated in Manila. In 2016, Chinese firms emerged in the Philippines to offer online casino services to customers in China, where gambling is banned. While these services help boost the local economy by providing employment, they have a poor reputation as some Chinese operators are allegedly involved in illegal or unsavoury activities. [fn] Crisis Group online interview, analyst, 12 August 2020; Crisis Group correspondence, Teresita Ang See, social activist and academic, 27 October 2020. Philippine authorities arrested and deported hundreds of Chinese over the last few years. “342 Chinese POGO workers without visas set to be deported”, Rappler.com, 20 December 2019; “Philippine police arrest 90 Chinese for illegal gambling”, The Associated Press, 31 May 2020. Online gambling firms are supposed to pay taxes but transparency is lacking. “You [the government] get something, but you do not know how much it is”. Crisis Group interview, Alvin Camba, assistant professor, University of Denver, 13 August 2020. Hide Footnote Opposition politicians, for example Senator Risa Hontiveros, have lambasted the gambling firms using rhetoric that conflates Duterte’s responses to gambling and his responses to Chinese maritime assertiveness, indirectly pressuring the government to rein in the firms. [fn] Aika Rey, “‘China owes us over P200 billion in West Philippine Sea damage’ – Hontiveros”, Rappler.com, 22 April 2020. On 23 September 2021, Duterte signed a law that would streamline taxation of online casinos. Hide Footnote

The maritime dispute and broader relations with China are unlikely to decisively shape the 2022 presidential election, but their emotional impact on voters, coupled with more immediate concerns such as economic hardships arising from the pandemic, could play a role. [fn] Crisis Group online interview, political analyst, 28 September 2020. Hide Footnote Given how prominently the South China Sea dispute has figured in public debates throughout 2021, critics of the president running for office in 2022 might try to score some political points by arguing that the administration’s China policy has been a failure. [fn] Crisis Group online interview, political analyst, 22 September 2020. Likewise, the opposition and some analysts fear a “Manchurian candidate” who would be China-backed. Alain Robles and Raissa Robles, “The Manchurian candidate: Why China’s interest in the Philippine election is under scrutiny as Duterte prepares to leave office”, South China Morning Post , 20 November 2021. There is no sign of direct interference yet, but in the past China-based online networks have used fake Facebook accounts to post positive opinions of the Duterte administration. Jessica Fenol, “Facebook removes China-based, PH military and police-linked networks for ‘coordinated inauthentic behavior’”, ABS-CBN News, 23 September 2020. Hide Footnote

V. Substantive Issues

President Duterte’s strategy to de-escalate maritime disputes with China started out rather well, fostering agreements on fisheries in Scarborough Shoal and resource exploration close to Reed Bank and Palawan. Over time, however, old problems have resurfaced. Seen from Manila, the South China Sea situation looks increasingly like a long-term stalemate.

A. Territorial Disputes

1. scarborough shoal.

Filipinos, fishermen and sailors alike, have regularly reported arbitrary acts – such as confiscation of catches or fishing equipment – by Beijing’s ships at the shoal in the last few years. [fn] Crisis Group interviews, October-November 2020. Hide Footnote At first, after the 2016 arbitral decision and the beginning of Duterte’s term, China permitted Filipinos to fish at Scarborough, but since then it has equivocated. [fn] In March 2017, reports cited local Chinese officials who seemed to be planning a build-up of environmental monitoring stations on Scarborough. Jesse Johnson, “China planning ‘monitoring station’ on hotly contested South China Sea shoal”, Japan Times , 17 March 2017. No such station has been built. Hide Footnote The informal agreement between Duterte’s envoy and Beijing was verbal, and its interpretation seems contingent on Chinese coast guard personnel’s “mood”. [fn] Crisis Group online interview, official, 10 November 2020; journalists, 4 and 17 November 2020. According to the former Philippine naval chief, Giovanni Bacordo, the shoal is regularly guarded by a few coast guard vessels along with three fishing vessels. Quoted in “Online Forum with Philippine Navy’s FOIC Vice Admiral Bacordo”, Foreign Correspondents Association of the Philippines (webinar), 9 August 2020. Hide Footnote

Both sides feel entitled to Scarborough, which the Philippines calls Bajo de Masinloc. From China’s perspective, control over the shoal would complete a maritime triangle extending to the Spratlys and Paracels, providing it with a strategic edge. [fn] China’s bases in the Spratlys and on Woody Island in the Paracels are the other points of the triangle. See also Jay Batongbacal, “Scarborough Shoal: A Red Line?”, Asia Maritime Transparency Initiative, 25 April 2016. Hide Footnote Dominating that area, and building a base on Scarborough, could even facilitate a Chinese declaration of an Air Defence Identification Zone over the South China Sea. [fn] Crisis Group online interview, 1 November 2020. Talk of establishing an Air Defence Identification Zone over the South China Sea has been going on for years, gaining traction in 2020. China already established such a zone in the East China Sea. Hide Footnote It would likely use the creation of such a zone to unilaterally impose directives on flights entering it. This would be a way for China to show its strength and perhaps to bolster its claims to the area. [fn] Alexander Vuving, “Will China Set Up an Air Defense Identification Zone in the South China Sea?”, The National Interest , 5 June 2020. Hide Footnote Defence Secretary Lorenzana identified the “prospect” of this scenario as contributing to regional tensions. [fn] “The U.S.-Philippines Mutual Defense Treaty at 70”, op. cit. Hide Footnote

For Filipinos, fishing in Bajo de Masinloc has been a traditional occupation for centuries. [fn] Traditionally, the reefs and rocks around the shoal were a fishing ground for fishermen from China, Taiwan, Vietnam as well. The fishermen from various countries regularly traded with one another. Crisis Group online interview, academic, 12 August 2020. Hide Footnote According to local government data, around 4,000 Masinloc residents on the mainland work in the fishing industry, with 500 to 800 small-scale boats and fifteen to twenty large commercial vessels registered. [fn] Crisis Group interview, village official, Masinloc, October 2020. Hide Footnote Before the conflict, hundreds of men from Masinloc fished near Scarborough, with dozens of deep-sea fishing boats regularly venturing out to the shoal. [fn] Crisis Group interviews, fishermen, Masinloc, 2020. Hide Footnote

While there is no formal prohibition, most Filipinos now avoid going there. Larger fishing boats are blocked from entering the lagoon by the Chinese coast guard, while the combination of a fourteen-hour journey and the risk of encountering hostile Chinese vessels outweighs the economic benefits for small-boat operators. [fn] Access to the lagoon by larger boats is prohibited by Chinese vessels that occasionally permit smaller boats to enter. Hide Footnote “Now, we just fish nearby, in the northern tip of Zambales”, explained one fisherman, recalling how the Chinese had told him he could not fish in the area on his last trip there in 2017. [fn] Crisis Group interview, fisherman, Masinloc, October 2020. Hide Footnote Another fisherman, however, recounted a more positive experience: in 2018, he was able to fish in the lagoon and traded his catch for noodles from the Chinese. [fn] Crisis Group online communication, 8 December 2020. Hide Footnote

The economic impact of being cut off from traditional fishing grounds is visible in Masinloc. Fishing remains the main livelihood, but while some fishermen have been able to keep plying their trade in more accessible waters, others have had to seek lower-paying work as labourers or tricycle drivers. [fn] Crisis Group interview, academic, 12 August 2020. Wives of fishermen whose livelihood had been affected even prior to the standoff often left the Philippines to work abroad. Hide Footnote One fisherman explained: “When Scarborough fishing was great, I could even save some money; but now, what I earn is just enough for our daily needs”. [fn] Crisis Group interview, fisherman, Masinloc, October 2020. Hide Footnote

2. The Spratlys

The Philippines asserts that it enjoys “effective occupation” – a concept that policymakers use to underline their claim to the islets strategically and legally – over nine features in the Spratlys, including Thitu Island. [fn] Crisis Group interview, military officer, Manila, 17 October 2020. Under international law, “effective occupation” enables acquisition of territory. A Philippine representative to the UN Seabed Committee in 1972 used the term to reiterate Manila’s claim. See Marwyn Samuels, Contest for the South China Sea (Abingdon, 2005), pp. 90-91. Hide Footnote Manila insists on regular patrols to “not let up the claim”, but remains careful to demonstrate restraint. [fn] Crisis Group online interview, navy officer, 30 July 2020. Hide Footnote Patrols circle Philippine-owned features within a twelve-mile radius and avoid passing through other international and disputed waters so as not to provoke China’s ire. Military personnel, responsible for maritime surveillance, rotate through the garrisons on the nine occupied features. Despite occasional provocations by Chinese vessels, Manila avoids actions that could cause disproportionate retaliation on the Scarborough model. In the words of the Philippine naval chief: “We are guided by the rule of law, and we want to maintain the moral high ground”. [fn] “Online Forum with Philippine Navy’s FOIC Vice Admiral Bacordo”, op. cit. Hide Footnote

Chinese fishermen, maritime militia boats and coast guard vessels roam the area, and the navy is often “around the corner”. [fn] Crisis Group interview, military officer, 16 October 2020. Hide Footnote Officials, however, highlight that although irritants remain, they have achieved a modus vivendi with the Chinese under Duterte, albeit by accepting a certain level of Chinese interference. [fn] Crisis Group online interviews, 10 November 2020 and 24 April 2021. Hide Footnote For example, while Manila often tolerates Chinese vessels’ massing or “swarming” close to Philippine features, it considers acts of maritime interdiction, such as supply blockades, as violations of the status quo that warrant official protests. [fn] Crisis Group online interview, 25 April 2021. Hide Footnote

Located outside the Philippine EEZ, Thitu Island is the only permanently inhabited islet among the features Manila controls, just 18km from China’s base at Subi Reef. Some 200 people live on the 37-hectare rock, including navy and air force personnel. Rudimentary facilities and difficult access to the main island of Palawan make everyday life challenging. [fn] Crisis Group online interview, civil society leader, 13 October 2020. There is no hospital on Thitu island. Hide Footnote Most of the residents are fishermen who migrated from Palawan over the years, motivated by patriotism and the promise of government subsidies. [fn] Sebastian Strangio, In the Dragon’s Shadow: Southeast Asia in the Chinese Century (New Haven, 2020), p. 261. Hide Footnote

In 2017, Thitu fishermen found themselves on the front line of the maritime dispute. Regularly thwarted by water cannons from Chinese vessels, they had to withdraw several nautical miles from productive fishing grounds to the safety of Thitu’s shallow reefs. [fn] Crisis Group interview, researcher, 30 September 2020. By some accounts, the Chinese coast guard was particularly firm with Filipinos in areas rich with fish. The standard procedure involved a siren or alarm warning, followed by use of water cannons and finally the “chase”. Occasionally, instructions are broadcast in Mandarin. Dylan Michael Beatty, unpublished manuscript. Hide Footnote While municipal authorities, prior to 2016, had often been keen to showcase the plight of Thitu’s inhabitants to the world, they adapted to new realities under Duterte. [fn] The outspoken mayor of Kalayaan, Eugenio Bito-On, was a source for many international and national news outlets. He lost the 2016 election to Roberto del Mundo. Since then, the municipality has been low-key in its public relations. Hide Footnote The newly elected local government has been less eager to publicise issues related to Thitu and Chinese vessels. [fn] The Palawan-based Western Mindanao Command became also more cautious about reporting Chinese intrusions. Crisis Group online interview, journalist, 23 October 2020. Hide Footnote

In 2017, the Bureau of Fisheries and Aquatic Resources funded the relocation of some 50 Palawan fishermen to Thitu Island. [fn] Michael Fabynyi, “Maritime Disputes and Seafood Regimes: A Broader Perspective on Fishing and the Philippines-China Relationship”, Globalisations , vol. 17, no. 1 (2020), p. 151. Hide Footnote While the move represented a potentially controversial assertion of sovereignty, it did not seem to be part of a wider strategy, and may even have been a unilateral decision by the Bureau. The fishermen, however, faced difficulties selling their catch, and ended up supplying local soldiers, making the enterprise a partial success at best.

In August 2017, the Philippine military tried to pre-empt Chinese occupation of Sandy Cay, a set of sandbars between Thitu and the Chinese-held Subi Reef, by building fishermen’s shelters, thereby flouting the 2002 Declaration of Conduct between China and ASEAN. [fn] Adopted in November 2002, the Declaration on the Conduct of Parties is a non-binding document spelling out principles for states’ behaviour pending a full-fledged Code of Conduct for the South China Sea. With the code still under negotiation, claimant states occasionally refer to the Declaration when involved in maritime incidents. Hide Footnote Beijing’s deployment of a navy ship and a coast guard vessel to the area eventually persuaded Manila to withdraw, illustrating the Chinese modus operandi : using a Philippine move as a pretext for what most observers perceive as a disproportionate response. Since then, the feature appears to be unoccupied, though the Chinese maintain a presence in its vicinity. [fn] “Online Forum with Philippine Navy’s FOIC Vice Admiral Bacordo”, op. cit. Hide Footnote The tacit agreement seems to be to stick to the status quo. [fn] Beijing seems unconcerned with construction and repair work on Thitu Island, unlike on Sandy Cay. Crisis Group online interviews, maritime expert, 28 July 2020; source close to the Philippine side, 25 April 2021. Hide Footnote

Another Philippine concern in the Spratlys is Second Thomas Shoal. In both 2018 and 2019, Chinese vessels disrupted Philippine resupply missions to the grounded BRP Sierra Madre . Beijing’s manoeuvres stemmed from the perception that Philippine forces would fortify or rebuild the Sierra Madre , which China maintains is on the shoal illegally. Manila stood its ground, and in the end reached an arrangement with Beijing, permitting resupply operations to continue. [fn] Beijing has protested the Philippine ship’s presence since 1999, and its efforts to force Manila to withdraw from Second Thomas Shoal are likely to continue. Any perceived attempt by the Philippines to go beyond mere resupply is bound to bring a Chinese reaction. Crisis Group interview, Philippine navy officer, 30 October 2020. Hide Footnote Still, policymakers consider it a potential flashpoint in the Spratlys, as any attempt by Manila to replace or refurbish the ship would most likely trigger a Chinese reaction. [fn] Crisis Group online interview, 10 October 2021. Hide Footnote It is not fully clear what prompted Beijing to once again block the resupply in 2021, but Philippine sources have cited two possible factors: yet another Chinese misperception of Manila’s intentions or an effort to enforce the coast guard law. [fn] Crisis Group interviews, Philippine officials and analysts, 18, 21 and 22 November 2021. Hide Footnote

B. Declining Fish Stocks

A major long-term problem for the Philippines is the depletion of fish stocks in the South China Sea. Fishing grounds in the Sea have been likened to “cowboy country”, where players competing with no regulation create a “free-for-all”. [fn] Crisis Group online interview, maritime specialist, 2 November 2020. Two thirds of the fishing in the South China Sea is said to occur around the Spratlys. Crisis Group online interview, biologist, 20 August 2020. Hide Footnote Fishing vessels from China, Vietnam and Taiwan all ply their trade within the Philippine EEZ. [fn] Crisis Group online interview, academic, 5 August 2020. Hide Footnote The level of overfishing is such that fish stocks in the region seem vulnerable to collapse if resource mismanagement continues. [fn] See U. Rashid Sumaila and William Cheung, “Boom or Bust: The Future of Fish in the South China Sea”, University of British Columbia, 2015. The Philippines has less fishing capacity than other littoral states. Crisis Group online interview, former Philippine official, 25 September 2020. Hide Footnote Some statistics point to fish stocks potentially declining up to 59 per cent by 2045 due to the combination of overfishing and climate change.

The maritime dispute causes two main problems for Philippine fishing: first, overlapping claims mean more fishing boats competing for limited resources; and secondly, foreign vessels intimidate local fishermen, who prefer to avoid trouble. [fn] In the Philippines, there are two fisheries sectors: small-scale and artisanal fishermen, on one hand, and larger commercial enterprises, on the other. The former do not venture beyond the 15km limit of municipal waters, while the latter go farther, some out to the open sea. Only larger boats can reach Palawan and the Spratlys. There are cases of Filipinos poaching in neighbouring countries’ EEZs (particularly Indonesia’s), but the absence of state subsidies for high-sea fishing keeps many fishermen close to shore. Hide Footnote

These patterns affect different areas differently. In Palawan, fishermen do not go beyond municipal waters and are thus hardly affected by the dispute. [fn] Overfishing in the province remains a problem, which has led to a fishing ban for some species in north-eastern Palawan and efforts to declare marine protected areas in some coastal towns. Moreover, some municipalities, such as Cuyo, Coron and Busuanga, regularly experience encroachment by commercial interests in their waters, according to statistics compiled by the NGO Oceana. Crisis Group online interview, 16 November 2020. Another concern in Palawan is the live reef fish trade that spurs fishermen to sell samples of rare species to regional and global customers. Hide Footnote The situation is more complicated in the Spratlys. Commercial fishing companies reported a drop in their catches in the area as early as 2013. While local fishermen corroborated this observation, Filipino scientists found that coral reef fish assemblage around Thitu Island was actually increasing – a positive sign given the importance of such fish for stocks and maritime ecosystems. [fn] “Biodiversity and Ecological Connectivity”, DENR-Biodiversity Bureau (webinar), 23 September 2020. Aileen Baviera, “Territorial and Maritime Disputes in the West Philippine Sea: Foreign Policy Choices and Their Impact on Domestic Stakeholders”, Public Policy , vol. 15, no. 2 (2016), p. 26. Hide Footnote Fish species abundance decreased, however, in Nansha and Flat Islands, two nearby Philippine-occupied features. [fn] “Biodiversity and Ecological Connectivity”, op. cit. Anecdotal evidence from a scientific expedition to both shoals and in the vicinity of Sabina Shoal suggests that Vietnamese and Chinese fishermen were present. Crisis Group correspondence, scientist, 10 November 2020. Hide Footnote In other areas, such as the Lingayen Gulf in Pangasinan province, decreasing stock seems to be the result of local – sometimes illegal – overfishing rather than maritime disputes farther out to sea. [fn] Crisis Group online interview, community worker, 19 October 2020. Hide Footnote “It is hard to convince the fishermen to act sustainably”, said the wife of a fisherman from a coastal town. [fn] Crisis Group online interview, community worker, 19 October 2020. Some villages in La Union, for example, have not been affected due to proactive local government measures such as the creation of marine protected areas. Crisis Group telephone interview, local government official, 4 September 2020. Hide Footnote Local government officials also noted the adverse impact of climate change on fisheries. [fn] Crisis Group online interview, local government official, 9 October 2020. Hide Footnote

Scarborough Shoal is another matter because of its significance as a traditional fishing ground at the heart of the maritime dispute. Fishermen operating there reported a significant drop in catches in 2020. [fn] Zambales fisherfolk reported an average 70 per cent income drop. Karl Ocampo, “Group: Fisherfolk income down by 70% amid Chinese presence in disputed waters”, Inquirer , 28 May 2021. Hide Footnote Their explanations included the presence of too many Filipino fishermen, unsustainable fishing methods (such as the use of dynamite), migration of fish stocks and the overwhelming presence of Chinese fishing boats since the 2012 standoff. [fn] In 2019, Duterte was rumoured to have concluded a “verbal” fishing deal with Xi Jinping that would allow China to fish in Philippine waters. Almost two years later, shortly after the Whitsun Reef incident, the president’s office clarified that there was no such agreement. “Malacañang backtracks on Duterte’s ‘verbal fishing deal’ with China”, Verafiles, 24 April 2021. Hide Footnote A fisherman who works mostly in municipal waters said: “It seems there are fewer fish to catch. This morning, I came home with just 5kg. Before, I used to catch 20kg in one night”. [fn] Crisis Group interview, local fishermen, Masinloc, October 2020. Hide Footnote Others, however, acknowledged the seasonality of fishing success.

