Created: 3/30/1949

OCR scan of the original document, errors are possible






.8 forinformation and use of the recipient designated on the front cover and of Individuals under the Jurisdiction of the recipient's office who require the Information for the performance of their official duties.ewhere in the department to other offices which require thefor the performance of official duties may be authorized by the following;

a Special Assistant to the Secretary of State for Research and IntelligenceApartment of

irector of Intelligence, OS, USA. for the Department of the Army

Naval Intelligence, for thc Department of the Navy

of Intelligence, USAF, for the Department of the Air Force

of Security and Intelligence, AEC. for the Atomic Energy

eputy Director for Intelligence. Joint Staff, for the Joint Staff

g. Assistant Director for Collection and Dissemination. CIA. for anyor

_avithcr retained or destroyed by burning in accordance with applicable security regulations, or returned to the Central Indulgence Agency bv arrangement with thc Office of Collection and Dissemination, CIA.

DISTRIBUTION: Offi-ce of the President National Security Council National Security Re sources Board Department ot state Office or Secretary of Defense Department of the Army Department of the Nary Department of the Air Force

State-Army-Nary-Air Force Coordinatlne Commlliee Joint Cliiefs ol Staff Atomic Energy Commission Research and Development Board




The Philippine Republic Is strategically important to thc US chiefly because itink in the offshore island chain which controls Asiatic mainland outlets to thc Pacific and wliich might serveorward base for military operations in Asia.

Philippine Armed Forces, in which the Constabulary is thc largest and mostcomponent, total0 and are incapable of providing external security. However, under the guidance of thc US Joint Military Advisory Group, these forces have been able lo maintain the stability of the national government despite localized lawlessness and disorder. To the extent that the military establishment could be developedS pattern and up to US standards, cooperation with US forces could be facilitated.

Lawless activities0 Communist-led armed peasants known as Hukbala-hap continue to be one of the most serious problems of the Republic. The Constabulary Is able to break up large Huk concentrations, but small rebel bands continue to operate in central Luzon. At the root of the Huk problem Ls the historically inequitable land tenure system which the Government has done little to improve.

The Philippine Government Is relatively stable and is friendly toward USThis friendship is basedonsiderable extent upon large US postwarin the Philippines and an agreement providing for free tradenationalistis being exploited by leftists and politicalgrowing, and extreme nationalists of the minority coalition areetermined bid for the presidency and other public offices which will be on ballots in the9 elections. The leader of the minority coalition and itscandidate for the presidency Is Jose P. Laurel who was Jap-occupation President of the Philippines and who is bitterly anti-US Laurel's prospects have been improved considerably by the current split in the pro-US Liberal Party administration. Afor the extreme nationalists at thc polls in November would signal the long-range weakening of US influence in the Philippines, but during thc next five years economic and military dependence upon the US willhift In the Republic's basic orientation.

The Philippine economy, which hasigh degree of postwar recovery, is important to the US chiefly for its relationship to Philippine internal political stability. However, copra, hemp, chrome, andproducts on the US strategic materialsavailable in the Philippines.

Note: ThU report has been concurred In by the InteDlcenc* evaluations of thc Departments of Slate, the Army, thr Navy, and the Air Toicr it ia based on Information available lo CIA on


The strategic value ol thc Philippine Republic to thc US derives from Its geographic locationomponent of the east Asian offshore island chain, extending north to Include Japan. This chain controls Asiatic mainland outlets to the Pacific, controls east Asian coastwise shipping, protects US shipping routes to Southeast Asia, and could serveorward base for operations against the Asiatic mainland. Thevalue of the Philippines to the US is enhanced by treatiesermit thc US to utilize military bases on Philippine soil,rovide for US assistance in training and developing the Philippine military establishment. Successlul completion of thc program for development of small-scale armed forces on US standards should facilitate any cooperation with US forces that may prove necessary in the defense of US bases In the Philippines. Politically, the Republic has emergedependent wartime status with relative stability. Its government Is modeled after the US pattern and ls friendly toward US Interests. This friendship is basedonsiderable extent upon such economic realities as large US postwar expenditures In the Philippinesreaty guaranteeing free trade which4rofitable business In exports to the US. In return. US citizenspecially privileged position In Philippine economic activities US interests are served also by the resultant availability in the islands of copra, hemp, chrome, and manganese which are on thc US strategic list.

