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Diplomacy in Action

Philippines (09/01)


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For the most current version of this Note, see Background Notes A-Z.

PROFILE

OFFICIAL NAME:
Republic of the Philippines

Geography
Area: 300,000 sq. km. (117,187 sq. mi.).
Cities: (2000) Capital--Manila (pop. 9.93 million in metropolitan area); Davao (1.15 million), Cebu (3.3 million).
Terrain: Islands, 65% mountainous, with narrow coastal lowlands.
Climate: Tropical, astride typhoon belt.

People
Nationality: Noun--Filipino(s). Adjective--Philippine.
Population (2000): 76.5 million.
Annual growth rate: 2.36%.
Ethnic groups: Malay, Chinese.
Religions: Catholic 83%, Protestant 9%, Muslim 5%, Buddhist and other 3%.
Languages: Pilipino (based on Tagalog), national language; English, language of government and instruction in higher education.
Education: Years compulsory--6. Attendance--above 97% in elementary grades, 55% in secondary grades. Literacy--94.6%.
Health: Infant mortality rate (1997)--35.2/1,000. Life expectancy (1997)--66.5 yrs.
Work force (2000): 30 million. Agriculture--40%; government and services--37%; industry and commerce--16%.

Government
Type: Republic.
Independence: 1946.
Constitution: February 11, 1987.
Branches: Executive--president and vice president.
Legislative--bicameral legislature. Judicial--independent.
Administrative subdivisions: 13 regions and Manila, 78 provinces, 61 chartered cities.
Political parties: Laban Ng Masang Pilipino (LAMP), Lakas Ng Bayan (Lakas/NUCD), and other small parties.
Suffrage: Universal, but not compulsory, at age 18.

Economy
GDP (2000): $74.7 billion.
Annual growth rate (2000): 4.0%.
GDP per capita (2000): $977.
Natural resources: Copper, nickel, iron, cobalt, silver, gold.
Agriculture: Products--rice, coconut products, sugar, corn, pork, bananas, pineapple products, aquaculture, mangoes, eggs.
Industry: Types--textiles and garments, pharmaceuticals, chemicals, wood products, food processing, electronics assembly, petroleum refining, fishing.
Trade (2000): Exports--$37.3 billion. Imports--$30.4 billion.

PEOPLE
The majority of Philippine people are of Malay stock, descendants of Indonesians and Malays who migrated to the islands long before the Christian era. The most significant ethnic minority group is the Chinese, who have played an important role in commerce since the ninth century, when they first came to the islands to trade. As a result of intermarriage, many Filipinos have some Chinese and Spanish ancestry. Americans and Spaniards constitute the next largest alien minorities in the country.

About 90% of the people are Christian; most were converted and Westernized to varying degrees during nearly 400 years of Spanish and American rule. The major non-Hispanicized groups are the Muslim population, concentrated in the Sulu Archipelago and in central and western Mindanao, and the mountain groups of northern Luzon. Small forest tribes live in the more remote areas of Mindanao.

About 87 native languages and dialects are spoken, all belonging to the Malay-Polynesian linguistic family. Of these, eight are the first languages of more than 85% of the population. The three principal indigenous languages are Cebuano, spoken in the Visayas; Tagalog, predominant in the area around Manila; and Ilocano, spoken in northern Luzon. Since 1939, in an effort to develop national unity, the government has promoted the use of the national language, Pilipino, which is based on Tagalog. Pilipino is taught in all schools and is gaining acceptance, particularly as a second language.

English, the most important nonnative language, is used as a second language by many, including nearly all professionals, academics, and government workers. Only a few Filipino families retain Spanish usage.

Despite this multiplicity of languages, the Philippines has one of the highest literacy rates in the East Asian and Pacific area. About 90% of the population 10 years of age and older are literate.

HISTORY
The history of the Philippines may be divided into four distinct phases: the pre-Spanish period (before 1521); the Spanish period (1521-1898); the American period (1898-1946); and the years since independence (1946-present).

Pre-Spanish Period
The first people in the Philippines, the Negritos, are believed to have come to the islands 30,000 years ago from Borneo and Sumatra, making their way across then-existing land bridges. Subsequently, people of Malay stock came from the south in successive waves, the earliest by land bridges and later in boats called barangays. The Malays settled in scattered communities, also called barangays, which were ruled by chieftains known as datus. Chinese merchants and traders arrived and settled in the ninth century A.D. In the 14th century, Arabs arrived, introducing Islam in the south and extending some influence even into Luzon. The Malays, however, remained the dominant group until the Spanish arrived in the 16th century.