In the absence of detailed research, the exact causes and extent of fish stock depletion in the Philippine EEZ and beyond are undetermined. [fn] Jonathan Anticamara and Kevin Go, “Spatio-Temporal Declines in Philippine Fisheries and Its Implications to Coastal Municipal Fishers’ Catch and Income”, Frontiers in Marine Science , vol. 3 (March 2016). Hide Footnote While all littoral states inevitably bear some responsibility, industrial fleets from China, Vietnam and Taiwan likely play a bigger role. Illegal, unreported and unregulated fishing by both foreign and local actors is a severe challenge for coastal communities. [fn] Navotas, the capital of fishing in metropolitan Manila and home to the largest fish market in the country, felt the effects of overfishing, too. Crisis Group online interviews, local government officials and community workers, 21 September, 19 October and 27 October 2020. Hide Footnote According to a scientist, “it is a mix of everything: unregulated and illegal fishing, lower recruits, reduced stock, loss of connectivity”. [fn] Recruitment refers to juvenile fish surviving to enter an adult fish population. Connectivity refers to linkages between local marine populations. Crisis Group online interview, Deo Florence Onda, professor, Marine Science Institute, University of the Philippines, 9 October 2020. Hide Footnote Calculating the losses the Philippines is incurring in its EEZ due to foreign vessels’ overfishing and other factors – locals’ illegal fishing and Chinese land reclamation, for instance – requires a detailed study. [fn] At present, only estimates are available. Ibid. Hide Footnote Access to some of the areas concerned, however, remains a major hurdle due to the maritime dispute.

The plight of fisheries in the South China Sea cannot be separated from the state of the environment, as independent experts confirmed in the course of the 2016 arbitration proceedings. Indeed, the tribunal stated that the impact of Chinese land reclamation in the Spratlys between 2013 and 2015, and the illegal harvesting of protected species such as turtles and clams, sometimes through local middlemen, had led the maritime ecosystem to deteriorate. [fn] Official Chinese communications on the land reclamation attempted to explain protection measures taken during the construction. Most subject matter experts, however, are sceptical of both mitigation measures and efforts to reverse the damage. Hide Footnote The pressure on habitats is likely to have adverse effects upon fish abundance. [fn] For example, clam poaching has led to the destruction of coral reefs, which are critical to fish mobility and are a source of food for some species. Hide Footnote

Co-management of resources in tense waters is challenging, particularly when political considerations supersede the need for cooperation. While there have been modest efforts to foster scientific exchanges in the region, these may only work as long as technical issues do not impinge on perceived sovereignty. Lamenting the impact of politics on technical cooperation, a scientist involved underlined that any kind of collaboration on fisheries requires governments themselves to throw their support behind – or at least give their blessing to – such efforts. [fn] Crisis Group online interview, biologist, 20 August 2020. Regional initiatives to boost fisheries cooperation has been often aspirational and focused largely on exchanges between scientists, often driven by NGOs. Hide Footnote Without a regional blueprint, unilateral initiatives by individual claimant states, such as declaring marine protected areas in territorial waters, will inevitably fall short of expectations.

Cooperation among the littoral states to tackle overfishing across the region is urgently required. Exchanges between scientists and data gathering are undoubtedly a small step in the right direction, even if access challenges are a complication. [fn] Angaindrankumar Gnanasagaran, “Fishy business in the South China Sea”, ASEAN Post , 22 July 2018. Hide Footnote But more effort and political capital should be invested by the Philippines and other littoral states to kickstart genuine technical cooperation between claimants, for example through regular meetings, workshops, joint review of scientific surveys and scenario analysis for fish stocks.

C. Oil and Gas

Although the exact quantities are unknown, the South China Sea is said to sit atop vast oil and gas reserves. With the Philippines presently importing oil and gas, and the major Malampaya gas field expected to run out within a few years, finding new energy sources is a high priority for policymakers. [fn] Operated by a consortium comprising the Philippine National Oil Company, Chevron and Shell (which sold its stake to a Philippine company, Udenna, in May 2021 in a deal under Philippine Energy Department review), reserves at the Malampaya gas field, north west of Palawan island, are likely to run out in 2026 or 2027. Crisis Group online interviews, Philippine official, 14 September 2020; South China Sea expert, 23 September 2020. Hide Footnote Gaining access to additional energy resources in its EEZ could have a “sizeable impact” on the Philippines’ economy, despite the relatively high cost of offshore hydrocarbon extraction. [fn] Bill Hayton, The South China Sea: The Struggle for Power in Asia (New Haven, 2014), p. 149. Hide Footnote Manila, however, has limited capacity to exploit the reserves on its own, and complications associated with the littoral dispute tend to keep multinational companies away.

China could thus be a logical partner for such ventures. Talks have been under way for years, but collaborative exploration and development of hydrocarbons has been repeatedly frustrated amid recurrent episodes of friction. Previous attempts by the Philippines to explore reserves in its EEZ resulted in a strong reaction from Beijing, signalling Manila that the exercise would be fraught. [fn] In March 2011, two Chinese vessels used “aggressive manoeuvres”, compelling the Philippine survey ship to leave the area. Crisis Group Report, Oil in Troubled Waters , op. cit., p. 15. Hide Footnote In 2014, President Aquino declared a temporary halt to all exploration efforts to avoid provoking Beijing.

In principle, however, joint exploration of resources remains a way to facilitate cooperation between China and the Philippines. “Oil and gas could be a conflict minimiser”, argued a former diplomat, “and it need not compromise sovereignty”. [fn] Crisis Group online interview, diplomat, 12 August 2020. Hide Footnote In 2018, as relations improved following Duterte’s election, Beijing and Manila signed an aspirational Memorandum of Understanding that expressed their willingness to engage in joint exploration and development. The memorandum stated that officials would continue discussions under the Bilateral Consultative Mechanism on how to make joint development work in practice. Shortly afterward, Duterte lifted Aquino’s moratorium on exploration. Local and international companies have since expressed interest, though no contracts have been signed. [fn] Crisis Group online interview, government official, 14 September 2020. The lifting of the moratorium was not limited only to Chinese companies, even though Beijing is highly sceptical about Philippine cooperation with companies outside the region, or even unilateral efforts. Crisis Group interviews, diplomats, Manila, September-October 2020; May 2021. Hide Footnote Several areas are presently under consideration for exploration. The largest is Reed Bank, within the Philippine’s continental shelf north west of Palawan, which covers an area three times the size of Malampaya. [fn] Other reserves are near Palawan proper, including Service Contracts 75 (also Reed Bank), 58 (West Calamian), 54 (North West Palawan), 59 (West Balabac) and 57 (Calamian). The first two, and perhaps some of the others, seem to lie within the (imprecise) nine-dash line, implying that Beijing would object to any non-Chinese activity there. Hide Footnote

The legal dimension of potential cooperation in the Reed Bank is particularly complex, as the area lies within the nine-dash line, thereby raising concerns over sovereignty and sovereign rights. The framework for exploration, in accordance with national law, focuses on the service contract model, whereby a Philippine corporation or a foreign entity may enter into a contract with the Philippine government. [fn] Any agreement would need to take into account Philippine law on allocation of profits. The 1972 Oil Exploration and Development Act stipulates that the Philippines government should retain 60 per cent of net profit with 40 per cent going to the contractor. Paragraph 1, Section 2, Article XII of the 1987 constitution stipulates that “the exploration, development and utilisation of natural resources shall be under the full control and supervision of the State”. Hide Footnote But with the 2016 ruling stipulating that the Reed Bank area is clearly within the Philippine EEZ, an agreement for joint exploration following this model would have to manoeuvre around sovereign rights disputes. By entering into a service contract with Manila, an oil or gas company would de facto recognise Philippine sovereignty, something Chinese companies would clearly refuse to do, while a contract with a non-Chinese foreign oil or gas company would most likely incur Beijing’s ire.

Legal creativity could overcome the challenge. Legal experts and analysts have developed proposals, including for a joint Philippine-Chinese authority to manage the resources, and joint ventures to engage in exploration through commercial contracts. Alternatively, the two parties could negotiate a treaty, with Manila enacting an implementing law, thus bypassing the service contract model and its requirements. [fn] Crisis Group online interviews, academics, 14 August and 8 November 2020. Hide Footnote

A safer bet for cooperation would be to focus on an area around the Calamian Islands, covered by Service Contract 57 and located in another part of Palawan. As the field lies outside the nine-dash line, and there is already a partnership between Philippine and Chinese state-owned companies that could do the work thanks to an existing arrangement, there is no evident hindrance to joint exploration. [fn] Service Contract 57 was awarded to the Philippine National Oil Company, which has a partnership with the China National Offshore Oil Corporation since 2007. The third partner is Jadestone Energy. The Philippine company estimates that drilling could start in the fourth quarter of 2021; other experts are less optimistic. Crisis Group telephone interview, source close to the Philippine side, 30 May 2021. Hide Footnote An agreement on the area covered by Service Contract 57, and by extension other areas nearby, could be a test case for Philippine-Chinese collaboration and even serve as a catalyst during negotiations over the contested fields. But as the end of Duterte’s term draws closer, putting the 2018 memorandum into practice may prove challenging especially given the administration’s focus on managing the pandemic and its economic impact. [fn] Crisis Group online interview, source close to the process, 25 April 2021. Moreover, Energy Secretary Alfonso Cusi is a leader of Duterte’s ruling party PDP-Laban and is heavily involved in electoral politics, raising the question of the department’s priorities for the rest of the year. Hide Footnote Should Manila pursue exploration on its own, or through a non-Chinese joint venture, it would need safeguards and contingency plans in the event of an adverse Chinese reaction. [fn] Pia Ranada, “Lifting of West Philippine Sea moratorium tests Duterte’s China strategy”, Rappler.com, 24 October 2020. A unilateral move by Manila, whether via a government or private initiative, and irrespective of naval involvement, could prompt Beijing to dispatch vessels to shadow Philippine ships, to conduct its own survey in the area or to engage in other tactics of non-military coercion. Crisis Group online interviews, China policy expert, 8 November 2020; diplomat, 29 May 2021. Hide Footnote

VI. Beyond the Status Quo: Options for a Maritime State

A. dealing with dilemmas.

Manila faces a dilemma in navigating the South China Sea dispute: its two objectives of strengthening national security and resolving maritime disputes peacefully are overlapping, but not necessarily congruent. Boosting defence ties with Washington and strengthening the Philippines’ maritime position will serve the first goal, while good ties with Beijing are a prerequisite for the second. More broadly, the Philippines may also have to decide whether it will continue to cope with geopolitical tensions by hedging or, instead, fully commit to its alliance with the U.S. A Philippine official admitted that “a balancing position is not going to be easy”. [fn] Crisis Group online interview, 10 October 2021. Hide Footnote

At present, the tide seems to be turning toward better relations with Washington, as indicated by Manila’s recommitment to the Visiting Forces Agreement. While Beijing remains an important economic partner and may have gained some good-will through vaccine diplomacy in early 2021, the Whitsun Reef standoff, and more generally Chinese assertiveness in the Spratlys over the last few years, have had the opposite effect, both in government corridors and among the Filipino public. Yet fully reinvigorating the Philippine-U.S. alliance risks antagonising China, and complete recommitment to it will depend on Manila’s perception of Washington’s long-term assurances and the level of mutual trust. [fn] Crisis Group online interview, official, 30 April 2021. Washington’s level of support for the Philippines in case of an armed attack does not seem to be a major concern for policymakers any longer, given the Biden administration’s assurances, even though the specifics of the U.S. response may still need further clarification. Another question is whether China’s grey zone operations could be a motive for invoking the Mutual Defence Treaty, a point some commentators suggest Philippine and U.S. officials should urgently discuss. Crisis Group online communication, 20 June 2021. A review of the treaty, however, may trigger objections from China, which has already indicated its concern. Sofia Tomacruz, “Lorenzana: Ex-China envoy told me, ‘Please do not touch’ PH-US military treaty”, Rappler.com, 30 September 2021. Crisis Group online interview, 10 October 2021. Hide Footnote One step Manila could take would be to continue enhancing its defence posture (ie, establishing a military capability that could provide a minimum credible deterrence) while drawing support from countries willing to assist in pushing back against Chinese territorial assertiveness. [fn] Crisis Group interview, naval analyst, 15 August 2020. The concept of credible deterrence appears in the Philippine National Security Strategy from 2018. Hide Footnote With Duterte’s term ending in mid-2022, however, such key foreign policy decisions will most likely be left for the next Philippine president.

Another major dilemma lies in how to engage Beijing. While Manila has decades of experience in negotiating with its U.S. ally, it is relatively inexperienced in dealing with an increasingly assertive China. [fn] Notwithstanding the historical and cultural ties between the two countries regularly emphasised by diplomats. Hide Footnote Even though bilateral relations have improved, Filipino experts emphasise the need to bridge the gap beyond high-level exchanges by engaging China in more technical discussions, for example about fisheries, and increasing the frequency of meetings. [fn] Crisis Group online interviews, academics, 7 September and 8 November 2020. Hide Footnote Some also believe that Beijing could do more to show its commitment to peaceful resolution of disputes. As one Philippines diplomat said: “We can only do so much. The ball is now in Beijing’s hands”. [fn] Crisis Group online interview, 18 September 2020. Hide Footnote Manila, however, should not forget that it also has agency. It should clearly communicate any present or future “red lines” to China and insist on its rights – for example, regarding access to Scarborough – while keeping up aspects of the relationship unrelated to the territorial dispute and avoiding overheated rhetoric. [fn] While the Philippines is no match for China militarily, these red lines can still have a deterrent effect. For example, Manila identified Chinese construction on Scarborough Shoal or forceful action by Beijing at Second Thomas Shoal aimed to remove the BRP Sierra Madre as such red lines, which China has so far respected. Crisis Group phone interview, source privy to Philippine-China talks, 28 July 2020. See also Patricia Viray, “Philippines, China draw ‘red lines’ in South China Sea dispute”, Philippine Star , 29 May 2018. Hide Footnote

B. Risk Management Mechanisms

Three scenarios that could involve Manila in a maritime incident with the potential to escalate into an armed encounter, exacerbating regional tensions in the process, are as follows:

First, a collision between U.S. and Chinese forces near the Philippine Spratly features or Scarborough Shoal might drag Manila into the picture, even if indirectly. This scenario is unlikely but not impossible given the large presence of Chinese vessels, and the U.S. navy’s regular Freedom of Navigation operations in the area. [fn] The U.S. uses these operations to challenge what it views as other states’ excessive maritime claims. Fifteen of 34 such operations reported in the South China Sea between October 2015 and February 2021 occurred around the Spratlys, including in the vicinity of Mischief Reef and Scarborough Shoal. Crisis Group online interview, retired U.S. Navy officer, 9 October 2020. A close encounter occurred on 1 October 2018 when the USS Decatur came near a Chinese Luyang-class destroyer in the vicinity of Gaven and Johnson Reefs, close to the Chinese-occupied features. Hide Footnote Both sides worked to mitigate tensions in the run-up to the 2020 U.S. presidential election and took steps to develop a crisis communications working group in order to prevent incidents from escalating. [fn] The latest instrument is a U.S. Department of Defense Crisis Communications Working Group with China’s People’s Liberation Army. See “ U.S. Department of Defense Hosts First Crisis Communication Working Group with People’s Republic of China’s People’s Liberation Army ”, press release, U.S. Department of Defense, 29 October 2020. Hide Footnote But accidental encounters remain a real risk, which could be diminished by further strengthening crisis communication channels between Beijing and Washington. [fn] See also Crisis Group United States Briefing N°2, Nineteen Conflict Prevention Tips for the Biden Administration , 28 January 2021. Hide Footnote

One way forward could be to clarify language in the 2014 U.S.-China understandings on rules of behaviour and major military activity notifications that is, for now, open to interpretation. [fn] The mechanism stems from a 2014 agreement between President Barack Obama and Xi Jinping. It aims to “to improve and normalise mutual notification of military crisis information […] in order to reduce risk, foster mutual trust and increase openness”. Hide Footnote Direct crisis communications between the U.S. Indo-Pacific Command and its Chinese counterpart, and more broadly, channels that can facilitate timely communications at the leadership level during a crisis, are also overdue. [fn] Crisis Group online interview, China security expert, 5 May 2021. Hide Footnote In any case, Washington should keep Manila in the loop about its existing channels with Beijing, so that the Philippines can strengthen its own crisis management and develop systematic contingency plans.

Secondly, an encounter between Philippine and Chinese maritime forces or vessels could lead to a diplomatic crisis and military escalation. Given the consistency of U.S. pronouncements about the Mutual Defence Treaty since 2019, Manila could in principle invoke this agreement in case of an armed confrontation with Chinese assets, hoping to bring Washington into the picture to assist its ally. [fn] “ Secretary Blinken’s Call with Philippine Secretary of Foreign Affairs Locsin ”, U.S. Department of State, 8 April 2021. Hide Footnote But while the treaty serves to deter full-fledged military hostilities, by its terms it applies in situations of “armed attack”, leaving some uncertainty in Manila about the extent to which it can look to Washington for support where Chinese actions appear threatening but fall below that threshold. Duterte’s rapprochement with China encouraged both Manila and Beijing to exercise caution and peacefully work out issues such as those around Sandy Cay, but the Whitsun Reef and Second Thomas Shoal incidents underlined that maritime tensions are likely to persist. [fn] Crisis Group interview, Philippine official, 15 November 2020. Crisis Group online interviews, Philippine officials, 4 November 2020 and 25 April 2021. Hide Footnote The operational environment is therefore hard to predict, particularly from Manila’s perspective.