2. PmucrtHB Liari lities.

a Thc Internal stability of the Philippine Republic will continue to be threatened because of the possibility that lawlessness and rebellion against government control will increase beyond the present scale. The most important source of lawlessness is thc presence of an historical and inequitable land-tenure system which resultsife of poverty for large masses of the peasantry. In central Lunon, the consequent agrarian discontent was exploited during the war by an armed organization led by radicaland Communists, calling themselveshose primary mission was extermination of the Japanese conquerors and whose secondary objectives Included agrarian reform and uprooting of US influence In the immediate postwar period, the reconstituted Philippine Government was able lo dislodge the Huks from their control of local authority in central Luzon While government suppression campaignswith temporary localie Huks. whose armed strengthre loosely organized and have sufficient allies both among brigands and among thepeasantry to be able to melt away and regroup Attempts to negotiate with the Huks have been unsuccessful and any attack on the basic problem of agrarianis frustrated by thc wealthy landlord class' domination of thc Government There is some indication that government policy has now settledradual exterml-


nation campaign against thc Huks In point of fact,olicy would stiffen Huk resistance and allow further Communist exploitation of Huk grievances

" Philippine Communists blame both thc US and the Philippine Government loi injustices in thc agrarian economy. Communist slogans, grafted to the Hukdecry USttacking both special US economic privileges and US military bases in thehe spread of hostility toward the US toossible outgrowth of unsolved economic problems, and Communist propaganda could genuinely endanger Philippine stability and prevent US utilization of the military bases.

security of the Philippine Republic is threatened externally, inopinion, by the Communist victories in nearby China. Filipino alarm overencroachment from the north is reflected in elaborate securitythe temporary admission of displaced Europeans evacuated fromconsiderable fear of the possible infiltration of Communist agents may alsoas an excuse for repressive measures against overseas Chinese resident ina group whose predominant control of domestic trade has arousedfor years With Philippine Communists, thc Philippine Governmenta less determined line. The Philippine Communist Party (PKP) of abouthas no clearly defined legal status, although its prewar counterpartuk leader, Luisavoweda seat inCongress fromntil his formal unseating ln late Januarya Representative's pay even for time during which he led armedthe government- An "Un-Filipino Activities Committee" of the Congressinvestigating the extent of Communist Inroads, but the major outcometo be legislation designed to tighten immigration restrictions, anothermeasure directed against Chinese. Perhaps one reason whyGovernment has not taken stronger measures against its ownthe fact that PKPthe US-Philippine Trade Agreementremoval of US troops and bases from Philippinenotwith the more ultra-nationalistic Filipino politicians.

third factor threatens USnationalism, aIn its growth. With postwar independence, ambitious politicians of allexploiting the growing nationalistic sentiment, aided considerably by thePhilippine press. As the foreign country' most in contact with thethe US has received the greatest share of this criticism. US-Philippinethc trade and military bases agreements, are viewed by ardentevidence of UShe "parity" clause of the Tradehilippine constitutional amendment to make it legal, has been atarget for such vocal nationalists as Jose P. Laurel. ex-Jap puppet andIn thc minority party Laurel and other opportunistic politiciansattacked the present government for Its close economic and militarythe US. Every session of the Philippine Congress since independence haslegislation which both postwar Presidents have in turnuch


ultra-nationalistic actions are. of course, economically unrealistic but the sentiments are real enough. Indeed, the most serious threat to US interests In the Philippines is the possibility that. Inspired by growing economic difficulties In the future, leftist and nationalist elements could combine toroadly-based anti-foreign movement which would alter the present pro-US orientation.

Philippine liability is the Republic's Inability to opposedetermined invasion and Its complete dependence upon US military assistance.

support of the Philippines is dependent on long lines of oceanwith the US. In the event of war between the US and the USSR, theof the shortest routes would depend largely on US ability to deny Japan,and Taiwan to the USSR.

3. Probable Future Dkveopmf.nts.

The presidential election of9 will be of importance ln determining the future orientation of the Philippine Republic. If the existing government is returned to power thc present close US-Philippine relationship may be expected toictory for extreme nationalists would indicate the likelihoodong-range weakening of the US position despite continued dependence upon US aid.during the next five years the Philippine Republic's basic pro-US orientation will permit utilization ol Ils strategic assets despite continued Communist agitation, InflllniUon of subversive elements, and increasing anti-US sentiments.






The Philippine Government is relatively stable although it is faced with serious economic and social problems which are being exploited by local Communist leaders. The pro-US orientation of the Philippines continues to be the essential part of its foreign policy, which also advocates support of the UN and tends to sympathize with the nationalist movements of the Southeast Asia countries.


I. Political Structure and Internal Developments.


The Philippine Republic, which was granted independence by the USS, has emerged from Its dependent statuselatively stable government patterned largely upon that of the US. The chief difference from the US model is the greater proportionate responsibility which Is vested in the executive branch of theGovernment. The government Is controlled principallymall group of wealthy landholders who represent the upperast majority of0 population, most of whom are small farmers, tenants, or laborers, belong to the lower class which has little formal educationow standard ofmall middle class composed of government workers, and minor business and professional men Is slowly developing but its influence Is negligible. The government administrative machinery is inefficient andsituation which appears to be primarilylo political inexperience and to the low salaries which government employees receive.

q. Political Parties and Personalities.

PoliUcal parties in the Philippines have seldom been clearly defined and cohesive groups and tend to have less significance than key political figures.leading politicians of both the administration and opposition parties arefor9 presidential nominations in advance of party conventions which are scheduled to be held in April or May.


