Economic stability of the Philippines was discussed in this report. Private investment remained low by regional standards, but there are tentative signs of a revival. These developments and favorable global conditions led to a surge in foreign exchange inflows and the external value of the peso. Inflation remained low because of an appreciating peso and prudent monetary policy. The authorities are encouraged to strengthen the tax effort. Legislation is being considered to restore the tax base by rationalizing fiscal incentives and adjusting excise taxes.