To minimise the risk of misjudgment or miscalculation, the Philippines could seek clarity from Washington on what kind of assistance it can expect with respect to Beijing’s grey zone actions in the South China Sea. It should also, in general, work through scenarios stemming from these (and possible future) incidents, developing responses that could dial back any escalation and reduce tensions.

Thirdly, an incident could occur involving the Philippines and a littoral state other than China. The probability of a maritime encounter with a naval or coast guard vessel from a neighbouring state is fairly low. But the potential for conflict nonetheless remains, particularly due to fishing in the Spratlys or in adjacent areas such as the Sulu Sea and the Batanes Strait. The Philippines has managed those disputes well so far, thanks to its coast guard and navy’s good relations with neighbouring states’ forces. Given the geopolitical ramifications of South China Sea incidents, better risk management mechanisms in the region would nonetheless be worthwhile.

Minimising the risk of the last two scenarios would require clarity on rules of engagement involving non-navy vessels, such as coast guard ships. [fn] Crisis Group online interview, former diplomat, 3 August 2020. Hide Footnote The Philippine navy follows the 2014 non-binding Code for Unplanned Encounters at Sea. [fn] Crisis Group correspondence, former senior navy officer, 11 November 2020. Hide Footnote Rules for encounters involving coast guard and maritime militia ships, however, need to be clarified. [fn] Coast guards are important players in the dispute as the primary law enforcement agencies in the South China Sea, serving also as catalysts for diplomacy. At present, the Philippines is developing rules of engagement for its coast guard. Crisis Group online interviews, academic, 7 September 2020; coast guard officer, 11 September and 17 November 2020. Hide Footnote Given the robust contacts between Philippine and Chinese coast guards, codifying bilateral rules of behaviour and replicating them at the regional level could further build confidence among the claimants. Port calls, joint workshops and hotlines are also valuable for promoting exchange. [fn] Crisis Group online interviews, coast guard officers, September-November 2020. Hide Footnote

While the coast guard is a crucial actor in incidents at sea, it is important to establish different channels for de-escalation as, in the views of one observer, “multiple links are ideal in that kind of situation”. [fn] Crisis Group interview, Manila, 30 October 2020. Hide Footnote Presently, the Philippine armed forces maintain a link to the Chinese Southern Theatre Command, which covers the South China Sea air and naval space. [fn] The Southern Theatre Command is based in Nanning, Guangxi Zhuang Autonomous Region, bordering Vietnam. Links to it make sense considering that the Chinese coast guard has been under the People’s Liberation Army’s command since July 2018. In the Whitsun Reef crisis, the Philippine military engaged with Beijing through its defence attaché. Hide Footnote A dedicated naval hotline between Manila and Beijing, similar to those used by ASEAN member states’ navy chiefs and supported by staff-to-staff connections, would be a useful complement. [fn] Crisis Group online interview, naval officer, 30 July 2020. Malaysia and the Philippines settled a maritime incident involving their vessels in 2016 through diplomatic means. Hide Footnote

C. Using Minilaterals to Fill Governance Gaps

With territorial disputes unlikely to be resolved soon, Manila has little choice but to continue managing relations with other claimant states the best it can, seeking to minimise friction with those that occupy features in the disputed areas and share with them the South China Sea’s maritime space. Apart from bilateral engagements, it can best proceed through a “minilateral” approach – bringing together a smaller group of implicated countries (instead of all ten ASEAN member states and China, as is the case for the Code of Conduct negotiations). Discussions in smaller forums, involving only those directly concerned and focusing on areas of common interest, such as fisheries management, scientific research or law enforcement, would help build trust and sustain official and informal ties. Such alternative modes of cooperation would have the added advantage of avoiding overreliance on an increasingly paralysed ASEAN without questioning the concept of “ASEAN centrality” when it comes to Code of Conduct negotiations. [fn] Richard Javad Heydarian, “At a Strategic Crossroads: ASEAN Centrality amid Sino-American Rivalry in the Indo-Pacific”, Brookings Institution, April 2020. Hide Footnote

In that spirit, some Philippine experts suggest that Manila should push for stronger engagement with Hanoi, Kuala Lumpur and Jakarta through informal consultations – possibly even on the sidelines of Code of Conduct meetings. [fn] Crisis Group interviews, diplomat, 9 September 2020; military official, 20 September 2020; South China Sea expert, 23 September 2020. Existing mechanisms at the ASEAN level, for example the Sectoral Working Group on Fisheries, have not proven efficient, partly because they by default include non-claimants in discussions. Hide Footnote It could, for example, start discussing maritime and continental shelf boundaries with Malaysia and Vietnam. [fn] Manila could draw inspiration from its recently concluded border delineation with Indonesia to sort out the issue of its overlapping EEZ with Malaysia. Likewise, although it has no direct territorial disputes with Vietnam, it could work on delineating the maritime boundary or the continental shelf with Hanoi. Hide Footnote Similarly, marine scientific research on environmental challenges in the South China Sea could be the topic of targeted discussions among South East Asian claimants, with China invited at a later stage. [fn] The Philippines is particularly vulnerable to the impact of climate change; its maritime environment is no exception. Crisis Group correspondence, climate scientist, 20 September 2020. See also David Suh and Robert Pomeroy, “Projected Economic Impact of Climate Change on Marine Capture Fisheries in the Philippines”, Frontiers in Marine Science , vol. 3 (April 2020). On 8 November 2021, Hanoi and Manila agreed to revive a joint maritime scientific research initiative, which had been interrupted since 2007. Jairo Bolledo, “PH, Vietnam agree to resume joint marine research expedition”, Rappler.com, 17 November 2021. Hide Footnote Moreover, the Trilateral Cooperation Agreement between the Philippines, Malaysia and Indonesia regarding the Sulu Sea, adjacent to the South China Sea, could serve as a model for a minilateral approach on law enforcement. [fn] This agreement is one of the few political-security agreements among ASEAN members. Its advantages are not primarily operational, but procedural, as it deepens ties between Manila, Jakarta and Kuala Lumpur in intelligence sharing, coordinated patrols and personal links. Crisis Group online interviews, diplomats, maritime analysts, July-August 2020. Hide Footnote Designed as a tool for curbing piracy and maritime militancy, this flexible instrument has managed to create political capital on a subject of common interest among the three neighbours.

Claimant states also all have an interest in tackling illegal fishing and increasing fisheries cooperation more broadly. While the Code of Conduct negotiations may touch upon fisheries dilemmas in the South China Sea, they are not geared at resolving them. Littoral states should opt for a more direct form of cooperation outside the Code’s scope. Informal conversations might be a first avenue to building confidence, but a positive outcome will require an institutional framework. Deeper engagement among the littoral states’ coast guards could be one way forward. [fn] Crisis Group online interviews, coast guard officer, September 2020. Hide Footnote Manila should also strengthen and promote science diplomacy in order to develop elements of a joint policy framework for fisheries in the South China Sea, facilitated by regular dialogue among claimant states. Initial steps could include data sharing on fish stocks, a mapping of particularly vulnerable areas around the Spratlys and an exchange about marine protected areas. Common guidelines on developing aquaculture could also contribute to reducing overfishing on the high seas. [fn] Aquaculture is a controlled way of cultivating fish and other seafood organisms and colloquially means “fish farming”. Hide Footnote

D. Calibrate the Code of Conduct

Under negotiation since 2002, the Code of Conduct for the South China Sea could be, if it becomes a reality, one of the few common denominators among Beijing and the ASEAN claimants. It is foreseen as an instrument for managing, rather than resolving, the maritime disputes. But while the need is pressing for a framework to contain simmering tensions, the draft under review is a complex and largely aspirational document that lays out what are currently irreconcilable positions. [fn] Crisis Group online interviews, former diplomat, 3 August 2020; diplomat, 18 September and 1 October 2020. Hide Footnote Crucial questions, such as the Code’s geographic scope and legal status, as well as the question of dispute settlement mechanisms, remain unresolved. Still, if the Code talks have been arduous, they are so far the only mechanism with buy-in from both Beijing and the other littoral states.

Manila should continue to push for progress both at the negotiating table and behind the scenes. Following the minilaterals approach mentioned above, the Philippines could, for example, lobby for the creation of preparatory “working groups” that would help achieve bilateral or trilateral consensus on vital issues among key claimant states prior to going to the Code of Conduct negotiation table. [fn] While sectoral working groups exist under ASEAN on topics such as fisheries and coastal and marine environment, they have so far proven ineffective, partly due to the fact they include all ASEAN member states, many of which have no direct stake in the South China Sea, rather than focusing on claimant states. Hide Footnote

Procedure apart, Manila should also push for relevant content in the Code of Conduct to make the document more substantive. As one of the claimant states most affected by incidents at sea, the Philippines would for example have an interest in clarifying draft clauses such as language about “self-restraint”, about which the draft is presently vague, leaving plenty of room for misunderstandings at sea. [fn] The Code of Conduct’s predecessor, the 2002 Declaration of Conduct of Parties in the South China Sea, stipulates that all parties will “exercise self-restraint in the conduct of activities that would complicate or escalate disputes”, but it does not define the notion of self-restraint. The draft of the Code of Conduct features some parties’ suggestions for clear wording but no agreed-upon definition. Hide Footnote It could also promote clear phrasing regarding enforcement mechanisms and dispute settlement provisions, including by emphasising the relevant mechanisms that exist under UNCLOS, and more broadly advocate for adherence to accepted principles of proportionality and good faith in resolving contentious issues. [fn] Tweet by Teodoro Locsin, @teddyboylocsin, 12:39am, 26 November 2020. Hide Footnote Finally, Manila could draw from its bilateral talks with China to strengthen provisions on environmental cooperation and fisheries management. Whatever the case, the Philippines should push for a substantive, effective and legally binding Code of Conduct between ASEAN and China at the earliest, even after its term as coordinator of the process ended. [fn] Myanmar took over the role of coordinator for ASEAN-China relations from the Philippines in August 2021. Hide Footnote

E. Keeping China in the Loop

For the Philippines, as for all claimant states, China is an inescapable geographic reality. Considering the sovereignty disputes in the South China Sea are likely to be unresolved for some time, a pragmatic approach to managing differences with Beijing is crucial. “We can talk to China, but keep the expectations low. Yet talking is better than fighting”, said a former navy commander. [fn] Crisis Group online interview, retired officer, 1 July 2020. Hide Footnote China values negotiation, and the existing Bilateral Consultative Mechanism is, in principle, a good forum for talks, even if its track record is mixed. [fn] Crisis Group online interview, retired diplomat, 23 July 2020. Hide Footnote The five sessions that took place before the pandemic achieved progress on topics such as joint exploration for hydrocarbons and scientific research, while other issues stalled. [fn] Part of the problem was the infrequency of meetings, exacerbated by the pandemic. Hide Footnote A sixth round of talks took place in mid-May 2021, which officials deemed moderately successful as it allowed for continuing frank dialogue and for airing a number of constructive suggestions. [fn] Crisis Group telephone interview, 30 May 2021. The main discussion points included “issues of concern” and “issues of cooperation”. One breakthrough cited was compensation for Filipino losses during the 2019 Reed Bank incident. Observers also highlighted advances in fisheries cooperation, though details are scarce. Hide Footnote Increasing the frequency of exchanges with tangible action points and specific outputs could build trust, improve Beijing’s public standing in the Philippines, and set a precedent for future resolution of disputes.

Encouraging good-will through a formal agreement on access to Scarborough Shoal, including ground rules governing interactions between Chinese vessels and Philippine fishing and coast guard boats, would be a win for both sides. So, too, could demilitarisation of the shoal’s lagoon, in the spirit of the 2016 arbitration award. As Scarborough concerns only China and the Philippines, it can be tackled bilaterally. [fn] Crisis Group online interview, defence analyst, 30 June 2020. Hide Footnote Should there be no substantive results in bilateral channels, Manila could then bring up the issue at the Code of Conduct talks and advocate for Scarborough’s inclusion in the agreement’s geographical scope.

VII. Conclusion

The South China Sea disputes are complex, involving a number of countries and a multitude of economic, strategic and security dimensions. Phases of escalation and confrontation are interspersed with periods of calm. Recent tensions are feeding back into U.S.-China strategic competition, drawing Manila into an increasingly thorny foreign policy predicament.

Following Duterte’s 2016 election victory, the Philippines’ foreign policy, and by extension its South China Sea strategy, shifted abruptly, with the president swiveling toward China. Five years on, there are divergent views in Manila about whether Duterte’s rapprochement with Beijing has served national interests, especially given the president’s ad hoc approach. Further incidents at sea are likely after Duterte steps down if the next president’s course is less China-friendly. Nonetheless, as the Whitsun Reef affair has shown, it is at least sometimes possible for Manila to deal with Beijing by combining cooperation and deterrence. Manila’s greatest asset in the long run could be its ability to isolate the dispute from other aspects of the China relationship, standing its ground in the Sea if required.

A crucial question remains whether the Philippines can navigate between China and the U.S. without an armed confrontation compelling it to choose sides. For now, Manila is hedging well. But its balancing act may soon become untenable as Beijing seeks to assert its regional ambitions and Washington pushes back. The South China Sea’s deep waters look likely to remain troubled. But finalising the Code of Conduct and boosting regional cooperation could at least avoid further escalation.

Appendix A: Map of the South China Sea

Appendix B: Map of the Spratly Islands

Appendix C: Philippine Presidents and the South China Sea (since 1998)

Joseph Estrada (1998-2001)

Although domestic issues dominated his term, Joseph Estrada’s presidency coincided with developments that would influence future Philippine foreign policy. Opposed to the presence of U.S. bases in the early 1990s, the president shifted gears after the Mischief Reef incident in 1995. Under his leadership, the Philippine Senate ratified the Visiting Forces Agreement with the United States in 1999. In the words of an analyst: “The Agreement was marketed as a way to deal with China”. [fn] Crisis Group interview, security analyst, 8 August 2020. Hide Footnote As a result, according to a diplomat, the relationship with Washington was “patched up”. [fn] Crisis Group interview, former diplomat, 3 August 2020. Hide Footnote

While committed to a diplomatic resolution of the maritime disputes, Estrada did not shy away from strong statements or assertive actions. For him, “China’s sweeping claim to the Spratlys [was] not merely about barren and uninhabitable islands. … [but] about South East Asia’s bottom-line security”. [fn] “Beijing is biggest security threat in region: Estrada”, The Straits Times , 19 May 1999. Hide Footnote Estrada established a presence at Second Thomas Shoal with the grounding of the BRP Sierra Madre in 1999 but did not succeed in a comparable proposal regarding Scarborough Shoal. As a journalist put it, “while Estrada took one step forward with [Second Thomas Shoal], he also took one step backward in the case of Scarborough”. [fn] Vitug, Rock Solid , op. cit., p. 18. Hide Footnote

Gloria Macapagal-Arroyo (2001-2010)

Under Gloria Macapagal-Arroyo, Estrada’s successor, Philippines-China relations reached a surprising zenith, remembered as a “golden age” of bilateralism. [fn] “ Speech of Gloria Macapagal-Arroyo during the 30th Anniversary Celebration of RP-China Diplomatic Relations ”, Official Gazette of the Philippines , 9 June 2005. Hide Footnote The shift occurred when U.S.-China relations were smoothened by nascent anti-terrorism cooperation in a post-9/11 global order and improved economic ties. Whether it was a geopolitical gambit or a reaction to a temporary cooling-off period in relations with the U.S., Arroyo kept both powers by her side. [fn] A security analyst said: “Arroyo was rebuffed by the U.S. and then swung back to China”. Crisis Group online interview, 8 August 2020. Hide Footnote She tried to gain traction for resolving the maritime dispute through diplomacy, leading to the 2002 China-ASEAN Declaration of Conduct of Parties in the South China Sea. Manila went a step further and aimed for an instrument to calm the waters of the disputed area through a strategy discussed more than ten years earlier: joint development of resources.

The Philippines government tabled a regional agreement on the joint exploration of energy resources in the South China Sea as early as 2003. Spearheaded by the members of Arroyo’s inner circle, the Joint Maritime Seismic Undertaking was an effort to kick-start joint development with initial exploration, short of actual extraction of oil or gas. [fn] Crisis Group Report, Oil in Troubled Waters , op. cit., pp. 18-21. Hide Footnote Hanoi joined the initiative later, eager to participate in surveys of waters it also claimed. [fn] Crisis Group online interview, former government official, 5 November 2020. Hide Footnote The deal aimed to build on the momentum of cooperation and good-will, leaving sovereignty issues for a later stage. But after the initial survey, it ended with a whimper. With the Arroyo administration in domestic disarray, the agreement was not renewed. [fn] Arroyo’s administration pursued a variety of other economic projects with Beijing and was accused of irregularities and corruption, also to the extent of trading Philippine sovereignty for Chinese monetary support. Arroyo’s initial achievements were derailed in her second term leading to allegations of corruption and coup efforts by disgruntled military officers. Hide Footnote The Joint Undertaking was “short of actual exploration and some legal issues were insurmountable”, a former government official said. [fn] Crisis Group online interview, 25 September 2020. Hide Footnote

Good relations with China did not extend to the Scarborough Shoal area, where the dispute simmered amid a cycle of protests, dialogue and incidents. [fn] Vitug, Rock Solid , op. cit., p. 55. Hide Footnote The Philippine navy, in particular, acted assertively, arresting Chinese fishermen. [fn] In some cases, the Philippines waived the sentences early as a result of diplomatic talks with China, releasing the fishermen. In others, judges ordered their release due to procedural reasons. Hide Footnote During Arroyo’s second term, the Philippine Congress passed the 2009 Baseline Law (Republic Act 9522) that adjusted Manila’s claims consistent with UNCLOS by harmonising pieces of three prior laws. Thereafter, the Philippines claimed specific islands and areas of the sea rather than the Spratlys as a whole.

Benigno Aquino III (2010-2016)

In the first years of his presidency, Benigno Aquino faced two major challenges related to the South China Sea. [fn] President Aquino was not as much an anomaly in Philippines-China relations as is often assumed. Early in his term, he reached out to China and visited Beijing for a five-day state visit in 2011. Crisis Group online interview, former cabinet member, 23 October 2020. Hide Footnote In 2011, the Chinese coast guard expelled a Philippine survey vessel in the Reed Bank, within the Philippine EEZ, leading Aquino to realise that Beijing was intent on enforcing its nine-dash line claim. [fn] Crisis Group online interview, South China Sea researcher, 23 September 2020. Hide Footnote The biggest turning point, however, was the 2012 Scarborough Shoal incident. [fn] See Section II.A for more details on the incident. Hide Footnote In the aftermath of the standoff, the Philippine’s diplomatic engagement with Beijing invariably ended in acrimony. [fn] Vitug, Rock Solid , op. cit., p.145. Hide Footnote ASEAN’s lukewarm support frustrated Manila.