Spanish Period
Ferdinand Magellan claimed the Philippines for Spain in 1521, and for the next 377 years, the islands were under Spanish rule. This period was the era of conversion to Roman Catholicism. A Spanish colonial social system was developed, complete with a strong centralized government and considerable clerical influence. The Filipinos were restive under the Spanish, and this long period was marked by numerous uprisings. The most important of these began in 1896 under the leadership of Emilio Aguinaldo and continued until the Americans defeated the Spanish fleet in Manila Bay on May 1, 1898, during the Spanish-American War. Aguinaldo declared independence from Spain on June 12, 1898.

American Period
Following Admiral Dewey's defeat of the Spanish fleet in Manila Bay, the United States occupied the Philippines. Spain ceded the islands to the United States under the terms of the Treaty of Paris (December 10, 1898) that ended the war.

A war of resistance against U.S. rule, led by Revolutionary President Aguinaldo, broke out in 1899. Although Americans have historically used the term "the Philippine Insurrection," Filipinos and an increasing number of American historians refer to these hostilities as the Philippine-American War (1899-1902), and in 1999 the U.S. Library of Congress reclassified its references to use this term. In 1901, Aguinaldo was captured and swore allegiance to the United States, and resistance gradually died out.

U.S. administration of the Philippines was always declared to be temporary and aimed to develop institutions that would permit and encourage the eventual establishment of a free and democratic government. Therefore, U.S. officials concentrated on the creation of such practical supports for democratic government as public education and a sound legal system.

The first legislative assembly was elected in 1907. A bicameral legislature, largely under Philippine control, was established. A civil service was formed and was gradually taken over by the Filipinos, who had effectively gained control by the end of World War I. The Catholic Church was disestablished, and a considerable amount of church land was purchased and redistributed.

In 1935, under the terms of the Tydings-McDuffie Act, the Philippines became a self-governing commonwealth. Manuel Quezon was elected president of the new government, which was designed to prepare the country for independence after a 10-year transition period. World War II intervened, however, and in May 1942, Corregidor, the last American/Filipino stronghold, fell. U.S. forces in the Philippines surrendered to the Japanese, placing the islands under Japanese control.

The war to regain the Philippines began when Gen. Douglas MacArthur landed on Leyte on October 20, 1944. Filipinos and Americans fought together until the Japanese surrender in September 1945. Much of Manila was destroyed during the final months of the fighting, and an estimated 1 million Filipinos lost their lives in the war.

As a result of the Japanese occupation, the guerrilla warfare that followed, and the battles leading to liberation, the country suffered great damage and a complete organizational breakdown. Despite the shaken state of the country, the United States and the Philippines decided to move forward with plans for independence. On July 4, 1946, the Philippine Islands became the independent Republic of the Philippines, in accordance with the terms of the Tydings- McDuffie Act. In 1962, the official Independence Day was changed from July 4 to June 12, commemorating the date independence from Spain was declared by General Aguinaldo in 1898.

Post-Independence Period
The early years of independence were dominated by U.S.-assisted postwar reconstruction. A communist-inspired Huk Rebellion (1945-53) complicated recovery efforts before its successful suppression under the leadership of President Ramon Magsaysay. The succeeding administrations of Presidents Carlos P. Garcia (1957-61) and Diosdado Macapagal (1961-65) sought to expand Philippine ties to its Asian neighbors, implement domestic reform programs, and develop and diversify the economy.

In 1972, President Ferdinand E. Marcos (1965-86) declared martial law, citing growing lawlessness and open rebellion by the communist rebels as his justification. Marcos governed from 1973 until mid-1981 in accordance with the transitory provisions of a new constitution that replaced the commonwealth constitution of 1935. He suppressed democratic institutions and restricted civil liberties during the martial law period, ruling largely by decree and popular referenda. The government began a process of political normalization during 1978-81, culminating in the reelection of President Marcos to a 6-year term that would have ended in 1987. The Marcos government's respect for human rights remained low despite the end of martial law on January 17, 1981. His government retained its wide arrest and detention powers. Corruption and favoritism contributed to a serious decline in economic growth and development under Marcos.