The Liberal Party, an offshoot of the traditionally dominant Naclonalisla Party, has been in control of thc governmentt was formed to support the presidential candidacy of the late Manuel Roxas against Sergio Osmcna, who had succeeded to the presidency and leadership of the Nacionaiistas after the death of Manual Quezonhe present Chief Executive of the Philippines, former Vice President and Foreign Affairs Secretary Elpidio Qulrlno, succeeded to the Presidency on8 when Roxas died in office. President Quirino has been considered personally somewhat less pro-US than Roxas. but he has continued the latler's policy of maintaining close ties with the US. Immediately upon taking office. President Quirino declared that his objectives were lo restore law and order in central Luzon and lo restore Ihc confidence of the Filipino people in their government by eliminating the

graft and corruption which had evoked widespread criticism of the government toward the end of the Roxas regime. Although he has not achieved outstanding success in his objectives, some gains have been made and Quirinos forthright position has gained him considerable press and public support Thus, although Quirino lacksolitical strength and ability, he has proved himself toore shrewd politician than was first anticipated and has recentlyabinet reorganization which will probably assure himore loyal administration. President Quirino announced his availability for the Liberal Party presidential nomination onovember. Ansplit In the party caused by the ousting of Jose Avelino, party boss and presidential aspirant, as Senate President on9 improves Qulrino's prospects but likewise strengthens the position of thc minority coalition and Its presidentialJose Laurel Qulrino's present control of the Senate, for example, is dependent upon minority support Efforts to resolve differences between the two Liberal factions, however, have not been abandoned, and either agreement upon Quirino or the selectionompromise candidate such as Carlos P. Romuloossibility.

The "Fused Minorityoose coalition consisting principally of Nacionallstas and members of the Democratic Alliance (political afllliate of the Huks) which Joined forces prior to the general electionsn opposition to thc Liberal Party administration. In general, the Nacionalistas represent moderate Minoritywhile thc Democratic Alliance draws considerable support from leftist elements including the Communists. However, the Alliance controls only three seats In the House ofourth seat was held, until recently, by Huk leader and sclf-confcKscd Communist Luis Taruc, who Is now leading the Huk revolt In the field.

The Communist Party of the Philippines (PKP) is believed to have only three thousand active members. The prewar counterpart was declared illegalupreme Court decisionut the legal status of the present Communist Party has not yet been clearly defined. In any event, thc PKP engages In llttlo overt activity, aside from press statements, and no Communists have been elected to any public otllceommunist Party ticket Nevertheless, the Communist Party functions quite actively through several Communist "front" or Communist-Infiltratedthe Hukbalahap, thc Democratic Alliance (DA, an element of the Fused Minority Parties,nd the Congress of Labor Organizations. The PKP is publicly pro-Soviet and generally lollows the international Communist line, although It denies Soviet direction It demands abrogation of the Bell Trade Act' and removal of US troops and bases from Philippine soil. Although party officials deny it, the PKP is believed to maintain liaison with Chinese Communists in the Philippines, who are expected to become more activeommunist-dominated government emerges in China.

The Philippine Government is becoming increasingly concerned over thcthat Chinese Communists and other foreign agents are infiltrating theongressional committee Is currently investigating thc extent of Communist Inroads

* The Bell Trade Actassed by tit* US Congrm aa thc basis (or the US-Philippine Tradeand provide* that equal rinhis must te granted US cltlieni lo develop I'lilllpplnenc operate Philippine uUIIUci In exehaneereferential tariff and war damage


In thcn efTort to arrive at effective combative measures. It Isthat legislation will be introduced in the current session of the Philippineto protect the Republic against subversive activities and to tighten thelaws.

In its present state, the Philippine Communist Party offers no immediate threat cither to US Interests or to the Philippine Government, but. should its influence be extended unchecked through the front organisations, the ability of the Philippine Government to resist Communist demands will be seriously weakened.

6. Internal Problems

The Philippine Government must deal effectively with the problems of agrarian and social unrest, of economic development (see Apjwndix B, Economicf thc organized labor movement, and of the nationalist trend, in order to prevent their profitable exploitation by local Communist and politicalhe ttukbalahap and Internal Lawlessness.

Lawless activities of the Communist-led armed peasants known as Huk-balahap and lawlessness among other dissident groups constitute one of thc most serious problems of thc Republic. Total Huk membership is estimated at fifteen lo twenty thousand although Huk troops probably do not number more than eight to ten thousand including about five thousandhile government forces are able to break up large Huk concentrations, small rebel bands continue to harass thc Luzon countryside.

The Hukbalahap organization was formed chiefly by radical socialists and Communists2 with the avowed purpose of exterminating the Japanese,US influence, and effecting agrarian reforms In addition to fighting the Japanese, the Huks also fought other guerrilla groups and in some cases resisted, although unsuccessfully, attempts of the reconstituted Philippine Government tothem from local governments which the Huks had seized In central Luzon. The Huks have continued to demand agrarian reforms and have also continued their resistance to government authority, except for brief truce periods used to strengthen their forces. Supplies have been obtained by foraging on the countryside and from adherents, including various pro-Communist organizations, largest of which is the National Peasants Unionhe Huks have expressed themselves politically through thc Democratic Alliance allhough the DA president's disavowal of Huk leader Luis Taruc's strongsanctioned the use of violence to achieve Hukthat the Huks may be unable to retain full party support.