The incident also changed the calculus of Manila’s security establishment. Driven largely by concerns about China’s ambitions in the region, Aquino actively invested in military modernisation. [fn] Crisis Group online interview, defence analyst, 30 June 2020. Hide Footnote Although the Philippines cannot hope to reach parity with Chinese forces, one leitmotif for the defence sector is attaining “minimal credible defence” while dealing with the disputes. [fn] Crisis Group interview, navy officer, 12 August 2020. Hide Footnote In the aftermath of the Scarborough Shoal incident, Aquino strengthened the coast guard, presided over the drafting of a maritime strategy, and signed a partnership with Vietnam in 2015 to increase economic and political cooperation based on shared concerns in the South China Sea. [fn] “Viet Nam, Philippines issue joint statement on strategic partnership”, Vietnam News, 19 November 2015. Hide Footnote Toward the end of his term, he also organised the Task Force on the West Philippine Sea. [fn] Foreign Secretary Del Rosario formed the first task force to respond to the developments around Scarborough Shoal in 2012. In 2014, Aquino created the Inter-Agency Coordinating Committee on the West Philippine Sea before transforming it into the task force in 2016. Hide Footnote

Spurred by the Scarborough episode, Aquino finally sought international arbitration under UNCLOS despite reservations from his cabinet and foreign ministry officials. [fn] Crisis Group online interviews, journalist, 24 September 2020; think-tank analyst, 05 September 2020. See Vitug, Rock Solid , pp. 176-177. Hide Footnote Months after China refused to take part in the proceedings hosted by the Permanent Court of Arbitration, it started to build artificial islands through massive land reclamation in the Spratlys. Although Chinese President Xi Jinping pledged not to militarise the reclaimed areas, features such as airfields, harbours and various facilities could easily serve dual purposes, while others are clearly military installations. [fn] China has also deployed military assets it described as “necessary national defense facilities, … aimed at protecting China’s sovereignty and security”. “Beijing ‘installs missiles’ on South China Sea islands”, Agence France Presse, 3 May 2018. The military significance of the features remains debated, with two main interpretations of Beijing’s objectives: dominance of the South China Sea and power projection directed at Taiwan and the first island chain, or a defensive posture enhancing Beijing’s coastal defence around Hainan province and the Paracel Islands, short of domination. Hide Footnote

The island building likely resulted from a confluence of factors including the arbitration proceedings and the fallout of the Scarborough standoff. [fn] Crisis Group online interview, Filipino-Chinese analyst, 5 September 2020. Hide Footnote Contrary to what some of Aquino’s domestic critics assert, it preceded the Enhanced Defence Cooperation Agreement between Manila and Washington initiated by Aquino. [fn] The Duterte administration has frozen the defence pact. Hide Footnote Most analysts see the land reclamation as consistent with Beijing’s more assertive foreign policy from late 2013. [fn] Island building occurred around the same time as the launch of the Chinese Air Defence Identification Zone over the East China Sea and worsening Sino-U.S. relations. A Chinese analyst wrote: “The question was not whether China should build islands, but when. That moment came in 2013, when the PLA Navy, making a new pitch after a leadership transition, was given the green light by President Xi”. Feng Zhang, “China’s Long March at Sea: Explaining Beijing’s South China Sea Strategy, 2009–2016”, The Pacific Review , vol. 33, no. 5 (2019), p. 19. Hide Footnote An analyst summed up: “For Beijing, security beats economics and even the environment”. [fn] Crisis Group online interview, Filipino-Chinese analyst, 5 September 2020. Hide Footnote

This report is one in a three-part series treating important aspects of the maritime disputes in the South China Sea: Competing Visions of International Order in the South China Sea; The Philippines’ Dilemma: How to Manage Tensions in the South China Sea; and Vietnam Tacks Between Cooperation and Struggle in the South China Sea. The recommendations below are common to all three.

To better manage tensions arising from conflicting claims to sovereignty and jurisdiction in the South China Sea:

To the governments of all claimant states:

1. Bring claims to jurisdiction in the South China Sea into conformity with international law by declaring baselines and maritime zones that accord with conventional readings of the UN Convention on the Law of the Sea (UNCLOS).

To the governments of ASEAN member states and China:

2. Accelerate negotiations on a substantive and legally binding Code of Conduct in the South China Sea.

To the government of the Philippines:

3. Encourage the establishment of risk management mechanisms among claimant states in order to reduce the risk of escalation during incidents at sea. These could include clear rules of engagement for non-navy vessels such as coast guard ships in the region.

4. Promote minilateral structures for negotiations focusing on issues of common interest among claimant states, such as scientific research or law enforcement. Increased cooperation on fisheries management is another vital tool to both build confidence and tackle the dwindling stocks in the South China Sea.

5. Maintain dialogue with China through the Bilateral Consultative Mechanism; and use this communication channel to negotiate rules of access to Scarborough Shoal and develop ground rules of interaction between both countries’ vessels therein. Manila should also use the mechanism to clearly communicate its red lines in the maritime domain to China.

To the government of Vietnam:

6. Accelerate negotiations with China on delimitation of the waters outside the mouth of the Gulf of Tonkin.

7. Expedite talks with Indonesia to delimit the two countries’ overlapping maritime claims.

8. Replicate and expand existing mechanisms of bilateral coast guard and fisheries cooperation at the regional level, including through minilateral structures.

9. Promote marine scientific collaboration with other littoral states to build confidence and nurture cooperation.

10. Push for the establishment of technical working groups on fisheries and environmental protection to support negotiations on a Code of Conduct in the South China Sea.

To the government of China:

11. Bring maritime claims into line with UNCLOS by:

a) Stepping away from its claim to “historic rights”;

b) Ending its practice of deploying survey vessels and large fishing fleets of vessels in the exclusive economic zones of the other littoral states.

12. Relinquish the legal argument that the Spratly Islands is a single unit that can be enclosed by straight baselines and generate an exclusive economic zone.

13. Reassure South East Asian neighbours by expressing willingness for a legally binding Code of Conduct in the South China Sea.

14. Explore with other littoral states mechanisms to prevent incidents at sea involving maritime law enforcement and fishing vessels, and develop operational principles to guide law enforcement behaviour at sea, including in their treatment of fishermen.

To the government of the United States:

15. Accede to UNCLOS to bolster U.S. credibility, strengthen the treaty regime and raise the reputational costs to China of flouting the law.

16. Calibrate efforts, alone and with partners, to pressure China through Freedom of Navigation operations, military exercises in the South China Sea and other means that increase the risk of unplanned incidents, which could escalate and reinforce Beijing’s fears of encirclement.

17. Encourage cooperation among South East Asian claimant states on marine scientific research, fisheries conservation and environmental protection.

To the governments of China and the United States:

18. Intensify high-level dialogue to resolve possible misunderstandings and to communicate clear red lines.

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Philippines Economic Updates

October 2017- Preserving Consistency and Policy Commitment

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Sections in this edition:

Part 1: Recent policy and economic developments – page 1
Part 2: Outlook and Risks – page 32
Part 3: Unlocking Mindanao’s potential – page 47

April 2017- Advancing the Investment Agenda

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Recent Economic and Policy Developments – page 1
Outlook and Risks – page 21
Trade Competitiveness and Global Value Chains in the Philippines – page 28

October 2016- Outperforming the Region and Managing the Transition

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Increasing Tax Revenues Efficiently and Equitably – page 28

April 2016- Moving Full Speed Ahead: Accelerating Reforms to Create More and Better Jobs

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• Recent Economic and Policy Developments - page 5 - Prospects and Risks - page 14 - Policies: A Retrospective and Forward Look on How to Create More and Better Jobs • Medium-Term Reform Agenda: Enhancing competition - page 29

October 2015- Making Growth Work for Small Businesses

• Recent Economic and Policy Developments - page 1 - Prospects, Risks and Policies - page 14 • Medium-Term Reform Agenda: Enhancing competition - page 29

Special Focus 1. Real cost of starting and maintaining a business - page 45 2. Export transaction costs in the Philippines – page 60

January 2015- Making Growth Work for The Poor

Sections in this edition Recent Economic and Policy Developments - page 1 • Prospects, Risks and Policies - page 10 • Medium-Term Reform Agenda: Enhancing competition - page 20 Special Focus 1. Congestion in Metro Manila and its impact on the economy - page 34 2. Potential power shortages in Luzon and the way forward – page 40 3. Reviving Philippine electronics exports – page 44 4. Liberalizing rice policy in the Philippines – page 54 5. Enhancing competition in the domestic shipping industry – page 63

August 2014- Investing in the Future

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Recent Economic and Policy Developments - page 1

Prospects, Risks and Policies - page 10
Medium-Term Agenda: Tax Reform Package for more Inclusive Growth - page 14
Recent Economic and Policy Developments – page 10
Prospects , Risks and Policies – page 27
Building Back Better after Typhoon Yolanda – page 37
Medium term agenda: Working together to address the jobs challenge – page 47
1: Philippine tourism industry challenge – page 7
2: Impact Evaluation of the Kalahi – CIDSS – page 77
Recent Economic and Policy Developments – Page 6
Prospects and Policies – Page 21
1: Measuring changes in inventory and statistical discrepancy in the national income accounts – page 30
2: The Philippine Real Estate Market: A cause for concern? An update – page 33
3: The Comprehensive Tax Reform Program of 1986 and related tax administrative reforms – page 41
4: Impact Evaluation of the conditional cash transfer program – page 43
5: Procurement modernization strategy: an update – page 49
Recent Economic and Policy Developments – p. 1
Prospects and Policy Recommendations – p. 13
Prospects – p. 12
1: Financing the Economic Cost of Disasters in the Philippines – p. 23
2: Cycles of Conflict and Displacement in Mindanao - - p 30
3: The Philippine Real Estate Market: A cause for concern? – page. 37
4: Stepping Up Disbursements by Improving Absorptive capacity in Agencies – p. 43
Prospects and Policy Recommendations – p. 11
1: Raising Excise Taxes on Tobacco and Alcohol Products – p. 15
2: Philippine Exports: Where do they stand? – p. 24
Recent Economic and Policy Developments - p. 1
Prospects - p. 9
1: External Spillovers to Philippine Growth - p. 13
2: The 2012 Proposed National Budget - p. 17
Recent Economic and Policy developments – p 1
Prospects – p. 9
Prospects – p. 8
Selected special focus from recent quarterly updates – p. 26
Prospects – p. 17
Recent Economic Developments – p. 4
Recent Economic Developments – p. 3
Polices – p. 11
Prospects – p. 16

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1: The new purchasing power parities and poverty in the Philippines – page. 30
2: Inflation and the Poor page – p. 34

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Published: 04 April 2022

Economic losses from COVID-19 cases in the Philippines: a dynamic model of health and economic policy trade-offs

Elvira P. de Lara-Tuprio 1 ,
Maria Regina Justina E. Estuar 2 ,
Joselito T. Sescon 3 ,
Cymon Kayle Lubangco ORCID: orcid.org/0000-0002-1292-4687 3 ,
Rolly Czar Joseph T. Castillo 3 ,
Timothy Robin Y. Teng 1 ,
Lenard Paulo V. Tamayo 2 ,
Jay Michael R. Macalalag 4 &
Gerome M. Vedeja 3

Humanities and Social Sciences Communications volume 9 , Article number: 111 ( 2022 ) Cite this article

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Science, technology and society

The COVID-19 pandemic forced governments globally to impose lockdown measures and mobility restrictions to curb the transmission of the virus. As economies slowly reopen, governments face a trade-off between implementing economic recovery and health policy measures to control the spread of the virus and to ensure it will not overwhelm the health system. We developed a mathematical model that measures the economic losses due to the spread of the disease and due to different lockdown policies. This is done by extending the subnational SEIR model to include two differential equations that capture economic losses due to COVID-19 infection and due to the lockdown measures imposed by the Philippine government. We then proceed to assess the trade-off policy space between health and economic measures faced by the Philippine government. The study simulates the cumulative economic losses for 3 months in 8 scenarios across 5 regions in the country, including the National Capital Region (NCR), to capture the trade-off mechanism. These scenarios present the various combinations of either retaining or easing lockdown policies in these regions. Per region, the trade-off policy space was assessed through minimising the 3-month cumulative economic losses subject to the constraint that the average health-care utilisation rate (HCUR) consistently falls below 70%, which is the threshold set by the government before declaring that the health system capacity is at high risk. The study finds that in NCR, a policy trade-off exists where the minimum cumulative economic losses comprise 10.66% of its Gross Regional Domestic Product. Meanwhile, for regions that are non-adjacent to NCR, a policy that hinges on trade-off analysis does not apply. Nevertheless, for all simulated regions, it is recommended to improve and expand the capacity of the health system to broaden the policy space for the government in easing lockdown measures.

Modelling COVID-19 pandemic control strategies in metropolitan and rural health districts in New South Wales, Australia

Azizur Rahman, Md Abdul Kuddus, … Michael Bewong

Mathematical modeling of COVID-19 in 14.8 million individuals in Bahia, Brazil

Juliane F. Oliveira, Daniel C. P. Jorge, … Roberto F. S. Andrade

Cost-effectiveness analysis of COVID-19 intervention policies using a mathematical model: an optimal control approach

Md Abdul Kuddus, Anip Kumar Paul & Thitiya Theparod

Introduction

The Philippine population of 110 million comprises a relatively young population. On May 22, 2021, the number of confirmed COVID-19 cases reported in the country is 1,171,403 with 55,531 active cases, 1,096,109 who recovered, and 19,763 who died. As a consequence of the pandemic, the real gross domestic product (GDP) contracted by 9.6% year-on-year in 2020—the sharpest decline since the Philippine Statistical Agency (PSA) started collecting data on annual growth rates in 1946 (Bangko Sentral ng Pilipinas, 2021 ). The strictest lockdown imposed from March to April 2020 had the most severe repercussions to the economy, but restrictions soon after have generally eased on economic activities all over the country. However, schools at all levels remain closed and minimum restrictions are still imposed in business operations particularly in customer accommodation capacity in service establishments.

The government is poised for a calibrated reopening of business, mass transportation, and the relaxation of age group restrictions. The government expects a strong recovery before the end of 2021, when enough vaccines have been rolled out against COVID-19. However, the economic recovery plan and growth targets at the end of the year are put in doubt with the first quarter of 2021 growth rate of GDP at -4.2%. This is exacerbated by the surge of cases in March 2021 that took the National Capital Region (NCR) and contiguous provinces by surprise, straining the hospital bed capacity of the region beyond its limits. The government had to reinforce stricter lockdown measures and curfew hours to stem the rapid spread of the virus. The country’s economic development authority proposes to ensure hospitals have enough capacity to allow the resumption of social and economic activities (National Economic and Development Authority, 2020 ). This is justified by pointing out that the majority of COVID-19 cases are mild and asymptomatic.

Efforts in monitoring and mitigating the spread of COVID-19 requires understanding the behaviour of the disease through the development of localised disease models operationalized as an ICT tool accessible to policymakers. FASSSTER is a scenario-based disease surveillance and modelling platform designed to accommodate multiple sources of data as input allowing for a variety of disease models and analytics to generate meaningful information to its stakeholders (FASSSTER, 2020 ). FASSSTER’s module on COVID-19 currently provides information and forecasts from national down to city/municipality level that are used for decision-making by individual local government units (LGUs) and also by key government agencies in charge of the pandemic response.

In this paper, we develop a mathematical model that measures the economic losses due to the spread of the disease and due to different lockdown policies to contain the disease. This is done by extending the FASSSTER subnational Susceptible-Exposed-Infectious-Recovered (SEIR) model to include two differential equations that capture economic losses due to COVID-19 infection and due to the lockdown measures imposed by the Philippine government. We then proceed to assess the trade-off policy space faced by the Philippine government given the policy that health-care utilisation rate must not be more than 70%, which is the threshold set by the government before declaring that the health system capacity is at high risk.

We simulate the cumulative economic losses for 3 months in 8 scenarios across 5 regions in the country, including the National Capital Region (NCR) to capture the trade-off mechanism. These 8 scenarios present the various combinations of either retaining or easing lockdown policies in these regions. Per region, the trade-off policy space was assessed through minimising the 3-month cumulative economic losses subject to the constraint that the average health-care utilisation rate (HCUR) consistently falls below 70%. The study finds that in NCR, a policy trade-off exists where the minimum economic losses below the 70% average HCUR comprise 10.66% of its Gross Regional Domestic Product. Meanwhile, for regions that are non-adjacent to NCR, a policy that hinges on trade-off analysis does not apply. Nevertheless, for all simulated regions, it is recommended to improve and expand the capacity of the health system to broaden the policy space for the government in easing lockdown measures.

The sections of the paper proceed as follows: the first section reviews the literature, the second section explains the FASSSTER SEIR model, the third section discusses the economic dynamic model, the fourth section specifically explains the parameters used in the economic model, the fifth section briefly lays out the policy trade-off model, the sixth discusses the methods used in implementing the model, the seventh section presents the results of the simulations, the eighth section discusses and interprets the results, and the final section presents the conclusion.

Review of related literature

Overview of the economic shocks of pandemics.

The onslaught of the Coronavirus Disease 2019 (COVID-19) pandemic since 2020 has disrupted lifestyles and livelihoods as governments restrict mobility and economic activity in their respective countries. Unfortunately, this caused a –3.36% decline in the 2020 global economy (World Bank, 2022 ), which will have pushed 71 million people into extreme poverty (World Bank, 2020 ; 2021 ).

As an economic phenomenon, pandemics may be classified under the typologies of disaster economics. Particularly, a pandemic’s impacts may be classified according to the following (Benson and Clay, 2004 ; Noy et al., 2020 ; Keogh-Brown et al., 2010 ; 2020 ; McKibbin and Fernando, 2020 ; Verikios et al., 2012 ): (a) direct impacts, where pandemics cause direct labour supply shocks due to mortality and infection; (b) indirect impacts on productivity, firm revenue, household income, and other welfare effects, and; (c) macroeconomic impacts of a pandemic.

For most pandemic scenarios, social distancing and various forms of lockdowns imposed by countries around the world had led to substantial disruptions in the supply-side of the economy with mandatory business closures (Maital and Barzani, 2020 ; Keogh-Brown et al., 2010 ). Social distancing will have contracted labour supply as well, thus contributing to contractions in the macroeconomy (Geard et al., 2020 ; Keogh-Brown et al., 2010 ). Thus, in general, the literature points to a pandemic’s impacts on the supply- and demand-side, as well as the displacement of labour supply; thus, resulting in lower incomes (Genoni et al., 2020 ; Hupkau et al., 2020 ; United Nations Development Programme, 2021 ). Often, these shocks result from the lockdown measures; thus, a case of a trade-off condition between economic losses and the number of COVID-19 casualties.