The assassination of opposition leader Benigno (Ninoy) Aquino upon his return to the Philippines in 1983, after a long period of exile, coalesced popular dissatisfaction with Marcos and set in motion a succession of events that culminated in a snap presidential election in February 1986. The opposition united under Aquino's widow, Corazon Aquino, and Salvador Laurel, head of the United Nationalist Democratic Organization (UNIDO). The election was marred by widespread electoral fraud on the part of Marcos and his supporters. International observers, including a U.S. delegation led by Sen. Richard Lugar (R-Indiana), denounced the official results. Marcos was forced to flee the Philippines in the face of a peaceful civilian-military uprising that ousted him and installed Corazon Aquino as president on February 25, 1986.

Under Aquino's presidency progress was made in revitalizing democratic institutions and respect for civil liberties. However, the administration was also viewed by many as weak and fractious, and a return to full political stability and economic development was hampered by several attempted coups staged by disaffected members of the Philippine military.

Fidel Ramos was elected president in 1992. Early in his administration, Ramos declared "national reconciliation" his highest priority. He legalized the communist party and created the National Unification Commission (NUC) to lay the groundwork for talks with communist insurgents, Muslim separatists, and military rebels. In June 1994, President Ramos signed into law a general conditional amnesty covering all rebel groups, as well as Philippine military and police personnel accused of crimes committed while fighting the insurgents. In October 1995, the government signed an agreement bringing the military insurgency to an end. A peace agreement with one major Muslim insurgent group was signed in 1996.

Joseph Ejercito Estrada's election as President in May 1998, marked the Philippines' third democratic succession since the ouster of Marcos. Estrada was elected with overwhelming mass support on a platform promising poverty alleviation and an anti-crime crackdown.

Gloria Macapagal-Arroyo, Estrada's Vice President, assumed the Presidency in January 2001 after widespread demonstrations that followed the breakdown of Estrada's impeachment trial on corruption charges. The Philippine Supreme Court subsequently endorsed unanimously the constitutionality of the transfer of power.

GOVERNMENT AND POLITICAL CONDITIONS  
The Philippines has a representative democracy modeled on the U.S. system. The 1987 constitution, adopted during the Aquino administration, reestablished a presidential system of government with a bicameral legislature and an independent judiciary. The president is limited to one 6-year term. Provision also was made in the constitution for autonomous regions in Muslim areas of Mindanao and in the Cordillera region of northern Luzon.

The Philippine Senate is elected at large. There are currently 24 senators, 13 of whom were elected in May 2001. Of a possible 250 members of the House of Representatives, 206 are elected from the single-member districts. The remainder of the House seats are designated for sectoral representatives elected at large through a complex "party list" system.

When Macapagal-Arroyo assumed the Presidency, her LAKAS-NUCP-KAMPI party also regained its dominant position in Congress. The party leads the 187 member Sunshine Coalition composed of several major and minor parties. In the Senate, the pro-administration coalition controls 13 of the 24 seats. Members of the Philippine Congress tend to have weak party loyalties and change party affiliation easily.

The government is pursuing corruption-related criminal cases against former President Estrada, who is currently under detention. The terrorist Abu Sayyaf Group (ASG), which recently gained international notoriety with its kidnappings of foreign tourists in the southern islands, is a major problem for the government. In May 2001, the ASG kidnapped several Americans that it still holds. Efforts to track down and destroy the ASG have been unsuccessful. Rising crime and concerns about the security situation have begun to have a negative impact on tourism and foreign investment. The government continues to face threats from both Muslim separatist groups and communist insurgents and is pursuing peace talks with both groups.

Principal Government Officials
President--Gloria Macapagal-Arroyo
Vice President--Teofisto T. Guingona, Jr.
Foreign Secretary--Blas Ople
Charge d'Affaires to the United States--Ariel Y. Abadilla
Permanent Representative to the UN--Enrique A. Manalo

The Republic of the Philippines maintains an embassy in the United States at 1600 Massachusetts Avenue NW, Washington, DC 20036 (tel. 202-467-9300). Consulates general are in New York, Chicago, San Francisco, Los Angeles, Honolulu, and Agana (Guam).