Thc problem of dealing with the Huks Is complicated by thc co-existence of disaffected peasants, common outlaws, and Communists within the organi7ation. Thc links have legitimate grievances: the land system has been historically Inequitable and the masses of lhe peasants live In poverty. Partly because the government lsby the landlord class, policies designed to aid the peasants' lot arc ineffective both In formulation and in execution. Brigandage and armed violence have becomewidespreadesult of the war and it Is often extremely difficult touk Irom an ordinary bandit. Firearms are plentifulesult of supplies furnished


guerrillas to fight the Japanese, as well as thefts from US surplus stocks,imports, and an ineffective Constabulary licensing control. Finally. Hukhave been victimizedommunist leadership which champions their cause in return for promised adherence to Marxist ideology. No clear-cut evidence, aside from Marxist literature, has been presented which would indicate that Russians or Chinese in the Philippines are aiding thc Huks. However, some relationship Is probable.

To cope with thc Huk insurrection, the Philippine Government hasual program of force and social amelioration which has been largelyInhortly after President Quirino had assumed office, an amnesty was granted to Huks who would "register" themselves-and their arms. Terms of the amnesty with respect to the final disposition of firearms were ambiguous; the Huks were suspicious of the government's aims, and the amnesty proclamation expiredsignificant results aside from favorable press and public reaction. Huk leader, Luis Taruc, who had taken his seat in the Philippine House of Representatives, again took the field at the head of Huk forces when the amnesty offer expiredaruc had earlier stated that heember of the Philippine Communist Party although he denied taking dictation from the Kremlin, and statements issuedto his flight from Manila decry US "imperialism" and calldemocraticonstabulary operations, which were then begun against the Huks, have reduced the scale of Huk activities and have weakened Huk supply lines, but armed lawlessness has not been eradicated. Moreover, current Constabulary campaigns have caused extensive peasant evacuations from the troubled areasonsequent serious relief problem.

The government's attempts at agrarian reform have also beentenancy laws have not been effectively enforced; land resettlement andhas not produced significant results; and little progress has been made to increase land productivity. Although the government Ls continuing its peasant relief program, there is some indicationolicy of gradual extermination of the Huks, instead, has been decided upon.

While the Huks do not at presenterious threat to theGovernment or to US military installations, they are symptomatic of fundamental economic and social conditions which must be Improved if the Republic is to Insure ils future stability and security.

In addition to Huk activities, unrest among many of the half million Moro (Moslem) inhabitants of Mindanao and particularly Sulu. as well as disturbances on thc Island of Leylc, are further evidence of lawlessness in the Philippines with which the government must cope in order to preserve its stability. While lawlessness on Leytc may be common banditry, unrest among the Moras is based upon genuine social and economic grievances. There has long been an antipathy, based on differences lnand religions, between Christian Filipinos and the Moras. Moreover, there is continuing friction between Christian Filipino settlers and thc Moro inhabitants of Mindanao who resent this "encroachment" on their lands The Moras possess large Quantities of guns which they show no signs of surrendering, partly owing to their traditional love for weapons and partly because of their hatred of the Constabulary.



The most serious situation appears to exist in Sulu Province where some five hundred armed Morns have clashed with Constabulary forces. Although two hundred Moras are reported to have surrendered recently and the Constabulary is confident ofIn its current campaign, some lawlessness ls expected to continue inhe Organized Labor Movement.

The steadily increasing power of the organized labor movement, whichradual leftist trend, presents the Philippine Government with the problem ofthe legitimate grievances of the workers, in order lo prevent their domination and exploitation by Communists and other leftist elements. Although highly publicized strikes and demonstrations tend to overemphasize the influence and achievements of the leftist labor unions, limited gains have been made largelyesult of precedent-setting decisions of thc Philippine Court of Industrial Relationshe Quirino administration hasiberal policy in an attempt to win the confidence of labor and to coax the radical movement into channels of cooperation withand management.

The present labor problem centers on the leftist and extremelyCongress of Labor Organizations (CLO) because ithe core of progressive thought regardinghe principal champion of thc postwar laborhc most likely vehicle of labor's future progress;otential Communistbecause of its leadership than its soda! and political doctrines. Two CLO directors arc known Communists; one of them, Mariano Balgos. Is Secretary-General of the Communist Party.

A congress of at least forty member unions, thc CLO has been the most active force for thc advancement of the postwar labor movement because of itsresponsibility for focusing the attention of the Court of Industrial Relations upon labor disputes. CLO strategy is to refuse conciliation by the Labor Department, forcing each issue into the CIR whose decisions, in the absence of adequate labor legislation, tend to be based upon its own legal precedents. The Court is appointed by thebut is completely independent in its decisions which are subject only to appeal to thc Supreme Court.