Static simulations for the economic impacts of a pandemic

The typologies above are evident in the analyses and simulations on welfare and macroeconomic losses related to a pandemic. For instance, computable general equilibrium (CGE) and microsimulation analyses for the 2009 H1N1 pandemic and the COVID-19 pandemic showed increases in inequities, welfare losses, and macroeconomic losses due to lockdown and public prevention strategies (Cereda et al., 2020 ; Keogh-Brown et al., 2020 ; Keogh-Brown et al., 2010 ). Public prevention-related labour losses also comprised at most 25% of the losses in GDP in contrast with health-related losses, which comprised only at most 17% of the losses in GDP.

Amidst the COVID-19 pandemic in Ghana, Amewu et al. ( 2020 ) find in a social accounting matrix-based analysis that the industry and services sectors will have declined by 26.8% and 33.1%, respectively. Other studies investigate the effects of the pandemic on other severely hit sectors such as the tourism sector. Pham et al. ( 2021 ) note that a reduction in tourism demand in Australia will have caused a reduction in income of tourism labourers. Meanwhile, in a static CGE-microsimulation model by Laborde, Martin, and Vos ( 2021 ), they show that as the global GDP will have contracted by 5% following the reduction in labour supply, this will have increased global poverty by 20%, global rural poverty by 15%, poverty in sub-Saharan Africa by 23%, and in South Asia by 15%.

However, due to the static nature of these analyses, the clear trade-off between economic and health costs under various lockdown scenarios is a policy message that remains unexplored, as the simulations above only explicitly tackle a pandemic’s macroeconomic effects. This gap is mostly due to these studies’ usage of static SAM- and CGE-based analyses.

Dynamic simulations for the economic impacts of a pandemic

An obvious advantage of dynamic models over static approaches in estimating the economic losses from the pandemic is the capacity to provide forward-looking insights that have practical use in policymaking. Epidemiological models based on systems of differential equations explicitly model disease spread and recovery as movements of population across different compartments. These compartmental models are useful in forecasting the number of infected individuals, critically ill patients, death toll, among others, and thus are valuable in determining the appropriate intervention to control epidemics.

To date, the Susceptible-Infectious-Recovered (SIR) and SEIR models are among the most popular compartmental models used to study the spread of diseases. In recent years, COVID-19 has become an important subject of more recent mathematical modelling studies. Many of these studies deal with both application and refinement of both SIR and SEIR to allow scenario-building, conduct evaluation of containment measures, and improve forecasts. These include the integration of geographical heterogeneities, the differentiation between isolated and non-isolated cases, and the integration of interventions such as reducing contact rate and isolation of active cases (Anand et al., 2020 ; Chen et al., 2020 ; Hou et al., 2020 ; Peng et al., 2020 ; Reno et al., 2020 ).

Typical epidemiological models may provide insight on the optimal lockdown measure to reduce the transmissibility of a virus. However, there is a need to derive calculations on economic impacts from the COVID-19 case projections to arrive at a conclusion on the optimal frontier from the trade-off between health and economic losses. In Goldsztejn, Schwartzman and Nehorai ( 2020 ), an economic model that measures lost economic productivity due to the pandemic, disease containment measures and economic policies is integrated into an SEIR model. The hybrid model generates important insight on the trade-offs between short-term economic gains in terms of productivity, and the continuous spread of the disease, which in turn informs policymakers on the appropriate containment policies to be implemented.

This approach was further improved by solving an optimal control of multiple group SIR model to find the best way to implement a lockdown (Acemoglu et al., 2020 ). Noting the trade-offs between economic outcomes and spread of disease implied in lockdown policies, Acemoglu et al. ( 2020 ) find that targeted lockdown yields the best result in terms of economic losses and saving lives. However, Acemoglu et al. ( 2020 ) only determine the optimal lockdown policy and their trade-off analysis through COVID-associated fatalities. Kashyap et al. ( 2020 ) note that hospitalisations may be better indicators for lockdown and, as a corollary, reopening policies.

Gaps in the literature

With the recency of the pandemic, there is an increasing but limited scholarship in terms of jointly analysing the losses brought about by the pandemic on health and the economy. On top of this, the literature clearly has gaps in terms of having a trade-off model that captures the context of low- and middle-income countries. Devising a trade-off model for said countries is an imperative given the structural and capability differences of these countries from developed ones in terms of responding to the pandemic. Furthermore, the literature has not explicitly looked into the trade-off between economic losses and health-care system capacities, both at a national and a subnational level.

With this, the paper aims to fill these gaps with the following. Firstly, we extend FASSSTER’s subnational SEIR model to capture the associated economic losses given various lockdown scenarios at a regional level. Then, we construct an optimal policy decision trade-off between the health system and the economy in the Philippines’ case at a regional level. From there, we analyse the policy implications across the different regions given the results of the simulations.

The FASSSTER SEIR model

The FASSSTER model for COVID-19 uses a compartmental model to describe the dynamics of disease transmission in a community, and it is expressed as a system of ordinary differential equations (Estadilla et al., 2021 ):

where β = β 0 (1– λ ), $\alpha _a = \frac{c}{\tau }$ , $\alpha _s = \frac{{1 - c}}{\tau }$ , and N ( t ) = S ( t ) = E ( t ) + I a ( t ) + I s ( t ) + C ( t ) + R ( t ).

The six compartments used to divide the entire population, namely, susceptible ( S ), exposed ( E ), infectious but asymptomatic ( I a ), infectious and symptomatic ( I s ), confirmed ( C ), and recovered ( R ), indicate the status of the individuals in relation to the disease. Compartment S consists of individuals who have not been infected with COVID-19 but may acquire the disease once exposed to infectious individuals. Compartment E consists of individuals who have been infected, but not yet capable of transmitting the disease to others. The infectious members of the population are split into two compartments, I a and I s , based on the presence of disease symptoms. These individuals may eventually transition to compartment C once they have been detected, in which case they will be quarantined and receive treatment. The individuals in the C compartment are commonly referred to as active cases. Finally, recovered individuals who have tested negative or have undergone the required number of days in isolation will move out to the R compartment. Given that there had only been rare instances of reinfection (Gousseff et al., 2020 ), the FASSSTER model assumes that recovered individuals have developed immunity from the disease. A description of the model parameters can be found in Supplementary Table S1 .

The model has several nonnegative parameters that govern the movement of individuals along the different compartments. The parameter β represents the effective transmission rate, and it is expressed as a product of the disease transmission rate β 0 and reduction factor 1 − λ . The rate β 0 is derived from an assumed reproduction number R 0 , which varies depending on the region. The parameter λ reflects the effect of mobility restrictions such as lockdowns and compliance of the members of the population to minimum health standards (such as social distancing, wearing of face masks etc.). In addition, the parameter ψ captures the relative infectiousness of asymptomatic individuals in relation to those who exhibit symptoms.

The incubation period τ and fraction of asymptomatic cases c are used to derive the transfer rates α α and α s from the exposed compartment to I a and I s compartments, respectively. Among those who are infectious and asymptomatic, a portion of them is considered pre-symptomatic, and hence will eventually develop symptoms of the disease; this is reflected in the parameter ω. The respective detection rates δ a and δ s of asymptomatic and symptomatic infectious individuals indicate the movement from the undetected infectious compartment to the confirmed compartment. These parameters capture the entire health system capacity to prevent-detect-isolate-treat-reintegrate (PDITR) COVID-19 cases; hence, they will henceforth be referred to as HSC parameters. The recoveries of infectious asymptomatic individuals and among the active cases occur at the corresponding rates θ and r . Death rates due to the disease, on the other hand, are given by ∈ I and ∈ T for the infectious symptomatic and confirmed cases, respectively.

Aside from the aforementioned parameters, the model also utilises parameters not associated with the COVID-19 disease, such as the recruitment rate A into the susceptible population. This parameter represents the birth rate of the population and is assumed to be constant. In addition, a natural death rate per unit of time is applied to all compartments in the model, incorporating the effect of non-COVID-19 related deaths in the entire population.

Economic dynamic model

The trade-off model aims to account for the incurred economic losses following the rise and fall of the number of COVID-19 cases in the country and the implementation of various lockdown measures. The model variables are estimated per day based on the SEIR model estimate of daily cases and are defined as follows. Let Y E ( t ) be the economic loss due to COVID-19 infections (hospitalisation, isolation, and death of infected individuals) and Y E ( t ) be the economic loss due to the implemented lockdown at time t . The dynamics of each economic variable through time is described by an ordinary differential equation. Since each equation depends only on the values of the state variables of the epidemiological model, then it is possible to obtain a closed form solution.

Economic loss due to COVID-19 infections (hospitalisation, isolation, and health)

The economic loss due to hospitalisation, isolation, and death Y E is described by the following differential equation:

where z = annual gross value added of each worker (assumed constant for all future years and for all ages), w = daily gross value added, ι i = % population with ages 0–14 ( i = 1), and labour force with ages 15–34 ( i = 2), 35–49 ( i = 3) and 50–64 ( i = 4), s r = social discount rate, κ = employed to population ratio, T i = average remaining productive years for people in age bracket i , i = 1, 2, 3, 4, and T 5 = average age of deaths from 0–14 years old age group. Note that the above formulation assumes that the young population 0–14 years old will start working at age 15, and that they will work for T 1 −15 years.

Solving Eq. ( 7 ), we obtain for t ≥ 0,

In this equation, the terms on the right-hand side are labelled as (A), (B), and (C). Term (A) is the present value of all future gross value added of 0–14 years old who died due to COVID-19 at time t . Similarly, term (B) is the present value of all future gross value added of people in the labour force who died due to COVID-19 at time t . Term (C) represents the total gross value added lost at time t due to sickness and isolation.

The discounting factors and the population age group shares in (A) and (B) can be simplified further into K 1 and K 2 , where $K_1 = \iota _1\left( {\frac{{\left( {s_r + 1} \right)^{T_1 + T_5 - 13} - \left( {s_r + 1} \right)}}{{s_r\left( {s_r + 1} \right)^{T_1 + 1}}}} \right)$ and $K_2 = \mathop {\sum}\nolimits_{i = 2}^4 {\iota _i\left( {\frac{{\left( {s_r + 1} \right)^{T_i + 2} - \left( {s_r + 1} \right)}}{{s_r\left( {s_r + 1} \right)^{T_i + 1}}}} \right)}$ . By letting L 1 = z( K 1 + K 2 ) ∈ I + κw (1 – ∈ I ) and L 2 = z( K 1 + K 2 ) ∈ T + κw (1 – ∈ T ), we have:

Economic losses due to lockdown policies

Equation ( 7 ) measures the losses due mainly to sickness and death from COVID-19. The values depend on the number of detected and undetected infected individuals, C and I s . The other losses sustained by the other part of the population are due to their inability to earn because of lockdown policies. This is what the next variable Y L represents, whose dynamics is given by the differential equation

where φ = the displacement rate, and κ and w are as defined previously.

Solving the differential equation, then

Note that [ S ( t ) + E ( t ) + I a ( t ) + R ( t )] is the rest of the population at time t , i.e., other than the active and infectious symptomatic cases. Multiplying this by κ and the displacement rate φ yields the number of employed people in this population who are displaced due to the lockdown policy. Thus, κwφ [ S ( t ) + E ( t ) + I a ( t ) + R ( t )] is the total foregone income due to the lockdown policy.

Economic model parameters

The values of the parameters were derived from a variety of sources. The parameters for employment and gross value added were computed based on the data from the Philippine Statistics Authority ( 2021 , 2020 , 2019a , 2019b ), the Department of Health’s Epidemiology Bureau (DOH-EB) ( 2020 ), the Department of Trade and Industry (DTI) ( 2020a , 2020b ) and the National Economic Development Authority (NEDA) ( 2016 ) (See Supplementary Tables S2 and S3 for the summary of economic parameters).

Parameters determined from related literature

We used the number of deaths from the data of the DOH-EB ( 2020 ) to disaggregate the long-term economic costs of the COVID-related deaths into age groups. Specifically, the COVID-related deaths were divided according to the following age groups: (a) below 15 years old, (b) 15 to 34 years old, (c) 35 to 49 years old, and (d) 50 to 64 years old. The average remaining years for these groups were computed directly from the average age of death of the respective cluster. Finally, we used the social discount rate as determined by NEDA ( 2016 ) to get the present value of the stream of foregone incomes of those who died from the disease.

Parameters estimated from local data

The foregone value added due to labour displacement was estimated as the amount due to workers in a geographic area who were unable to work as a result of strict lockdown measures. It was expected to contribute to the total value added in a given year if the area they reside or work in has not been locked down.

The employed to population ratio κ i for each region i was computed as

where e i was total employment in region i , and Pi was the total population in the region. Both e i and Pi were obtained from the quarterly labour force survey and the census, respectively (Philippine Statistics Authority, 2020 , 2019a , 2019b ).

The annual gross value added per worker z i for region i was computed as

where g ji was the share of sector j in total gross value added of region i , GVA ji was the gross value added of sector j in region i (Philippine Statistics Authority, 2021 ), and e ji was the number of employed persons in sector j of region i . If individuals worked for an average of 22.5 days for each month for 12 months in a year, then the daily gross value added per worker in region i was given by

Apart from this, labour displacement rates were calculated at regional level. The rates are differentiated by economic reopening scenarios from March 2020 to September 2020, from October 2020 to February 2021, and from March 2021 onwards (Department of Trade and Industry, 2020a , 2020b , 2021 ). These were used to simulate the graduate reopening of the economy. From the country’s labour force survey, each representative observation j in a region i is designated with a numerical value in accordance with the percentage operating capacity of the sector where j works in. Given the probability weights p ji , the displacement rate φ i for region i was calculated by

where x ji served as the variable representing the maximum operating capacity designated for j ’s sector of work.

Policy trade-off model

The trade-off between economic losses and health measures gives the optimal policy subject to a socially determined constraint. From the literature, it was pointed out that the optimal policy option would be what minimises total economic losses subject to the number of deaths at a given time (Acemoglu et al., 2020 ). However, for the Philippines’ case, lockdown restrictions are decided based on the intensive care unit and health-care utilisation rate (HCUR). The health system is said to reach its critical levels if the HCUR breaches 70% of the total available bed capacity in intensive care units. Once breached, policymakers would opt to implement stricter quarantine measures.

Given these, a policy mix of various quarantine restrictions may be chosen for as long as it provides the lowest amount of economic losses subject to the constraint that the HCUR threshold is not breached. Since economic losses are adequately captured by the sum of infection-related and lockdown-related losses, Y E ( t ) + Y L ( t ), then policy option must satisfy the constrained minimisation below:

where the objective function is evaluated from the initial time value t 0 to T .

The COVID-19 case information data including the date, location transformed into the Philippine Standard Geographic Code (PSGC), case count, and date reported were used as input to the model. Imputation using predictive mean matching uses the mice package in the R programming language. It was performed to address data gaps including the date of onset, date of specimen collection, date of admission, date of result, and date of recovery. Population data was obtained from the country’s Census of Population and Housing of 2015. The scripts to implement the FASSSTER SEIR model were developed using core packages in R including optimParallel for parameter estimation and deSolve for solving the ordinary differential equations. The output of the model is fitted to historical data by finding the best value of the parameter lambda using the L-BFGS-B method under the optim function and the MSE as measure of fitness (Byrd et al., 1995 ). The best value of lambda is obtained by performing parameter fitting with several bootstraps for each region, having at least 50 iterations until a correlation threshold of at least 90% is achieved. The output generated from the code execution contains values of the different compartments at each point in time. From these, the economic variables Y E ( t ) and Y L ( t ) were evaluated using the formulas in Eq. ( 7 ) and ( 8 ) in their simplified forms, and the parameter and displacement rate values corresponding to the implemented lockdown scenario (Fig. 1 ).

The different population states are represented by the compartments labelled as susceptible (S), exposed (E), infectious but asymptomatic ( I a ), infectious and symptomatic ( I s ), confirmed (C), and recovered (R).

We simulate the economic losses and health-care utilisation capacity (HCUR) for the National Capital Region (NCR), Ilocos Region, Western Visayas, Soccsksargen, and for the Davao Region by implementing various combinations of lockdown restrictions for three months to capture one quarter of economic losses for these regions. The National Capital Region accounts for about half of the Philippines’ gross domestic product, while the inclusion of other regions aim to represent the various areas of the country. The policy easing simulations use the four lockdown policies that the Philippines uses, as seen in Table 1 .

Simulations for the National Capital Region

Table 2 shows the sequence of lockdown measures implemented for the NCR. Each lockdown measure is assumed to be implemented for one month. Two sets of simulations are implemented for the region. The first set assumes a health systems capacity (HSC) for the region at 17.99% (A), while the second is at 21.93% (B). A higher HSC means an improvement in testing and isolation strategies for the regions of concern.

From the sequence of lockdown measures in Table 2 , Fig. 2 shows the plot of the average HCUR as well as the corresponding total economic losses for the two sets of simulations for one quarter. For the scenario at 17.99% HSC (A), the highest loss is recorded at 16.58% of the annual gross regional domestic product (GRDP) while the lowest loss is at 12.19% of its GRDP. Lower average HCUR corresponds to more stringent scenarios starting with Scenario 1. Furthermore, under the scenarios with 21.93% HSC (B), losses and average HCUR are generally lower. Scenarios 1 to 4 from this set lie below the 70% threshold of the HCUR, with the lowest economic loss simulated to be at 9.11% of the GRDP.

These include the set of trade-off decisions under a health system capacity equal to 17.99%, and another set equal to 21.93% (Source of basic data: Authors’ calculations).

Overall, the trend below shows a parabolic shape. The trend begins with an initial decrease in economic losses as restrictions loosen, but this comes at the expense of increasing HCUR. This is then followed by an increasing trend in losses as restrictions are further loosened. Notably, the subsequent marginal increases in losses in the simulation with 21.93% HSC are smaller relative to the marginal increases under the 17.99% HSC.

Simulations for the Regions Outside of NCR

Table 2 also shows the lockdown sequence for the Ilocos, Western Visayas, Soccsksargen, and Davao regions. The sequence begins with Level III only. Meanwhile, the lowest lockdown measure simulated for the regions is Level I. Two sets of simulations with differing health system capacities for each scenario are done as well.

With this lockdown sequence, Fig. 3 shows the panel of scatter plot between the average HCUR and total economic losses as percentage of the respective GRDP, with both parameters covering one quarter. Similar to the case of the NCR, the average HCUR for the simulations with higher health system capacity (B) is lower than the simulations with lower health system capacity (A). However, unlike in NCR, the regions’ simulations do not exhibit a parabolic shape.

These include trade-offs for a Ilocos Region, b Western Visayas Region, c Soccsksargen Region, and d Davao Region (Source of basic data: Authors’ calculations).