ECONOMY
Since the end of the Second World War, the Philippine economy has had a mixed history of growth and development. Over the years, the Philippines has gone from being one of the richest countries in Asia (following Japan) to being one of the poorest. Growth immediately after the war was rapid, but slowed over time. A severe recession in 1984-85 saw the economy shrink by more than 10%, and perceptions of political instability during the Aquino administration further dampened economic activity. During his administration, President Ramos introduced a broad range of economic reforms and initiatives designed to spur business growth and foreign investment. As a result, the Philippines saw a period of rapid sustained growth, but the Asian financial crisis triggered in 1997 slowed economic development in the Philippines once again. President Estrada tried to resist protectionist measures; and efforts to continue the reforms begun by the Ramos administration made significant progress. A major bank failure in April 2000 and the impeachment and subsequent departure of President Estrada in the beginning of 2001 led to lower growth. Challenges to the Macapagal-Arroyo Administration and a slowing global economy have further depressed prospects for the export-dependent Philippine economy.

Important sectors of the Philippine economy include agriculture and industry, particularly food processing, textiles and garments, and electronics and automobile parts. Most industries are concentrated in the urban areas around metropolitan Manila. Mining also has great potential in the Philippines, which possesses significant reserves of chromite, nickel, and copper. Recent natural gas finds off the islands of Palawan add to the country's substantial geothermal, hydro, and coal energy reserves.

Today's Economy
The Philippines was less severely affected by the Asian financial crisis than its neighbors, due in considerable part to remittances of approximately $5-$6 billion annually from overseas workers. Nonetheless, the country continues to be a weak economic performer. The government hopes to hit at lest 3.3% GDP growth in 2001 (the low end of its targeted 3.3% -3.8% range), but private forecasts are somewhat lower. In 2000, the Philippines GDP increased by 4.0%.

Agriculture contributes about one-fifth of Philippine GDP. Output fell in 1997 and early 1998 due to an El Nino-related drought but increased by 6.6% in 1999 (over 1998's low base). Growth reverted to more normal rates in 2000 (i.e., 3.1% growth). In 2000, agricultural growth slowed to 3.5%. It slowed to 3.3% in the first half of 2001.

Monthly exports continue to grow but at increasingly slower rates, suggesting that the export boom has run out of steam. Electronic and auto parts exports account for most of this growth. The Philippines' traditional exports are stagnant or declining.

The commercial banking sector suffered from high interest rates and higher nonperforming loan levels during the Asian financial crisis and its aftermath, but the banking system remains sound. Interest rates have been brought under control, but loan growth remains slow as banks continue to exercise caution and clean up their balance sheets.

As of end-August 2001, the Philippine peso had lost more than 90% of its value vis-a-vis the U.S. dollar since mid-1997 and currently trades at about 51.00 -51.50/$. Inflation, a perennial problem in the Philippines, is under control and averaged 4.4% in 2000, although cost-push pressure from oil price hikes and a weakening currency emerged during the second half of the year. The government is expected to meet its target to contain 2001 inflation between 6%-7%.

Despite slower than hoped for growth, the Philippines' longer term prospects remain bright. The Aquino and Ramos administrations opened up the relatively closed Philippine economy and provided a firmer base for sustainable economic growth. After a slow start, President Estrada and his cabinet continued with, and expanded, liberalization and market-based policies and reforms. Efforts to reform the constitution to encourage foreign investment, particularly foreign ownership of land, were abandoned amidst nationalist opposition. Initial optimism about prospects for economic reform also had dimmed amid concerns of governmental corruption. Recent scandals involving the Philippine Stock Exchange, and the President's close ties to certain businessmen, shook confidence of investors and the business community and ultimately led to successful efforts to impeach and remove the president. The pace of economic reform, particularly the passage of key legislation in areas beyond retail trade, electronic commerce, banking reform, and securities regulation, is expected to accelerate under Macapagal-Arroyo and should improve the investment and business climate.

Agriculture and Forestry
Arable farmland comprises an estimated 26% of the total land area. Although the Philippines is rich in agricultural potential, inadequate infrastructure, lack of financing, and government policies have limited productivity gains. Philippine farms produce food crops for domestic consumption and cash crops for export. The agricultural sector employs about 40% of the work force but only provides about one-fifth of GDP.