The avowed political policy of the CLO, expressedolitical Action Committee formeds to maintain the pressure of labor's interests as an independent force. In actual practice, this policy precludes satisfaction with thein power and has thrown CLO into qualified cooperation with other elements of thespite of divergencies of positive programs. Present indications are that, whatever President Quirino may do for labor, the CLO will support his opponent In9 elections. Although the efficacy of CLO political activity is questionable, its progressive dissatisfaction supports thc belief that its ultimate goals are outside the framework of democratic capitalism.

eaction to the formationovernment-sponsored conservative labor confederation (seeheas organized, within the past year, the Philippine United Peasant and Labor Organizationsomposed of theFederacion Obreras Filipinas, the National Labor Union, and several small unions. Should thc unifying tendencies in PUPLO resultolid ideological and



tactical unit, this new confederation maytrong political jmsition and

attract other independent unions.

The government-sponsored conservative counterpart of PUPLO Is the National Confederation of Trade Unions (NACTU) which claims alember-unions, comprisingercent of the country's organized laborers. The formation of NACTU is attributed to former Senate President and Liberal Party leader Jose Avellno who has been preoccupied with the conceptractable labor confederation for many years. NACTU appears to be dominated principally by company unions, whileconservative unions have given it purely nominal support. The Incentive to join NACTU is the consolidation of backing for those demands that fit within the orbit acceptable to the government. Membership in NACTU Is assumed touaranty of the government's paternalistic support and the understanding consideration ofBecause of the strong desire of progressive labor to maintain its Independent influence, governmental eflorts lo guide the development of thc organized laborare likely to strengthen the solidarity of the progressive elements

The great majority of Filipino workers seem to be comparatively orderly and patient. Their educational level Is low and their adherence lo conservativestrong. However, general discontent engenderedudden drop In living standards together with the cessation of US rehabilitation and other payments, would probably greatly increase the leftist trend in the Philippine laboratkmalism.

An understandable post-Independence trend toward increasingand xenophobia Is providing excellent capital for ambitious politicians, forleaders, and for the sensationalist Manila press While this trend has not so far seriously injured US interests, it has adverse possibilities. US-Philippine treaties, particularly the Trade and Military Bases Agreements, are suspiciously regarded by ardent Filipino nationalists as evidence of UShe so-called "parity" clause of the Trade Agreement proved especially vulnerable to adverse criticism. This clause, whichhilippine constitutional amendment, provides that US citizens shall have equal rights with Filipinos In developing natural resources and operating public utilities. Jose P. Laurel, who is the most vocal exponent ofvigorously opposed the parity amendment7 and has consistently criticized the present administration for Its close economic and military cooperation with the US.

The nationalistic trend has also been expressed in Congressionalaimed primarily at Chinese merchants who control most of the Philippine retail trade. Although anti-Chinese legislation was largely suppressed during thc period of US control,aw was adopted favoring Filipino over Chinese stall holdeis In local markets. Other nationalist legislation, affecting all foreign business, has been passed by every session of the Philippine Congress since independence but, to date, these bills have been vetoed by both Roxas and Qulrino.

The most serious threat to US interests in the Philippines Is the possibility that, in thc event of depressed economic conditions, leftist and nationalistic elements couldroadly-based nationalist movement which would alter the present Philippine orientation toward the US.



2. elations.

The Philippines continues to be oriented toward the US and actively supports the UN. US orientation is basedumber of factors within theraditional friendship built up during the period of USommon cause against thc Japanese in World WarS postwar legislation providing assistance in the reconstruction and rehabilitation of thc Philippineilitary bases and assistance agreements which Filipinos have interpreted as US-Philippine military alliance;he existence of friendly administrations since establishment of the Republicespite the close US Philippine relationship, minor irritations and incidents frequently arise. This situation is attributable in part to the novelty of poliUcal independence and to Filipino sensitive pride which is exploited by political opportunists and more often by an irresponsible press.

In addition to close relations with Lhe US. Philippine foreign policy subscribes to the principle that ultimate security for small nations rests with the United Nations. Consequently thc Republic is actively participating in UN affairs under the direction ofomulo who, partly because of his personal popularity abroad, hasstrengthened Philippine International prestige. Although the Philippinessupports US policy in the UN, there has been some deviation largely owing to Roinulo's championship of thc dependent peoples of Asia, tor whom he haseading spokesman.

In order to further its Internationalprimary goal of Philippine foreignRepublic is actively seeking to maintain and strengthen diplomatic relations with other countries. The Philippines is now recognized by some fifty nations, including all majur powers except thc USSR. (Soviet propaganda derides thc RepublicShe US maintains an embassy hi Manila; China. Italy, the UK. Spain, France. Norway, Sweden, the Netherlands, and Argentina have established legations;otal of twenty-four nations have consular representation.