Discussion and interpretation

The hypothetical simulations above clearly capture the losses associated with the pandemic and the corresponding lockdown interventions by the Philippine government. The trend of the simulations clearly shows the differences in the policy considerations for the National Capital Region (NCR) and the four other regions outside of NCR. Specifically, the parabolic trend of the former suggests an optimal strategy that can be attained through a trade-off policy even with the absence of any constraint in finding the said optimal strategy. This trend is borne from the countervailing effects between the economic losses due to COVID-19 infection ( Y E ) and the losses from the lockdown measures ( Y L ) implemented for the region. Specifically, Fig. 4(a), (b) show the composition of economic losses across all scenarios for the NCR simulation under a lower and higher health system capacity (HSC), respectively.

These include losses under a HSC = 17.99% and b HSC = 21.93% in the National Capital Region (Source of basic data: Authors’ calculations).

In both panels of Fig. 4 , as quarantine measures loosen, economic losses from infections ( Y E ) tend to increase while the converse holds for economic losses due to quarantine restrictions ( Y L ). The results are intuitive as loosening restrictions may lead to increased mobility, and therefore increased exposure and infections from the virus. In fact, economic losses from infections ( Y E ) take up about half of the economic losses for the region in Scenario 7A, Fig. 4(a) .

While the same trends can be observed for the scenarios with higher HSC at 21.93%, the economic losses from infections ( Y E ) do not overtake the losses simulated from lockdown restrictions ( Y L ) as seen in Fig. 4(b) . This may explain the slower upward trend of economic losses in Fig. 2 at HSC = 21.93%.

The output of the simulation for the Davao region shows that the economic losses from COVID-19 infections ( Y E ) remain low even as the lockdown restrictions ease down. At the same time, economic losses from lockdown restrictions ( Y L ) show a steady decline with less stringent lockdown measures. Overall, the region experiences a decreasing trend in total economic losses even as the least stringent lockdown measure is implemented for a longer period. This pattern is similar with the regions of Ilocos, Western Visayas, and Soccsksarkgen.

The results of the simulations from Figs. 2 and 3 also demonstrate differing levels of economic losses and health-care utilisation between the two sets of scenarios for NCR and the four other regions. Clearly, lower economic losses and health-care utilisation rates were recorded for the scenarios with higher HSC. Specifically, lower total economic losses can be attributed to a slower marginal increase in losses from infections ( Y E ) as seen in Fig. 4(b) . Thus, even while easing restrictions, economic losses may be tempered with an improvement in the health system.

With the above analysis, the policy trade-off as a constrained minimisation problem of economic losses subject to HCUR above appears to apply in NCR but not in regions outside of NCR. The latter is better off in enhancing prevention, detection, isolation, treatment, and reintegration (PDITR) strategy combined with targeted small area lockdowns, if necessary, without risking any increases in economic losses. But, in all scenarios and anywhere, the enhancement of the HSC through improved PDITR strategies remains vital to avoid having to deal with local infection surges and outbreaks. This also avoids forcing local authorities in a policy bind between health and economic measures to implement. Enhancing PDITR in congested urban centres (i.e., NCR) is difficult especially with the surge in new daily cases. People are forced to defy social distance rules and other minimum health standards in public transportation and in their workplaces that help spread the virus.

We extended the FASSSTER subnational SEIR model to include two differential equations that capture economic losses due to COVID-19 infection and due to the lockdown measures, respectively. The extended model aims to account for the incurred economic losses following the rise and fall of the number of active COVID-19 cases in the country and the implementation of various lockdown measures. In simulating eight different scenarios in each of the five selected regions in the country, we found a tight policy choice in the case of the National Capital Region (NCR) but not in the cases of four other regions far from NCR. This clearly demonstrates the difficult policy decision in the case of NCR in minimising economic losses given the constraint of its intensive care unit (ICU) bed capacity.

On the other hand, the regions far from the NCR have wider policy space towards economic reopening and recovery. However, in all scenarios, the primary significance of improving the health system capacity (HSC) to detect and control the spread of the disease remains in order to widen the trade-off policy space between public health and economic measures.

The policy trade-off simulation results imply different policy approaches in each region. This is also to consider the archipelagic nature of the country and the simultaneous concentration of economic output and COVID-19 cases in NCR and contiguous provinces compared to the rest of the country. Each local region in the country merits exploration of different policy combinations in economic and health measures depending on the number of active COVID-19 cases, strategic importance of economic activities and output specific in the area, the geographic spread of the local population and their places of work, and considering local health system capacities. However, we would like to caution that the actual number of cases could diverge from the results of our simulations. This is because the parameters of the model must be updated regularly driven generally by the behaviour of the population and the likely presence of variants of COVID-19. Given the constant variability of COVID-19 data, we recommend a shorter period of model projections from one to two months at the most.

In summary, this paper showed how mathematical modelling can be used to inform policymakers on the economic impact of lockdown policies and make decisions among the available policy options, taking into consideration the economic and health trade-offs of these policies. The proposed methodology provides a tool for enhanced policy decisions in other countries during the COVID-19 pandemic or similar circumstances in the future.

Data availability

The raw datasets used in this study are publicly available at the Department of Health COVID-19 Tracker Website: https://doh.gov.ph/covid19tracker . Datasets will be made available upon request after completing request form and signing non-disclosure agreement. Code and scripts will be made available upon request after completing request form and signing non-disclosure agreement.

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Acknowledgements

We thank Dr. Geoffrey M. Ducanes, Associate Professor, Ateneo de Manila University Department of Economics, for giving us valuable comments in the course of developing the economic model, and Mr. Jerome Patrick D. Cruz, current Ph.D. student, Massachusetts Institute of Technology, for initiating and leading the economic team in FASSSTER in the beginning of the project for their pitches in improving the model. We also thank Mr. John Carlo Pangyarihan for typesetting the manuscript. The project is supported by the Philippine Council for Health Research and Development, United Nations Development Programme and the Epidemiology Bureau of the Department of Health.

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Joselito T. Sescon, Cymon Kayle Lubangco, Rolly Czar Joseph T. Castillo & Gerome M. Vedeja

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All authors contributed to the study conception and design. Model conceptualization, data collection and analysis were performed by EPdL-T, MRJEE, JTS, CKL, CJTC, TRYT, LPT, JMRM, and GMV. All authors commented on previous versions of the manuscript, and read and approved the final manuscript.

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de Lara-Tuprio, E.P., Estuar, M.R.J.E., Sescon, J.T. et al. Economic losses from COVID-19 cases in the Philippines: a dynamic model of health and economic policy trade-offs. Humanit Soc Sci Commun 9 , 111 (2022). https://doi.org/10.1057/s41599-022-01125-4

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A strategic plan for the Philippine economy

Human Side Of Economics

By Bernardo M. Villegas

In my experience in the formulation of the Vision of an enterprise or organization, already found latent in the words of the Vision are some directives for strategy formulation. This is clear in the subsequent elaboration of the AmBisyon Natin 2040 found in the National Economic and Development Authority (NEDA) document. Under the heading of “Realizing the AmBisyon,” it clearly states that all sectors of society, whether public or private, should direct their efforts towards creating opportunities for Filipinos to enjoy a “ matatag , maginhawa, at panatag na buhay ” (a strongly rooted, comfortable, and secure life).

There is already a clear reference to a strategic move to reach the vision through a specific form of governance, which we can call the social market economy. The Government is given a specific role, which has to do with the use of “fiscal, monetary and regulatory policies” in attaining the AmBisyon. All sectors of society, however, are enjoined to also be actively involved in achieving the goals of development in all its dimensions: economic, human and physical capital, social and cultural. There is no question of proposing a completely free market or untrammeled free enterprise system.

Economic growth itself is not the priority. Economic growth must be relevant, inclusive, and sustainable. This echoes the Mission statement that we recommended above (in Part 1). More specifically, it states that over the next 18 years (until 2040) per capita income must increase by at least three-fold. This can be attained if GDP can increase at an average of 6 to 7% during this period. More than the increase in income, economic growth must progressively improve the quality of life of the majority of Filipinos. In fact, I would even go to the extent of saying that economic growth must improve the quality of life of each and every Filipino citizen. The common good is not the greater good for the greater number. That is an erroneous pragmatic principle of some so-called democratic societies under which an erroneous majority can tyrannize a minority. To avoid this, the common good should be defined as a social or juridical order which enables every single person in a given society to attain her or his fullest integral human development.

There are already clear guidelines on a specific regulatory role the Government should play, starting with implementing a more effective competition policy. It is stated that AmBisyon can be partly achieved by having competitive enterprises that offer quality goods and services at affordable prices. A way of achieving this, for example, is to allow more foreign investments in telecommunications and transport services, especially railways, in which existing monopolies have led to inefficiencies and high prices of service to the consumers. Government must encourage investment in key sectors by improving market linkages (for example, by sustaining the Build, Build, Build program); simplifying government procedures (for example, by digitalizing government services); appropriate human capital development, science, technology and innovation (for example, increasing the public budget for education to 6% of GDP from its present 3%). Except for the increase in the education budget, all the suggested strategic moves above have actually already been adopted by the Duterte Administration. What the next Government has to do is to build on the accomplishments of the previous one and go further down the road. For example, the next Government must make sure that the law opening up telecom and transport infrastructures is not only passed but implemented as aggressively as possible, despite some continuing objections from the so-called “nationalists.”

AmBisyon Natin 2040 identifies the sectors that we can call strategic, those that are most crucial in attaining the Vision articulated by the representatives of the Filipino people. These sectors are as follows:

1.) Housing and urban development, which comprise construction, construction-related manufacturing (such as steel), house development-related manufacturing, and utilities (electricity, gas, water);

2.) Manufacturing (food processing, housing-related (e.g., furniture), construction-related (e.g., cement), transport manufacturing (e.g., motorcycles), and other manufacturing (e.g., semiconductor components);

3.) Connectivity (roads and bridges, ports, airports, vehicles, transport systems, and communication);

4.) Education services (formal, non-formal and informal education);

5.) Tourism and allied services (resort, rest-recreation hotels; accommodation, travel and tour services, cultural shows, heritage and pilgrimage sites, etc.;

6.) Agriculture (farming and fisheries, commercial and industrial crops, biotechnology, etc.);

7.) Health and wellness services (primary, secondary and tertiary care, pharmaceuticals, wellness facilities, sports and fitness facilities, etc.); and,

8.) Financial services (consumer financing, enterprise financing and insurance savings mobilization).

In keeping with the Mission statement that growth must be both sustainable and inclusive, the Vision articulated in AmBisyon Natin 2040 stipulates that economic growth should be broad-based across sectors and regions. The attainment of the highest per capita income possible should be subordinated to a more equitable distribution of income and wealth. We should learn from what is now happening in China. Despite the phenomenal per capita income growth rates (double digit in the 1980s and 1990s), and the significant reduction in poverty incidence (now almost close to zero), there exists a tremendous gap between the rich and the poor which is threatening social stability in China today. The Chinese leaders, led by Xi Jing Ping, are trying their best to narrow the extreme gap between the rich and the poor among the population. Using the technical language of economists, even if the poverty incidence is close to zero (i.e., extreme poverty has been eradicated), the GINI co-efficient (which measures how unequal the distribution of income is at any given time) can still be very high (close to 1.0). A GINI co-efficient closer to zero means a more equitable distribution of income.

The bad news for those who will be at the helm of the Philippine Government starting the second half of 2022 is that the poverty rate rose to 23.7 % in the first half of 2021 from 16.2 % in 2019. I would surmise that after Typhoon Odette destroyed property and lives in the ending weeks of 2021, poverty incidence could have risen even higher by the end of 2021. Obviously, as NEDA Director General Karl Chua observed, as more economic sectors reopen and rebound with less stringent restrictions on movement of people and goods as population immunity to COVID-19 increases, lower poverty rates can be achieved during the last weeks of 2021 and the first quarter of 2022. In addition to allowing market forces to energize the national and regional economies, however, there should be direct strategic interventions of the Government to address poverty, which in the coming months should be focused on rural and agricultural development.

Those who are running for elective positions in May 2022 would do well to read a recent document issued by Dr. Jesus Estanislao, former Secretary of Finance and Founder of the University of Asia and the Pacific. In a paper entitled “A Perspective on Dream PH: Philippines 2040s, Let Us Get There,” Dr. Estanislao reminds all Filipinos that in the decade of the 2040s, we shall be celebrating the centennial of Philippine democracy in 2046. Today would be the proper time to take stock of where we shall be with respect to the Philippines we have been dreaming about since 1946, and even during previous decades before we gained our independence. During the election period leading up to May 2022, we shall have many opportunities to evaluate our past, our current challenges, and the immediate, practical issues we urgently need to address as a result of the crisis in which we find ourselves. As we become more deeply aware of the radical changes (we cannot aspire to just return to what was normal before the pandemic) we need to pursue, we should ask ourselves: how do we get those radical changes undertaken and delivered? The political debates engendered by the election campaigns should help us to do a lot of soul-searching on what type of transformation we need to go through as a people so we can build the Philippines we all want for all Filipinos.

(To be continued.)

Bernardo M. Villegas has a Ph.D. in Economics from Harvard, is professor emeritus at the University of Asia and the Pacific, and a visiting professor at the IESE Business School in Barcelona, Spain. He was a member of the 1986 Constitutional Commission.

bernardo.villegas @uap.asia

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Global Crisis Response Platform

Working across the humanitarian-development-peace nexus.

A person affected by Super Typhoon Gooni is using the shelter kit distributed by IOM to repair his shelter in Bicol, Philippines. @ IOM Philippines 2020

Philippines Crisis Response Plan 2022

IOM Philippines is committed to promoting safe, orderly, and humane migration, grounded in the belief that migration benefits both migrants and the wider society. IOM will assist the government in supporting some of the most vulnerable populations, including migrants, returnees, internally displaced persons (IDPs) and their host communities, with humanitarian protection and assistance, coupled with community-driven and sustainable approaches that are in line with regional, national and global priorities, particularly the Sustainable Development Goals, Global Compact for Migration, UN Socioeconomic and Peacebuilding Framework for COVID-19 Recovery, and the Philippines Development Plan.

Context analysis
Coordination

The Philippines is characterized by the dynamic movement of people defined by both cross-border migration and internal forced movements because of its complex and protracted conflict situations, as well as frequent disasters. The ongoing COVID-19 crisis since early 2020 has exacerbated the already vulnerable state of mobile populations in the country. In 2019, remittances from Overseas Filipino Workers (OFWs) reached a record high of USD 33.9 billion, equivalent to 10 per cent of the country’s gross domestic product. The pandemic led to an unprecedented number of repatriations of 791,623 OFWs and their high unemployment rate in 2020, resulting in a drastic shortfall of remittances and a much higher number of individuals becoming vulnerable and requiring humanitarian support. As the Philippines relies on migration as a driver of development, these pandemic-related mobility challenges have resulted in massive disruptions to the country’s economy and growth. Meanwhile, there have been positive initiatives leading to stronger protection of migrants and OFWs, including the legislation of a historic law that established the Department of Migrant Workers on 30 December 2021.

While COVID-19 has caused serious social and economic impacts across the Philippines, Bangsamoro Autonomous Region in Muslim Mindanao (BARMM) is recognized as the most vulnerable. BARMM has the highest poverty incidence of 39.4 per cent in the country, according to the Philippine Statistics Authority, and hosts the largest number of IDPs - more than 97,000. COVID-19 increased the vulnerability of affected populations, namely by escalating conflict, including rido (clan conflict) over land, and aggravating poverty. Loss of livelihoods has magnified competition over scarce resources, increased the risk of recruitment into violent extremism and radicalization, and taken a toll on communities’ capacity to access the already limited basic services. Under the delicate peace process, the Bangsamoro Transition Authority (BTA) is leading the formation of political bodies, the decommissioning of combatants, and supporting sustainable peace and economic stability. The financial and organizational demands of responding to the pandemic have stretched regional capacity, causing delays in the peace process. May 2022 elections at the national and local levels are expected to exacerbate the security situation, which could further strain the socioeconomic fabric of fragile communities.

As climate change intensifies and exacerbates seasonal tropical cyclones and storms, their perpetuity continues to wreak havoc on the lives of the Filipinos. In December 2021, a category 5 Super Typhoon Rai (Odette) made landfall, affecting more than 9.9 million people across the six worst-hit areas. Nearly 1.7 million houses were totally or partially destroyed, and massive damage has been confirmed in key infrastructures including health facilities and schools, according to the OCHA Humanitarian Needs and Priorities Revision. In addition to experiencing an average of 20 typhoons a year, the country is exposed to major earthquakes, tsunamis, volcanic eruptions, floods and landslides, as well as slow-onset crises such as drought.

In any preparedness, crisis response and recovery efforts, IOM Philippines closely coordinates and collaborates with the government at the national and local levels, as well as with other humanitarian, development and peacebuilding actors in the country. This includes institutional relationships with BARMM ministries, local government units, security groups and local civil society organizations in conflict-prone and conflict-affected areas.

IOM actively engages with the Humanitarian Country Team, including as national co-lead of the camp coordination and camp management (CCCM) cluster with the Department of Social Welfare and Development (DSWD) and supports the Government with capacity building for emergency response and preparedness. It is also an active member of the Shelter cluster led by the International Federation of Red Cross and Red Crescent Societies (IFRC). In Mindanao, IOM is a member of the Information Management Technical Working Group (IMTWG) of the National Disaster Risk Reduction and Management Council (NDRRMC), the Mindanao Humanitarian Team (MHT), and the protection and gender-based violence (GBV) working groups. Serving as the co-convenor of the Peace Pillar of the UN-Philippines Partnership Framework for Sustainable Development (PFSD), IOM holds a leading position within the United Nations (UN) member agencies, which is also reinforced by its strong operational presence in Mindanao.

Further, through the participation of the UN Country Team, relevant clusters, and other platforms, IOM coordinates with other UN agencies such as the Food and Agriculture Organization of the United Nations (FAO), the International Labour Organization (ILO), the United Nations Development Programme (UNDP), the United Nations Population Fund (UNFPA), the United Nations Children Fund (UNICEF), the United Nations Entity for Gender Equality and the Empowerment of Women (UN Women), and the World Health Organization (WHO) to ensure complementarity of relevant interventions including water, sanitation and hygiene (WASH), protection, health, peacebuilding and community stabilisation. IOM Philippines is also the COVID-19 Coordinator for the UN in the country, where it draws upon its expertise in delivering and promoting comprehensive, preventive, and curative health programmes for migrants, as well as IOM’s broader experience leading outbreak preparedness and response for humanitarian and public health emergencies.

