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On August 31, the Philippines Department of Budget and Management proposed a substantial increase in defence spending for FY11, to PHP104.5bn (US$2.3bn), a rise of 81% y-o-y. It is expected to be approved by parliament before the end of 2010. The increase is seen as a means to counter domestic insurgency, as well as to contain China's military expansion. The expenditure items will be: PHP82.3bn for 'personal services,' including military operations, PHP17.1bn for maintenance operations and PHP5.1bn for purchasing. PHP10.1 billion will be allocated to the Air Force, PHP11.3 billion to the Navy, and PHP34.7 billion for the Armed Forces headquarters. It is not clear whether some of this increased spending is actually a re-working of the existing budget allocation. President Aquino has appointed Marvic Leonen - the Dean of the University of the Philippines' College of Law - as chief of the government's peace panel. Leonen's appointment will strongly aid the Aquino administration in sealing a final peace agreement with the Moro Islamic Liberation Front (MILF), due to his expertise in Philippine indigenous law as well as natural resources law, two key knowledge areas that will be crucial for the talks in the coming months. Communist rebels of the New People's Army (NPA) in August launched a spate of ambushes against the Philippine military and police, resulting in scores of deaths in places such as Northern Samar, Surigao del Sur and Negros Occidental. The most deadly attack was the strike on the police in Northern Samar, which led to the loss of the lives of eight policemen and a district official. Despite the strikes by the militants, the government will continue its efforts in holding peace talks with the NPA. Although the Philippines is one of Asia's longest-established democracies, it is arguably one of the less mature ones. More than most other Asian states, the Philippines is prone to public unrest and either attempted military coups or rumours of such disturbances. There have been two 'People Power' popular uprisings against corrupt presidents (in 1986 and 2001), and several repeated attempts during the 2000s. As a result of the election of President Benigno Aquino in May, we expect an improvement in the country's business environment, given that the new leader has made corruption eradication his key electoral promise earlier this year. While we anticipate that Aquino's campaign against graft will be challenging, we still anticipate a reduction in corruption in response to the new government's efforts.