Until recently. Philippine policy toward colonial peoples has been limited to expressions of sympathy for their national aspirations, and even this policy has been emphasized more strongly by Romulo in Uie UN than by'the Philippine Government in Manila The Philippines, however,eading rote at the Newanuary, where delegate Romulo advocated regional action within the UN in support ot Indonesia In accordance with instructions from President Quirino. however, he contributed his influence both before and during the conference to prevent the development of an anti-western bloc. The Philippine Government has indicated that it will take no unilateral action against the Dutch despite pressure by many Philippinend Moro leaders to adopt strong measures.

Popular anti-Japanese .sentiment, based upon wartime atrocities and controls in thetrong and opposes even trade relations with Japan, but covern-ment policy is moie realistic. Nevertheless. Philippine relations with Japan arc cur-

limited to trade carried on through 8CAPtrictly controlled basis. This arrangement probably will continue until thc peace treaty is signed. The Philippines continues to press for its full share of reparations from Japan as approved byhilippine Minister to Tokyo accredited to SCAP was recently appointed totaff whichrade Missioneparations officer. The Philippinehas generallyolicy of reluctant approval of SCAP procedure, although the press and Individual Philippine officials bitterly oppose any move to liberal ire Japanese occupation policy, to permit Japanese Industrial resurgence, or to initiate significant trade relationships.

Although Philippine policy toward China has been friendly, the government is under constant pressure from Its own nationals to limit thc Influence of Chinese upon the Philippine economy. An example ol this pressure, as well us an apparent desire lo prevent the Immigration of subversive elements, is the Philippine cabinet's recent resolution regulating admission of refugees from China, prohibiting the entry of Chinese nationals In excess of the annual immigration quota of WO persons. No such limitation was placed upon nationals of other friendly countries

In general. Philippine relations with European countries have not beensignificant. Since Qulrino's succession to the Presidency,harp trend toward closer relations with Spain has become apparent. This policy seems to be based largely upon Qulrino's personal attachment to Spanish cultural achievements and his desire to perpetuate them in the Philippines, Although this trend may have future significance, il has had to date no appreciable effect upon over-all policy.




The Philippinesajor source of copra and hempignificant source of chrome and manganese ore, all of which are on the US strategic materials list, The experience of World War II, however, indicates that Philippine output of these products is not ot critical importance to the US. The importance of the Philippine economy to the US, therefore, lies primarily in its relationship to Philippine political stability.

A high degree of economic recovery has been achieved since liberation principallyesult of large US expenditures and the return from heavy copra exports. By terms of the US-Philippine Trade Agreement, however, free trade between the two countries is continuedhus prolonging an essentially colonial economicair degree of stability is virtually assured so long as exports continue torisk market and US Government payments remain heavy. Under present commitments, these payments will continue at approximately their present rate untilt is doubtfulalance of trade will be attained by that time. Some legislation designed to prepare the economy for the decline in US payments andlossreferred market is being implemented, but governmental action In this regard remains largely In the planning stage.

1. US Assistance.

US funds and equipment amounting to approximately0 have been authorized, expended, or distributed in the Philippines since liberation. Payments began immediately after US troops landed in Leyte in October4 when thc US Army began lo distribute civilian supplies on an emergency basis which continued to VJ-day. Moreover. large US Army and Navy expenditures for goods and servicessimultaneously and continue to contribute heavily to the available dollarThc major part of US assistance now being extended to thc Philippines, however, Is made possible by Congressional legislation and treaties designed to aid inand rehabilitation of the Philippine economy, to provide benefits for Fltiplno veterans who fought with US armed forces, and to assist in providing an adequate military establishment. Inumber of special technicalhousing, agricultural, and financialbeen sent to thc Philippines to advise the government on economic problems of reconstruction.

US aid is thus contributing materially to Philippine economic recoveryarge part of the abnormal influx of dollars is being dissipated on luxuries andwithout lasting benefit to the economy. The budgetary loan made by the US7 has enabled the Philippine Republic to provide essential governmentSurplus property transfers have provided the basis for reestablishing vitalfacilities. Surplus property has also included equipment and supplies

urgently needed for the rehabilitation of Industry and agriculture. Indirectly, US financial aid is providing the dollars required to offset thc large Philippine trade deficit.

The net effect of US aid Is to strengthen pro-Amu rican sentiment among Filipinos. Considerable criticism, is, however, being directed at the US for alleged failure lo provide sufficient funds for adequate rehabilitation of the Philippines compared with US expenditures In other parts of the world, particularly in former enemy countries. The US is also being criticized for failure to provide Filipino veLerans of World War II with benefits equal to those granted US veterans, and pressure ls currently being exerted for the enactment of US legislation to remedy this situation.

2. Postwar Economy. o. Agriculture.

The basis of the Philippine economy is tenant and small freeholder farming. Approximately three-quarters of an0 population live on farms and most of the remainder are engaged in processing, transporting, and distributing the farm product or in serving the farm population.


Production of rice, thc principal food crop, has recovered very nearly lo prewar levels when thc domestic food outputercent short of requirements, in contrast56 when wartime dislocations necessitated heavy imports. The Government's goal of self-sufficiency In rice production is theoretically easily obtainable through the use of better seed, fertilizer, more extensive irrigation, and lhe opening of new lands, bul it will probablyumber of years before this goal Is achieved.