IOM Philippines has a large operational presence in the country, including humanitarian response, disaster risk reduction (DRR) and emergency preparedness, transition and recovery, and peacebuilding and development programmes, spanning all aspects of the humanitarian-development-peace nexus. There are currently around 280 staff stationed in Manila, and in six sub-offices or field offices in Legazpi City (Bicol), Surigao City (Surigao del Norte), Sogod Municipality and Maasin City (Southern Leyte), Dinagat Islands, Cotabato City (Maguindanao), Marawi City (Lanao del Sur) and Zamboanga City (Zamboanga del Sur). In responding to crises, IOM capitalizes on its widespread operational presence, contextual awareness and direct implementation capacities to deliver actions that address the needs of some of the country's most vulnerable populations, whilst working in partnership with the government. Particularly, IOM’s strategic positioning in Mindanao dates to the establishment of its Cotabato Sub-office in 2008, which underpins its leading role among the UN agencies in supporting the humanitarian, development, and peace needs of the BARMM. IOM maintains a strong remote and in-person management system to provide technical support to field teams throughout the region and any needed support to at-risk communities, including the hardest-to-reach areas, such as Basilan, Sulu and Tawi-Tawi island provinces. IOM Manila's Global Administrative Centre which maintains a global stock for selected non-food items (NFIs), shelter and WASH items, is readily accessible to IOM Philippines, in order to implement humanitarian programmes in-country according to need with immediate effect. IOM Manila Health Center (MHC) and its experienced health workforce composed of 37 technical staff provides health services and is also available to provide technical guidance on health programmes, including administration of COVID-19 and other vaccinations, laboratory services, and the delivery of telehealth services.

Objective Saving lives and protecting people on the move

(1) IDPs that remain in situations of displacement due to natural hazards, effects of climate crises, and human-made disasters, including IDPs unable or unwilling to return and IDPs at high risk of protracted displacement; (2) Local population in areas characterized by large levels of displacement and communities of return where essential services are inadequate or overstretched/interrupted; and (3) Migrants who have returned from international or domestic ports of departure but are in need of humanitarian assistance due to COVID-19 movement restrictions or COVID-19 induced socio-economic impacts.

Camp coordination and camp management

Mental health and psychosocial support in humanitarian response

Provision of water, sanitation and hygiene in emergencies

Shelter and settlements

Multi-sectoral support

An IOM DTM staff is collecting information from a woman displaced from Mindanao. @ IOM Philippines, 2021

Objective Driving solutions to displacement

Peacebuilding and peace preservation

Community stabilization

Durable solutions

Land and property

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Mental health and psychosocial support in transition and recovery

Objective strengthen preparedness and reduce disaster risk.

Disaster prevention

Emergency preparedness

System strengthening for mental health and psychosocial support

Water, sanitation and hygiene in preparedness and risk reduction

Points of entry

Objective contribute to an evidence-based and efficient crisis response system.

Displacement tracking

First line of defence

Philippines.

The map used here is for illustration purposes only. Names and boundaries do not imply official endorsement or acceptance by IOM.

Figures are as of 31 December 2023. For more details of IOM's operational capacity in country, please see the IOM Capacity section.

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$25 million (2018-24)

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Relevant links

Australia - World Bank Philippines Development Trust Fund: Evaluation Report
Australia-World Bank Growth and Prosperity in the Philippines (AGaP) Trust Fund Independent Midterm Review

$1.2 million (2020-22)

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$14 million (2014-23)

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improving women's participation in the workforce, and as business leaders.
enhancing women's voice in decision making and leadership, and
influencing the private and public sectors to recognise and promote the value of gender equality.

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Investing in Women Initiative Investment Design

$6.9 million (2018-26)

The Research for Inclusive Development Initiative (RIDI) aims to contribute to inclusive growth in the Philippines by supporting the availability and use of high-quality evidence in policy making, development planning, and program implementation, as well as strengthening of policy eco-systems through analytical support, technical assistance, and creating institutional linkages.

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$33.7 million (2017-24)

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Analysts from IBON call for better labor policies to curb economic slowdown

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This is AI generated summarization, which may have errors. For context, always refer to the full article.

Analysts from IBON call for better labor policies to curb economic slowdown

MANILA, Philippines – Foreign investment doesn’t mean development, says IBON executive director Sonny Africa.

In the 2024 Yearstarter BirdTalk organized by IBON Foundation and held on Thursday, January 18, the research outfit’s analysts urged government to craft better labor policies and pursue reforms in its economic strategy that would cater to the needs of Filipinos.

The semi-annual forum gathered advocates in various fields to discuss the overall performance of the Marcos administration and evaluate the government’s claims of economic growth and progress amid persistent problems of job scarcity, poverty, among other issues.

According to IBON’s report, a large percentage of the P5.3 trillion economic budget in 2023 was allotted to infrastructure development, in line with Marcos’ goal to continue and expand the Golden Age of Infrastructure of the Philippines. IBON said this leaves behind the development of basic needs such as health, housing, social security, social welfare, employment, and land distribution.

IBON research head Rosario Guzman stressed how government policies encouraging foreign-owned companies to operate in the Philippines could lead to low wages and overall job scarcity for Filipinos.

“This jobs crisis, it’s like the law of supply and demand. It becomes favorable for government to cheapen wages so that it can attract more foreign investments. Wages are low and remain short of what even computes as family living wages across regions,” Guzman said.

To address job scarcity, Africa proposed job creation through a public works program that can be sustainable and beneficial for the development of communities.

“ Ang gobyerno…dapat magcreate ng public works program, dapat ma-guarantee na every Filipino na at least 6-month period may 3 months na trabaho kahit minimum wage lamang … It could be local small-scale community infrastructure, expanding the education system, building housing – lahat ‘yan kailangan ng warm bodies, hindi ito kung anong pinapatanong na trabaho lang, kung hindi may produkto siya na kinakailangan ,” Africa said.

(The government must create a public works program, every Filipino must be guaranteed at least a 6-month period with 3 months of work even if only minimum wage… It could be local small-scale community infrastructure, expanding the education system, building housing – all of those need warm bodies, it’s not just any job that’s being asked, instead it has an actual product that’s needed.)

Africa stressed that foreign investment in itself is not necessarily the problem, but the government policies that deal with them. He said that policymakers should also focus on industrialization to further develop local production such as in agriculture.

Guzman supported this by saying that foreign investment can actually be used to support a framework for a national industrial policy that can benefit small-scale industries.

“We need it because we cannot immediately mobilize all domestic resources of all sectors. And I think it boils down to what he [Africa] is saying that we have to lay down the national industrial policy and from there, we can learn the principles of using financing, use of debt, and the direction of that very policy for real industrialization and development for us,” Guzman said.

Shallow economic growth

The calls to craft better economic policy was made after Guzman discussed the overall economic situation in 2023.

She said that the Philippines’ gross domestic product (GDP) of 5.9% in the third quarter of 2023 also benefited foreign investors, especially following the implementation of the Public Service Act which further opened the economy.

Amid these policies, IBON noted that the government has been forcing the phase out of traditional jeepneys under the Public Utility Vehicle (PUV) Modernization Program in partnership with private corporations.

As this economic growth came from an environment of high inflation , Guzman described this as a shallow growth.

“The economy has increasingly lost its capacity to create meaningful and permanent jobs such that alongside the low unemployment rate in November – which they are proud of, is actually the phenomenon of decreasing labor force,” Guzman said in a mix of Filipino and English.

While the Philippine Statistics Authority (PSA) said that there has been a decline of the Philippines’ poverty incidence last year, unemployment fell to 3.6% in November 2023 – the lowest since 2005, according to IBON’s findings. The inflation rate of 3.9% in December is reported to be the lowest since Marcos became president in mid-2022, which is a big drop from the 8.1% in December 2022.

But IBON analysts said the impact of inflation is not the same for all income groups.

“In reality, the average inflation rate of 2023 is 6%…but for the poor, that’s not 6%. Inflation rate for the bottom of the population is 6.7%, which is pushed by an 8.2% food inflation – largely the rice price increase. So, in 2023, the poor was more burdened,” Guzman said in a mix of Filipino and English.

She said there’s also a problem with the government’s current low poverty threshold of P91 per person/per day, where those who are beyond the threshold are no longer considered poor. Household consumption, which is the spending of families, also slowed down in the third quarter of 2023, despite economic growth.

What can Filipinos do

Given the structural problems in the economy, Guzman and Africa urged Filipinos to join civil society organizations to help increase our political orientation and understand more the advocacies of communities on the ground.

“I hope the response will be on the radical response and change, we will not just play around with the situation, instead let’s be part of the on the ground type of mobilization and organization, more in the flesh type of awareness, action, and mobilization,” she said in a mix of Filipino and English.

“ I -encourage natin ang maraming tao na isama sa laban na ito , dun manggagaling yung buwelo natin, doon manggagaling ang mga bagong mukha, mga bagong ideya, kung paano isulong ang pagbabago [na gusto natin] … I think this is the moment we rally our forces… sumulong tayo ,” Africa added.

(Let’s encourage many people to join this fight, that’s where our momentum will come from, that’s where new faces will come from, new ideas, how to promote the change [that we want]… I think this is the moment we rally our forces…let’s move forward.) – Rappler.com

Please abide by Rappler's commenting guidelines .

Thanks to both IBON executive director Sonny Africa and IBON research head Rosario Guzman for their economic analyses, which are full of realistic insights. What saddened me are these insights: 1) President Marcos Jr.’s wrong top priority on Infrastructure, 2) weaknesses of Inflation and Poverty Index data in terms of social relevance, and 3) the effectiveness of joining civil society organizations amid Marcos-Romualdez Disinformation and Repression Machinations.

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how to solve economic crisis in the philippines

How can we overcome the economic crisis?

How can we improve the economic system, what is economic crisis in the philippines, what are the basic economic problems in the philippines, how do you survive a recession in 2020, what causes economic crisis, how can we improve our country, what are the 3 basic economic questions, what are the 3 main economic systems, is the philippines in recession 2020, will the philippine economy crash, how can we solve unemployment in the philippines.

Identify the Problems. The first step to overcoming financial crisis is to identify the primary problem that is causing difficulties. ...
Create a Budget. One of the best ways to deal with financial problems is creating a budget plan. ...
Set Financial Priorities. ...
Address the Problem. ...
Develop a Plan and Track Progress.
Tax Cuts and Tax Rebates.
Stimulating the Economy With Deregulation.
Using Infrastructure to Spur Economic Growth.

MANILA, Philippines—The Philippine economy fell to its worst post-war recession in 2020 amid the COVID-19 pandemic, aggravated by the onslaught of natural disasters, like Taal Volcano's eruption and a string of strong typhoons, that devastated both lives and livelihoods.

Low economic mobility, poverty and income inequality, poor health care and nutrition, and environmental degradation are some of the key challenges the Philippines is facing in its development trajectory. sustainable development.

Pay Off All Debt. Debt is a problem even when the economy is booming. ...
Cash is King. There are two primary reasons to stock up on cash in advance of a recession, and they're equally important.
Keep Investing. When the financial markets get shaky, people panic. ...
Building Your “IA's” – Intellectual Assets. ...
Create a Side Hustle.

Housing starts, interest rates, oil prices, unemployment numbers, auto sales, wage inflation, quarterly GDP growth or contraction, consumer prices and personal bankruptcy filings are factors that cause financial crisis.

Share resources. Obviously, the fewer resources an average family uses, the lower the nation's ecological footprint. ...
Promote education. ...
Empower women. ...
Negotiate strategic political relations. ...
Reform the systems of food and aid distribution.

Economic systems answer three basic questions: what will be produced, how will it be produced, and how will the output society produces be distributed? There are two extremes of how these questions get answered.

This module introduces the three major economic systems: command, market, and mixed. We'll also discuss the characteristics and management implications of each system, such as the role of government or a ruler/ruling party.

MANILA (Reuters) - The Philippine economy fell into recession for the first time in 29 years with a record slump in the second quarter, as strict lockdown measures ravaged economic activity and prompted the government to sharply cut its GDP forecast for 2020. ... The government sees the economy rebounding in 2021 and 2022.

IMF sees deeper 2020 economic crash, partial rebound in 2021 Metro Manila (CNN Philippines, January 26) — The Philippine economy shrank deeper than expected in 2020, the International Monetary Fund said ahead of the release of official government figures.

Reducing Occupational Immobility. Labour resources are usually occupationally immobile because it takes time for people to gain the sufficient skills that are necessary for working in a certain industry. ...
Employment Subsidies. ...
Sustained Economic Growth.

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An Engineering Experiment to Cool the Earth

A new technology is attempting to brighten clouds and bounce some of the sun’s rays back into space..

This transcript was created using speech recognition software. While it has been reviewed by human transcribers, it may contain errors. Please review the episode audio before quoting from this transcript and email [email protected] with any questions.

From “The New York Times,” I’m Katrin Bennhold. This is “The Daily.”

[MUSIC PLAYING]

After failing for decades to cut carbon emissions enough to stop the planet from dangerously overheating, scientists are increasingly looking at backup measures, some that would fight the warming by intervening in the climate itself. Today, my colleague Christopher Flavelle on the efforts to engineer our way out of the climate crisis.

It’s Friday, April 5.

So, Chris, you’ve been covering climate change for a while, but recently you’ve been focused on a very special project. Tell us about this.

Yeah, two things have been happening in climate change recently that are really important. Number one, records have been falling at alarming rates. Last year was, again, the hottest year on record. Much the world surpassed the important threshold of 1.5 degree Celsius above pre-industrial levels. So the world is getting warmer at an alarming rate.

At the same time, emissions aren’t falling. The message of the last generation has been, we need to cut emissions really to almost zero by the end of this century. And in fact, the reverse is happening. Emissions are continuing to rise.

At the same time, the number and characteristics of weather disasters have become really alarming. So the effects of that warming have become really clear. And it’s clear that the world is struggling to adapt to those effects.

So the other thing that’s happening at a high level is there’s more research and more consideration of OK, what if we can’t cut emissions fast enough? What if we’re going to have this really severe degree of warming? Can we do something else, maybe temporarily, to buffer those effects? And that’s led to this question of, what kinds of changes can we make deliberately to the atmosphere, to the environment that will maybe produce some sort of artificial cooling in the meantime?

So earlier this week I was able to watch, as scientists did, the first outdoor tests in the US on a technology that will aim to do just that. It’s called marine cloud brightening.

So what is this idea of brightening the clouds? Where did it originally come from?

So everyone I talked to pointed back to one really important moment in 1990 when a British physicist named John Latham was taking a hike in Wales with his young son. And they were looking out at the clouds over the Irish Sea.

And as Dr. Latham later told it, his son asked him, “Hey, why are clouds bright?” And Dr. Latham said, “Well, because they reflect sun right back in the sky.” And his son said, “So they’re like soggy mirrors.”

And Dr. Latham went on to write a letter in 1990 that was published in the Journal Nature, saying, you know what, if we can deliberately manipulate these clouds, maybe we can make them more reflective and actually counteract the effects of global warming. That was the inception point for this idea, and it led to decades of research culminating in this week’s test.

So the idea is if you can make clouds more reflective, you can reflect more of the sun’s heat back into space. So it won’t get trapped in the Earth’s atmosphere in the first place.

Exactly. That’s what they’re trying to do.

That’s a very simple, and at the same time, a very powerful idea. I love actually that they were hiking in Wales. That’s where I am right now, and we sure have a lot of clouds here, rain clouds. But tell me more about what you saw at the testing site.

So this Tuesday, a little after 7:00 in the morning, I pulled up in a parking lot on a dock at the edge of Alameda.

I’m standing at the gangplank to the USS Hornet, a decommissioned aircraft carrier in San Francisco Bay here for the first test in the US of a machine that was designed to try to brighten clouds, a way of maybe temporarily cooling the Earth.

And I made my way up one of the massive gangplanks and came in to find a cluster of some of the top atmospheric scientists in the world.

Have you met Sarah?

How do you do?

Hi, Rob. How are you?

Looking really excited. And they accompanied me out to the flight deck —

Here we are.

— of this aircraft carrier.

Pretty epic.

It’s pretty great.

Which was a bit like a party. They’d set up a little table on the side with some coffee and some sandwiches, and people were chatting and saying hi to each other. And I asked them why they were excited.

So I know a thousand of what you know, and I still find this exciting. You guys, walk me through. Is this like a big day for you or just like one more test?

No, this is a big day for me.

And they said this was actually a huge day in their research.

Just looking at it, going, yeah, this is the culmination of years of work, right?

Wow, and tell me about what exactly they were so excited about and what they were doing on the ship.

Yeah, the thing everyone was excited about was this machine set up at the far end of the flight deck of this aircraft carrier. It’s blue. It’s shiny. It looks a bit like a snow maker or maybe like a spotlight.

This machine is a sprayer. What it does is it sprays really, really, really small aerosol particles, in this case, smashed up sea salts, a long distance at just the right size and just the right volume. Because in theory, at some point, you could use this machine to change the size and number of the droplets in the clouds. You can make them brighter conceptually it’s possible. The question is, technologically, can we do it?

Yeah, the particles are coming out in a super concentrated there. So whatever’s coming out of that circle there is basically going to be huge by the time it gets to the cloud.

And so the goal with this test was they spent years building this sprayer that can use really high pressured air to smash salt particles into super small bits, about 1,700th the size of a human hair.

What they didn’t know, until this week, and they’re trying to find out right now, once you spray it, do those aerosols that are so finely tuned stay that size? In theory, they should.

What they don’t know is, things like wind and humidity and temperature could potentially cause them to coagulate, to regroup, which would throw the whole thing off. If the aerosols you’re shooting into clouds are too big, you can backfire the whole purpose. You can wreck what you’re trying to do because you make clouds less reflective, not more reflective.

So the whole goal of the experiment is, OK, can they make the spray just so, so that even in outdoor conditions, the aerosols that are so finely sized remain the size you want them to be. And that’s what they’re trying to find out.

And you watched the actual test of this. What did you see? What happened?

Those instruments are emitting a slight hum.

So operating the sprayer is not straightforward.

And they’re filling the tanks with the salt water that’ll be used to produce the mist.

There was somebody crouched on the control deck, the panel of instruments at the side of the sprayer. So I went over and tried to sit next to him and watch him as he turned a series of knobs and careful sequence.

OK. Yeah, everybody, we’re going to run some air. So the — ... We need two minutes here just to have power on this.

And after a series of tests to make sure the valves were clear —

OK, ear protection, please.

— finally the moment came, and he got an all clear over his walkie-talkie. And he turned on the water —

Water on, copy, over.

— and the air.

[COMPRESSOR ACTIVATING]

Since the sound of the compressor pushes pressurized air through the sprayer, it’s making a dull, throbbing sensation. You can feel it a little bit through the deck of the ship.

We all had ear protectors. And even with the ear protectors, it was really loud. And then you can almost feel the spray bursting out of this machine and watch it travel really hundreds of feet down the deck of the aircraft carrier.