Decades of uncontrolled logging and slash-and-burn agriculture in marginal upland areas have stripped forests, with critical implications for the ecological balance. The government has instituted conservation programs, but deforestation remains a severe problem.

With its 7,107 islands, the Philippines has a very diverse range of fishing areas. Notwithstanding good prospects for the agriculture subsector, the fishing industry continues to face a bleak future due to destructive fishing methods, a lack of funds, and an absence of government support.

Industry
Industrial production is centered on processing and assembly operations of the following: food, beverages, tobacco, rubber products, textiles, clothing and footwear, pharmaceuticals, paints, plywood and veneer, paper and paper products, small appliances, and electronics. Heavier industries are dominated by the production of cement, glass, industrial chemicals, fertilizers, iron and steel, and refined petroleum products.

The industrial sector is concentrated in the urban areas, especially in the metropolitan Manila region and has only weak linkages to the rural economy. Inadequate infrastructure, transportation and communication have so far inhibited faster industrial growth, although great strides have been made in addressing the last of these elements.

Mining
The country is well-endowed with mineral and thermal energy resources. A recent discovery of natural gas reserves off Palawan Island will soon be brought on-line to generate electricity. Philippine copper and chromite deposits are among the largest in the world. Other important minerals include gold, nickel, silver, coal, gypsum, and sulfur. Significant deposits of clay, limestone, marble, silica, and phosphate exist. About 60% of total mining production are accounted for by nonmetallic minerals, which contributed substantially to the industry's steady output growth between 1993 and 1998, with the value of production growing 58%. In 1999, however, mineral production declines 16% to $793 million. Mineral exports have generally slowed since 1996. Led by copper cathodes, Philippine mineral exports amounted to $650 million in 2000, barely up from 1999 levels. Low metal prices, high production costs, lack of investment in infrastructure, and a challenge to the new mining law have contributed to the mining industry's overall decline.

FOREIGN RELATIONS
In its foreign policy, the Philippines cultivates constructive relations with its Asian neighbors, with whom it is linked through membership in ASEAN, the ASEAN Regional Forum (ARF), and the Asia-Pacific Economic Cooperation (APEC) forum. The Philippines is a member of the UN and some of its specialized agencies, the Non-Aligned Movement (NAM, since 1992), and has close links with the Organization of Islamic Conference (OIC). The Philippines has played a key role in ASEAN in recent years and also values its relations with the countries of the Middle East, in no small part because hundreds of thousands of Filipinos are employed in that region. The fundamental Philippine attachment to democracy and human rights is reflected in its foreign policy. Philippine soldiers and police have participated in a number of multilateral civilian police and peacekeeping operations, and a Philippine Army general served as the first commander of the UN Peacekeeping Operation in East Timor. The Philippine Government also has been active in efforts to reduce tensions among rival claimants to the territories and waters of the resource-rich South China Sea.

U.S.-PHILIPPINE RELATIONS
U.S.-Philippine relations are based on shared history and commitment to democratic principles, as well as on economic ties. The historical and cultural links between the Philippines and the U.S. remain strong. The Philippines modeled its governmental institutions on those of the U.S., and continues to share a commitment to democracy and human rights. At the most fundamental level of bilateral relations, human links continue to form a strong bridge between the two countries. There are an estimated 2 million Americans of Philippine ancestry in the United States and more than 120,000 American citizens in the Philippines.

Until November 1992, pursuant to the 1947 Military Bases Agreement, the United States maintained and operated major facilities at Clark Air Base, Subic Bay Naval Complex, and several small subsidiary installations in the Philippines. In 1983 and 1988, the United States and the Philippines completed successful reviews and extensions of the Military Bases Agreement, as amended. In August 1991, negotiators from the two countries reached agreement on a draft treaty providing for use of Subic Bay Naval Base by U.S. forces for 10 years. The draft treaty did not include use of Clark Air Base, which had been so heavily damaged by the 1991 eruption of Mt. Pinatubo that the U.S. decided to abandon it.

On September 16, 1991, the Philippine Senate rejected the bases treaty, and despite further efforts to salvage the situation, the two sides could not reach agreement. As a result, the Philippine Government informed the U.S. on December 6, 1991, that it would have one year to complete withdrawal. That withdrawal went smoothly and was completed ahead of schedule, with the last U.S. forces departing on November 24, 1992. On departure, the U.S. Government turned over assets worth more than $1.3 billion to the Philippines, including an airport and ship-repair facility. Agencies formed by the Philippine Government have converted the former military bases for civilian commercial use, with Subic Bay serving as a flagship for that effort.