In certain areas, particularly thc rice lands of Centraleryand long-standing socio-economic problem exists, basicallyesult ofwithin lhc area. It is aggravatedeudal agrarian system that has resulted In tenancy rates of as high asercent The problem is not susceptible of easy solution and the governmental efforts to solve it have tended to deal with the symptoms rather than with the basic Issue. (Sec

Crop Production.

Under thc prewar pattern, the Philippines obtained the money and ciedkt neccssaiy to cover the cost of imports, lo support the government and to provide new capital by exporting sugar, coconut products, abaca (Manilaobacco, minerals, limber, and certain minor products.

The sugar industry, which provided the largest prewar export, has been slow to recover from wartime devastation, and sugar did not enter the export tradeuring thc second quarleroconut products accounted forercent of the total value of Philippine exports; abaca was second In Importance, and these together wilh sugar made upercent of the total.

b. Mining.

Gold production, which accounted for overercent by value of all mineral output before the war. is currently al leas than one quarter0 rale


ounces were produced and gold was second in value only to sugar among exportHigher costs have prevented complete rehabilitation of the war-damaged gold mines. Refractory grade chrome ore is being produced at thc rate of0 tons monthly. Metallurgical grade chrome ore, manganese, and copper have recently re-entered the export trade but in relatively minor quantities. Thein8 agreed lo the exportons of iron ore annually to Japan0 shipments) in return for certain allocations of finished products.

and Domestic Commerce.

The processing of export products constitutes the only significant industrial activity in the Philippines.

Rather elaborate plans for industrialization, embodied in surveys made6ppeared less urgent as the economyair degree of recovery in accordance with thc prewar pattern. The government, however, has negotiated with the International Bank for Reconstruction and Developmentoanillion Lo develop hydroelectric resources on Luzon and Mindanao which would provide power for the development of light industry. In connection with these negotiations, the Philippine Secretary of Financeroad development program for theo cost an0 million, with the major part to be met by domestic financing. The International Bank has indicated that it may grant an Initial loanillion to finance two power projects on Luzon.

Of morecore of various government-owned manufacturing, trading and service corporations organized before independence, many are now dormant. In the aggregate these enterprises never bulked large in lhe economy and,ew exceptions, they have not been notable for efficient non-political management. It Ls doubtfulemi-industrial and commercial economy can be created among the non-commercial, non-industrial Filipino people by government capitalizationew key enterprises.

Trade and Finance.

Philippine foreign trade remains closely tied lo the US, which7 suppliedercent of imports valued4 and absorbedercent ofhe remainingercent of exports consisted principally of copra shipments distributed among European countries. Preliminary figureshat thc unfavorable visible balance was somewhat reduced but remained large. This trade deficit is currently being more than offset by US Government payments.

In8 an Import Control Act was passed authorizing the President to establish quotas on imports of "luxuries andhe Act wasby executive order,omeercent of imports are affected.

Thc Philippine peso, stabilized at two pesos lo one dollar, is backed one hundred percent by dollar deposits in the US and by silver coins Followingmade in7 by the Joint Philippine-American Finance Commission.


legislation providingentral Bankanaged currency system was enacted in May IMS and thc Bank opened forhen the Bank's procedures are formulated. Philippine currency will be controlledonetary Boardart of the dollar backing of the peso will be released for other purposes. So long as the net balance of payments remains favorable, the Monetary Board should have no difficultytable currency and the legislationogicalto establishment of an independent economy.

The carry-overudgetary loanillion, made by the USFinance Corporationeficit inespitetax collecting machinery and an Inadequate taxigh level of business activity enabled the government toalanced budget forlthough at the expense of adequate government services and salaries. Additional Congressional authorizations have since made it somewhat doubtful that thc balance will be achieved.



The Republic hasilitary establishmentupporting industry able to do more than maintain security against internal disturbances. The Armed Forces of thc Philippines, reorganized by Executive Order of the Philippine President. consistegular Forceeserve Force (which includes the Con-stabulary)otal combined strength3 Although the Armed Forces are loyal, and the Constabulary is believed capable of maintaining the present level ofsecurity, the primary stage of developmentop-heavy command structure, weaknesses in leadership, training, ond equipment combined with the insular character of Philippine geography, indicate that thc Philippine military establishment is incapable of providing for the external security of the Republic without assistanceajor power. By terms of the US-Philippine Military Assistance Agreement, such assistance may not be obtained from non-US sources without mutual consent of the signatories. The only organization that approximates an effective force Is the Philippinewhich, as long as it is reinforced by loyal, adequately supplied regular Armed Forces troops, can continue to maintain internal security in the face of civilon the present scale.