OK, water off, fan off. Good job.

Awesome, guys, you’re done. Thank you. Excellent.

First test is done.

My first signal that things have gone well was I looked up when the spraying machine was turned off and saw some scientists high-fiving down the deck.

What’d you think?

It’s beautiful.

Is it what you thought it would be?

It’s better. And I’m optimistic that it will tell us a lot about what these things do. This made me really optimistic.

And the idea is to do several short bursts like that through the day?

And everyone seemed really excited that this thing they’d worked on for years was finally happening in this really important outdoor test.

OK, so it sounds like this test was a success.

Yeah, they stressed that they need a lot of time to really go over the results. They’ll be doing this test again and again in different weather conditions. But the initial reaction seemed positive. They seemed to think that the numbers they were getting were what they were hoping to see.

And so now the goal is, can they maintain the right size aerosols even in different conditions down the deck of this aircraft carrier? That’ll give them some confidence that if they decided one day to try and do this on the open ocean to actually brighten clouds, they’d have the ability to do it.

So, Chris, if all of this works, how and when do these researchers anticipate that this would actually be used?

Well, here’s a great example. In the month of February, a version of this testing was also happening in Australia, off the Coast of Australia, where researchers were testing whether marine cloud brightening could be used to cool the ocean just a little bit around the Great Barrier Reef.

Really high ocean temperatures are causing bleaching of that coral reef. The idea was, could they use marine cloud brightening to save some of those reefs from dying? And that’s probably a good idea of the fairly localized situation, where you could, in theory if you do it right, have a fairly quick degree of cooling that could maybe try to avert or mitigate something pretty acute like a heat wave or a stretch of warm weather that would kill coral. But the science is probably too new at this point to talk about the right situations to use it. Those conversations are all down the road as researchers look at these and other ideas for what they could do if things get really bad.

We’ll be right back.

So, Chris, when I think about solutions to climate change, it usually involves these very hard things we need to do, like, change the way we live, the way we drive, what we eat. We need these international treaties. We need carbon taxes regulation. There’s lots of hard stuff, and we haven’t gotten that far.

But here you’ve just told me about this technology that, if it ends up working, could actually help cool the planet without anyone needing to do any of these hard things. It sounds great.

It does sound great. Now, we’ve got to say, first of all that whenever anybody working on this stuff talks about it, the first thing they say is this is not an alternative to reducing emissions. This is looking for ways to buy time as we try to cut emissions. There’s no way to really deal with climate change that doesn’t entail burning less fossil fuel and quickly.

But yes, in addition to brightening clouds, there’s other ways to try to bounce more sunlight back into space and other ideas. My colleague David Gelles wrote the first piece in our series looking the idea of removing carbon dioxide directly from the air, reversing our past emissions.

Other ideas include finding ways to suck up more of the CO2 in the oceans. There’s even ideas that my colleague Cara Buckley covered of could we build a sort of a giant parasol way out in space that would reflect or scatter more of the sunlight and prevent some of that sunlight from even reaching the Earth in the first place?

So there’s a huge number of ideas that until very recently seemed just so bizarre and/or so expensive and/or so dangerous that they were hardly worth pursuing seriously. And what’s changed really quickly in the last really year or two is all of a sudden those ideas have switched from being too wild to spend much time on to being so important because the situation is so dire that we can’t not look at them. And that’s the pivot that my team has been trying to cover.

And what characterizes all these initiatives is that rather than reducing our own emissions, we’re now trying to intervene in the climate in a proactive way, engineering the climate in a way.

Yes, and you hear the phrase geoengineering to describe these ideas collectively. And what people who research this will stress is, we’re already geoengineering. For more than a century, we’ve been geoengineering in the sense of putting climate changing pollution into the atmosphere that’s caused the planet to change by trapping more heat in the atmosphere. So the question is, do we want to deliberately geoengineer in a way that will ease that pressure rather than just making it worse?

Of course, there some controversy attached to this. And there are some pretty valid concerns about what the consequences might be if we keep on pursuing these ideas.

And why are they controversial?

Well, the first concern that you hear is this idea of moral hazard, that if people come to think that there are ways of addressing climate change that don’t require them to change their lifestyle or sacrifice conveniences or change the kinds of cars they drive or how their power is generated that they will lose interest in those tough changes. And the momentum, such as it is, towards cutting emissions will fade even more. But we don’t know yet whether politicians or governments or companies or just people will misuse these ideas to try to shirk the harder work of reducing the amount of greenhouse gases we emit.

Another really important argument you hear is, OK, side effects. Do we really know what would happen if we tried these things? Marine cloud brightening is one of those situations where there are known unknowns and unknown unknowns, as they say.

The known unknowns are, well, what would happen to things like ocean circulation? What would happen to precipitation? What would happen to the effect on the amount of energy reaching the ocean? What would happen to the fisheries industry? We don’t really know, and researchers are trying to find out, what those effects might be.

Then there are the unknown unknowns. If you start deliberately changing the cloud system, well, what else might happen that we haven’t anticipated? Do you move the location of where rainfall happens? Do you perhaps upset the monsoon cycle in India? Do you change the ability to grow food in parts of the world?

So if you do this at a bigger scale, the consequences of those potential side effects get more and more severe. And I talked to environmentalists who said that’s a real concern. You just can’t model those risks. And you, to a degree, by pursuing this, have to accept that risk is real and almost roll the dice.

And I guess much like climate change, where you have a group of countries that is most responsible for CO2 emissions that have caused the global warming and then a whole other group of countries that are probably suffering the worst consequences, even though they haven’t contributed to those emissions nearly as much, you might see a situation where this kind of interference with the climate at the initiative of some countries, presumably the wealthy countries that have that technology, would then have unintended consequences in countries that have no control over this. So that’s tricky.

That’s right. And that takes us to a third category of concerns, which is, OK, let’s assume that things are bad enough, that collectively societies want to take those risks of those side effects. Well, then who chooses, who decides when we get to that point? Is there even a mechanism that would allow you to get informed consent from everybody who’d be affected?

And if these would affect everybody, it’s hard to imagine how you would build a governance mechanism that would allow you to say, before we push the button, are we sure everybody is OK with this? The only counter to all of these concerns is compared to what? And this is the point that researchers make.

OK, this is dangerous. OK, it presents challenges, but compared to what? Their point is, don’t compare it to a situation where everything’s fine. Compare it to a situation we’re actually in, where the trajectory of global warming is so serious and isn’t looking like it’ll get better any time soon. Well, compared to those risks, how do these risks compare?

And the question is, would you rather have a world of basically uncontrolled warming? And we have an idea of what that brings, wildfires and drought and sea level rise and storms and diseases. Is that better than some of these more perhaps controlled risks associated with deliberately tinkering with the environment?

So it’s almost like pick your poison. What sort of threats do you want to embrace? And that’s the overwhelming dilemma that we face with this technology.

In a way, what it makes me think, is that these crazy initiatives that we’ve been hearing about from you are yes, they’re testament to our failure in a way to combat climate change so far, because they’re such a last resort, really, such as an act of desperation. But at the same time, it seems like this urgency has actually unleashed a lot of energy and money to tackle the problem.

Yeah, and there’s good news in this. The good news is, the research we’re talking about demonstrates the really amazing capacity of scientists to come up with new ideas, develop new technologies, test them quickly, and at least build some options.

So if there’s any rays of hope around climate change, it’s that humanity’s capacity to innovate and find new ideas is almost endless. So the question is not, are we pursuing the wrong research ideas? The question is, can we find good ideas fast enough to avert the really serious consequences of climate change that we’re already facing?

Chris, I just remember that scientist we heard in the tape from your visit. And she was so excited. And she said that she was really optimistic. I wonder, how are you feeling?

I think the frustration that you’ll hear among climate reporters, and I’m in this group, is that most people seem not to appreciate the severity of the situation that we’re in. There seems to be a view that we’re dealing with this. People are buying electric cars, and we’re getting more solar power and wind power. And things are going the right way, and this will be OK.

Things are not going the right way. Not only are we on the wrong trajectory in terms of emissions, we are so far away from being on the right trajectory for emissions that it’s hard to imagine us cutting emissions globally at a rate anywhere near fast enough to avoid almost unbearable consequences of global warming. So that’s the downside.

[MUSIC PLAYING] Here’s the good news, though. I do think, and this again I think is a view among other climate reporters, the capacity of scientists and of companies to change track and to find new products and apply new ideas is really impressive. It just doesn’t feel like there’s a connection yet between the urgency of the situation and the way people and companies and governments are responding.

And so I guess if the question is, how I feel about this? I am constantly amazed at the ingenuity of the researchers I come across in my job every day. What I don’t yet know about is whether or not society will move fast enough to adopt and apply those ideas before the conditions that we face from climate change become almost unbearable.

Well, Chris, on this cautiously optimistic note, thank you very much.

Here’s what else you need to know today. In a tense phone call with Israel’s leader Benjamin Netanyahu on Thursday, President Biden called the airstrikes that killed seven aid workers this week unacceptable and threatened to condition future support for Israel on how it addresses concerns about civilian casualties and the humanitarian crisis in Gaza. It was the first time that Biden explicitly sought to leverage American aid to influence Israel’s conduct of the war against Hamas. But the White House stopped short of saying directly that the president would halt arms supplies or impose conditions on their use as some fellow Democrats have urged him to do.

And a centrist group called No Labels has abandoned its plans to run a presidential ticket in this year’s election after failing to recruit a candidate. The group, which last year said it raised $60 million, had planned to put forward what it called a bipartisan unity ticket in the event of a rematch between President Biden and former President Trump but in recent months suffered a string of rejections from prominent Republicans and Democrats who declined to run on its ticket.

Today’s episode was produced by Michael Simon Johnson, Eric Krupke, Luke Vander Ploeg and Rachelle Bonja. It was edited by Patricia Willens, contains original music by Rowan Niemisto, Elisheba Ittoop, and Marion Lozano, and was engineered by Chris Wood. Our theme music is by Jim Brunberg and Ben Landsverk of Wonderly.

“The Daily” is made by Rachel Quester, Lynsea Garrison, Clare Toeniskoetter, Paige Cowett, Michael Simon Johnson, Brad Fisher, Chris Wood, Jessica Cheung, Stella Tan, Alexandra Leigh Yang, Lisa Chow, Eric Krupke, Marc Georges, Luke Vander Ploeg, MJ Davis Lin, Dan Powell, Sydney Harper, Michael Benoist, Liz O. Baylen, Asthaa Chaturvedi, Rachelle Bonja, Diana Nguyen, Marion Lozano, Corey Schroeppel, Rob Szypko, Elisheba Ittoop, Mooj Zadie, Patricia Willens, Rowan Niemisto, Jody Becker, Rikki Novetsky, Nina Feldman, Will Reid, Carlos Prieto, Ben Calhoun, Susan Lee, Lexie Diao, Mary Wilson, Alex Stern, Dan Farrell, Sophia Lanman, Shannon Lin, Diane Wong, Devon Taylor, Alyssa Moxley, Summer Thomad, Olivia Natt, Daniel Ramirez, and Brendan Klinkenberg.

Special thanks to Lisa Tobin, Sam Dolnick, Paula Szuchman, Larissa Anderson, Julia Simon, Sofia Milan, Mahima Chablani, Elizabeth Davis Moorer, Jeffrey Miranda, Renan Borelli, Maddy Masiello, Isabella Anderson, and Nina Lassam.

That’s it for “The Daily.” I’m Katrin Bennhold. See you Monday.

April 8, 2024 • 30:28 The Eclipse Chaser
April 7, 2024 The Sunday Read: ‘What Deathbed Visions Teach Us About Living’
April 5, 2024 • 29:11 An Engineering Experiment to Cool the Earth
April 4, 2024 • 32:37 Israel’s Deadly Airstrike on the World Central Kitchen
April 3, 2024 • 27:42 The Accidental Tax Cutter in Chief
April 2, 2024 • 29:32 Kids Are Missing School at an Alarming Rate
April 1, 2024 • 36:14 Ronna McDaniel, TV News and the Trump Problem
March 29, 2024 • 48:42 Hamas Took Her, and Still Has Her Husband
March 28, 2024 • 33:40 The Newest Tech Start-Up Billionaire? Donald Trump.
March 27, 2024 • 28:06 Democrats’ Plan to Save the Republican House Speaker
March 26, 2024 • 29:13 The United States vs. the iPhone
March 25, 2024 • 25:59 A Terrorist Attack in Russia

Hosted by Katrin Bennhold

Featuring Christopher Flavelle

Produced by Michael Simon Johnson , Eric Krupke , Luke Vander Ploeg and Rachelle Bonja

Edited by Patricia Willens

Original music by Rowan Niemisto , Elisheba Ittoop and Marion Lozano

Engineered by Chris Wood

Listen and follow The Daily Apple Podcasts | Spotify | Amazon Music

Decades of efforts to cut carbon emissions have failed to significantly slow the rate of global warming, so scientists are now turning to bolder approaches.

Christopher Flavelle, who writes about climate change for The Times, discusses efforts to engineer our way out of the climate crisis.

On today’s episode

Christopher Flavelle , who covers how the United States tries to adapt to the effects of climate change for The New York Times.

A blue water cannon is spraying water over the deck of an aircraft carrier.

Background reading

Warming is getting worse. So they just tested a way to deflect the sun .

Can we engineer our way out of the climate crisis ?

There are a lot of ways to listen to The Daily. Here’s how.

We aim to make transcripts available the next workday after an episode’s publication. You can find them at the top of the page.

The Daily is made by Rachel Quester, Lynsea Garrison, Clare Toeniskoetter, Paige Cowett, Michael Simon Johnson, Brad Fisher, Chris Wood, Jessica Cheung, Stella Tan, Alexandra Leigh Young, Lisa Chow, Eric Krupke, Marc Georges, Luke Vander Ploeg, M.J. Davis Lin, Dan Powell, Sydney Harper, Mike Benoist, Liz O. Baylen, Asthaa Chaturvedi, Rachelle Bonja, Diana Nguyen, Marion Lozano, Corey Schreppel, Rob Szypko, Elisheba Ittoop, Mooj Zadie, Patricia Willens, Rowan Niemisto, Jody Becker, Rikki Novetsky, John Ketchum, Nina Feldman, Will Reid, Carlos Prieto, Ben Calhoun, Susan Lee, Lexie Diao, Mary Wilson, Alex Stern, Dan Farrell, Sophia Lanman, Shannon Lin, Diane Wong, Devon Taylor, Alyssa Moxley, Summer Thomad, Olivia Natt, Daniel Ramirez and Brendan Klinkenberg.

Our theme music is by Jim Brunberg and Ben Landsverk of Wonderly. Special thanks to Sam Dolnick, Paula Szuchman, Lisa Tobin, Larissa Anderson, Julia Simon, Sofia Milan, Mahima Chablani, Elizabeth Davis-Moorer, Jeffrey Miranda, Renan Borelli, Maddy Masiello, Isabella Anderson and Nina Lassam.

Katrin Bennhold is the Berlin bureau chief. A former Nieman fellow at Harvard University, she previously reported from London and Paris, covering a range of topics from the rise of populism to gender. More about Katrin Bennhold

Christopher Flavelle is a Times reporter who writes about how the United States is trying to adapt to the effects of climate change. More about Christopher Flavelle

Luke Vander Ploeg is a senior producer on “The Daily” and a reporter for the National Desk covering the Midwest. More about Luke Vander Ploeg

'Shotgun marriage' could solve financial crisis endangering Good Sam, Morton, Saint Anne's

BROCKTON — Steward Health Care plans to leave the Massachusetts market , according to U.S. Rep. Stephen Lynch and confirmed by the company.

Who might take over the for-profit company's hospitals in Brockton, Taunton and Fall River remains a mystery.

Lynch, a Democrat representing the 8th District, toured overburdened Good Samaritan Medical Center in Brockton and shuttered Norwood Hospital on Wednesday. He said he wanted to visit stable facilities like Tufts Medical Center, Boston Medical Center and Massachusetts General Hospital to gauge how they differ from Steward's operations.

"Before we have any shotgun marriage between hospitals, I'd like to figure out in private exactly where those other hospitals stand in terms of their ability to step in, in some capacity," Lynch said at a press conference.

Not paying its bills Owner of Good Sam, Morton and St. Anne's hospitals can't make rent payments. What we know

Citing a "widening investigation," Lynch said that on Jan. 24 a Steward senior vice president told politicos that they intended to "cease operations or exit the Massachusetts market." The company's plan was previously reported by WBUR . A Wednesday letter from Steward confirms that the company plans to leave the state. Responding to Gov. Maura Healey's recent demands , the letter says, "We would welcome the opportunity to meet with you personally concerning the orderly departure of Steward from Massachusetts."

Brockton Mayor Robert F. Sullivan joined Lynch and the city's Beacon Hill delegation in touring Good Sam.

"We need to make sure that this hospital stays intact on the West Side," said Sullivan, who noted that his three children were born at the Pearl Street medical center.

The politicians contrasted the openness they say they've received from Good Sam's president, Matthew Hesketh, with stonewalling about key financial information from the company as a whole.

"I can't speak to the system-level financials. We're focused on taking care of patients at the frontline here," Hesketh said.

'Exorbitant profits' Governor blasts Steward's handling of financial crisis, wants them to hand over hospitals

Amid reports of supply and labor shortages, state monitors have been in place at Good Sam for a month, he said. State regulators are now in all Steward hospitals in Massachusetts, with plans by Healey to expand that oversight.

Many of the key players in any resolution to the crisis gathered Wednesday at Good Sam. Kate Walsh, the state's secretary of health and human services, said her office needs details on Steward's nationwide financial structure to do its job of protecting patients and access to quality care.

"There's a complex financial structure we need to understand," said Walsh.

Steward claims to have given the state the information it has been seeking since at least 2015, when then-Attorney General Healey sued the Dallas-based company for failing to provide financial information required by state law. A Steward spokesperson previously said the company had shared audited financial information in late 2023 and last month . The officials gathered at Good Sam Wednesday, both elected and appointed, disputed that characterization.

Healey imposed a Friday deadline for Steward to come clean with the documentation the state wants. Asked what happens if the company fails to comply, Walsh said she didn't know.

Brockton's only other hospital closed in wake of fire

Contributing to the uncertainty is the closure of Brockton Hospital. A February 2023 fire has kept the East Side facility shut. Current estimates are it will reopen fully in June.

The bottom line for Brockton Neighborhood Health Center CEO Susan G. Joss?

"Brockton Hospital's closure has proven to us that we can't survive with one hospital," said the longtime leader of the downtown facility.

Send your news tips to reporter Chris Helms by email at [email protected] or connect on X at @HelmsNews .

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