The post-U.S. bases era has seen U.S.-Philippine relations improved and broadened, focusing more prominently on economic and commercial ties while maintaining the importance of the security dimension. U.S. investment continues to play an important role in the Philippine economy, while a strong security relationship rests on the U.S.-Philippines Mutual Defense Treaty (MDT). In February 1998, U.S. and Philippine negotiators concluded the Visiting Forces Agreement (VFA), paving the way for increased military cooperation under the MDT. The agreement was approved by the Philippine Senate in May 1999 and entered into force on June 1, 1999. Under the VFA, the U.S. has conducted ship visits to Philippine ports and has resumed large combined military exercises with Philippine forces. Although U.S. aid to the Philippines has taken on a far less prominent role than in the past, assistance programs continue, highlighted by the July 1996 opening of a major airport and harbor project in General Santos City with U.S. Agency for International Development funding. Then-President Ramos underscored the strength of the bilateral relationship by declaring July 4, 1996 to be Philippine-American Friendship Day in commemoration of the 50th anniversary of Philippine independence. Ramos visited the United States in April 1998, and then-President Estrada visited in July 2000. President Macapagal-Arroyo has repeatedly stressed the close friendship between the Philippines and the United States and her desire to strengthen bilateral ties even further.

Trade and Investment
Two-way U.S. trade with the Philippines amounted to nearly $22.7 billion in 2000 (USDOC data). The strong trade ties between the U.S. and the Philippines is reflected in the fact that some 16% of the Philippine s' imports in 2000 came from the U.S., and about one-third of its exports were bound for America. The Philippines ranks as our 19th largest export market. Key exports to the U.S. are semiconductor devices and computer peripherals, automobile parts, electric machinery, textiles and garments, and coconut oil. In addition to other goods, the Philippines imports raw and semiprocessed materials for the manufacture of semiconductors, electronics and electrical machinery, transport equipment, and cereals and cereal preparations.

With some $3 billion investments in the Philippines and an estimated 24% share of the Philippines' foreign direct investment stock as of end-2000, the United States is the Philippines' largest foreign investor. Since the late 1980s, the Philippines has committed itself to reforms that encourage foreign investment as a basis for economic development, subject to certain guidelines and restrictions in specified areas. Under President Ramos, the Philippines expanded reforms, opening the power generation and telecommunications sectors to foreign investment, as well as securing ratification of the Uruguay Round agreement and membership in the World Trade Organization. As noted earlier, President Macapagal-Arroyo administration is continuing such reforms, a position which generally enjoys domestic political support. A major obstacle has been and will continue to be a constitutional restriction on foreign ownership of public utilities, which limits maximum ownership to 40%

During the last few years, the relatively closed Philippine economy has been opened significantly by foreign exchange deregulation, foreign investment and banking liberalization, and tariff and market barrier reduction. In addition, foreign entry into the retail trade sector has been liberalized, with S&R Price as the first foreign company to enter the Philippine retailing market. The Philippine Congress likewise passed the Electric Power Industry Reform Act of 2001, which aims to restructure the Philippine electric power industry and privatize the National Power Corporation (NPC). This legislation presents unlimited opportunities for U.S. firms to participate in the power generation business in the Philippines. Information and communications technologies, backroom operations such as call centers, and regional facilities or shared-service centers are likewise leading investment opportunities.

Principal U.S. Embassy Officials
Ambassador--Francis J. Ricciardone
Consul General--David T. Donahue

The U.S. Embassy is located at 1201 Roxas Boulevard, Manila; tel. (63)(2)523-1001; fax 526-1474; telex 722-27366 AME PH. Website: http://www.usembassy.state.gov/manila. The American Business Center is located at 25/F, Ayala Life - FGU Center, 6811 Ayala Avenue, Makati City. It houses the Foreign Commercial Service: tel (63)(2) 888-4088; fax 888-6606; website: www.usatrade.gov; and the Foreign Agricultural Service: tel (63)(2)887-1137; fax 887-1268; website: www.manila.usda.gov.



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