1. Organization.

Organization of the Armed Forces is based on the US model with the President represented by the Secretary of National Defense, acting as Commander-in-Chief. The Chief of Staff, who is in direct command of all elements of the Armed Forces, is the immediate adviser of the National Defense Secretary and execute. Uie Presidentsfunctions in relaUon to strategy. lacUcs, and operations.

a. The Regular Force is divided into the Headquarters, National Defense Forcestrengthncluding the services, and into three major commands:

he Ground Forceotal strength. Since effective opera-Uonal units have been assigned to the Constabulary and to the National Defensethe Ground Force Is incapable of fulfilling its primary mission of provide the land defense of the Republic All energy is being devoted to accomplishing its secondary mission of training recruit*itizen army under the universal military training program Lack of inter-island transportation and communication facilities would, however, seriously hamper any attempt to dispatch troops from Uie central Luzon training camps and installations to other areas ol combat In the event of an emergency.

he Air Force, theoretically considered the Republic's first line of defenseotal strengthofre trained pilots, and Is capable of limited


activity only. Too much emphasis has been placed on operation without proper attention to supply procurement, financial support, and proper maintenance and storage. Approximatelyercent serviceability of aircraft is maintained inunits of the Air Force. Under sustained operations, serviceability would drop to approximatelyercent.

he Naval Patrolotal strengthndartime mission of serving as an auxiliary defense force although it now performs coastal patrolHavingmall number of patrol craft and limited maintenance facilities, the Naval Patrol has not demonstrated effective capabilities to protect the long Philip-pine coastline.

b. The Reserve Force is not fully organized. The only reserve unit yetis the Constabulary which, by law,art of the Reserve Force. It Is estimated that at present not more than one regiment of reserves from World War II veterans and ex-guerrillas could be raised and organized withinoays. In addition, three thousand universal military trainees, estimated to be the maximum training capability of the Republic, could be utilized.


The Philippineeserve component and the largest single element of thc Armed Forces, merits special mention. Thc Constabularyotal strengthroops from the Ground Force, and serves in peacetime as the national police force under the supervision of the Secretary of Interior. It is divided Into provincial commands with heaviest concentrations in central Luzon and Mindanao. The current objective of the Constabulary to restore and maintain law and order in the disaffected central Luzon provinces has not been attained. However, Constabulary forces have been able to reduce the scale of Hukbalahap lawlessness thereby preventing it fromerious threat to the stability of the national government.

Aside from the long-standing agrarian discontent, which is the fundamental cause of Huk activities, the Constabulary's failure to achieve its mission is attributedack of aggressiveness on the part of loweridespread civilianof firearms from both Japanese and US sources and from loosely controlledimports of smalluerrilla tactics of theack of trained and disciplined personnel and equipment as well as inadequate pay.ccasional passive resistance from the local populace which resents alleged Constabulary "abuses" committed during anti-Huk operations.

For fiscal9 the government has appropriatedillion for national defense (or aboutcrccnL of its totaln addition,illion was appropriated for the Constabulary. The Armed Forces are equipped with US Army surplus equipment much of which is inoperable because of improperof parts. Partlyesult of climate and terrain, maintenance of the remainder is generally poor.



Considerable advantage has accrued to the Philippine Armed Forces from the US-Philippine Military Assistance Agreement which was concludednder this agreement,0 million worth ol supplies and equipment irom US Army surplus stocks have been turned over lo the Philippine Armedoint US Military Advisory Group Is currently advising the Philippine Government concerning the development of the Armed Forces. However, development along planned lines and future operational activity will depend upon the extent to which the Philippines can obtain replacements and new equipment from the US. The Republic has made several requests for US assistance under the Agreement. Mostof those requests was made in8 when thc Philippine Governmenta US grant-in-aid ofillion to develop the Philippine Armed Forces along planned levels. The US Ambassador to thc Philippines, the Chief of the Joint US Military Advisory Group, and thc US Military Attache have recommended support of this request. The Republic has also requested US assistance in absorbing part of0 Philippine Scouts to be discharged from the US Army.

4. Potential.

The only factors of military potential in the Philippines are the existence of mill-tary bases and manpower. Without US assistance, the Republic is not capable of developing either potential. Of an estimated one million men of militaryercent are suitable for military employment. Even If the Philippine economy would permit mobilization ofen, the Philippine Government lacks mobilization machinery, training capacity and the logistical means required for their military utilization.

Philippine Armed Forces are currently emphasizing training programs. The Ground Force has trained three thousand ROTC cadetswo months' period and three thousand trainees are participating in the ten months' Universal Militaryprogram inaugurated inhe Philippine Military Academy, with an authorized strength. received its second postwar group of cadets at the end ofhe Philippine Air Force opened its first postwar flying school8 under US-trained instructors; the first class of approximately twenty pilots will graduate9 The US is providing additional trainingelected number of Filipinos both in thc Philippines and in the US.

Despite the Republic's limited military potential, some improvement in the Armed Forces can be expected. Thc recent appointment of former Constabulary Chief Mariano Castancda as Chief of Staff places command responsibility in the hands of an able, experienced soldier. Moreover, the top-heavy command structure is now being overhauledore realistic and effective military establishment is being planned in which Ground Force strength would be increased by reinforced, highly mobile,battalions capable of heavy fire power.

Original document.

Comment about this article or add new information about this topic: