"Hello Mister Fisherman!" bellows Alexis Cruz through a megaphone to fishmongers in the bustling central market of Baguio in northern Luzon, Philippines. Cruz, a gay activist in his 50s, has long hair and painted fingernails, but is wearing the gender-neutral campaign gear of T-shirt and jeans: "Vote Ang Ladlad! Vote gay, lesbian, transgender, bi-sex-u-aaaaal!"

"We have one of your people here," says a vendor. A shy young man, low-heeled pumps peeking beneath his work apron, is pushed forward to embrace the Ang Ladlad candidate, Bemz Benedito. Benedito, 35, is running for congress in this deeply Catholic country's midterm elections, which take place on Monday. If she succeeds, she will be the world's first politician to win a seat in a national legislature standing for an explicitly lesbian, gay, bisexual and transgender (LGBT) party.

If she did not tell you, you would not know that Benedito was born male. She has the telegenic beauty essential in Filipino politics, but she quite self-consciously eschews the glamorous hyperfemininity associated with transgenderism here. She has a master's in sociology and a decade of work in politics behind her, and projects a diligent sobriety.

In Tagalog, "Ladlad" means the unfurling of a cape, and it has come to signify "coming out". Benedito and her fellow Ang Ladlad candidates are running on a single issue: they vow to pass the anti-discrimination bill, which will specifically protect LGBT people, that has been languishing in congress for 12 years, stymied by the persistent lobbying of the Catholic church.

The Ang Ladlad PartyList was formed by a group of activists in an inspired attempt to exploit the idiosyncratic Filipino electoral system, which reserves a certain number of seats for "special-interest" groups. Each voter casts two congressional ballots: one for a district representative, and one for a special-interest representative. The latter is elected nationally, from a party list, through proportional representation: to gain a seat, a candidate needs to get 2% of the national poll (roughly 300,000 votes).

Traditionally, these have gone to lists representing women, farmers and migrant workers. Seeing a gap, the Ang Ladlad activists, led by a former English professor, Danton Remoto, applied to form their own party list. They were refused permission, in 2010, by the Philippines Commission for Elections, in an extraordinary judgment that cited the Bible and the Koran to assert that they promoted "immorality" and were thus a "threat to the moral and spiritual degradation of the youth [sic]".

The party took the matter to the supreme court and won, just three weeks before the 2010 elections. Thanks to sympathetic media and public outrage at the commission's homophobia, Ang Ladlad garnered 120,000 votes despite barely being able to campaign. Now, three years on, it is fielding a full slate of three candidates (Benedito, Remoto and a lawyer, Raymond Alikpala), who have been on the stump relentlessly for the past three months.

Ang Ladlad campaigners take to the streets. Photograph: Mark Gevisser

Ang Ladlad's bring-out-the-vote strategy is unique: it consists of hitting almost every beauty parlour and Miss Gay pageant in this vast archipelago. In a culture obsessed with adornment and beauty, there are more than enough of both to keep a campaign busy: every neighbourhood hosts at least one annual pageant, and every street in every town seems to have a parlour run by a bakla – the Filipino word for effeminate men who are seen, as in many south-east Asian cultures, to be a third gender.

"The parloristas are our backbone," says Benedito as we enter yet another kitschy jewel box staffed by a bustling claque of bakla in various stages of transition. "These are the nerve-centres of the community, and also the place where bakla come into contact with the broader community. Every Filipina woman has a bakla hairdresser!"

One of Benedito's missions is to ensure that bakla are no longer limited to working in the beauty industry. The child of a middle-class political family from Abra province, she was raised by accepting parents who insisted on her further education: "When I came out to my father, he said: 'Do not take part in the Miss Gay pageants. I do not want you to degrade yourself, and to be an 'entertainment' in other people's eyes."

For Miss Gay contestants, the pageants are a way of coming out: a mentor teaches you how to present yourself as female. Benedito loathes the contests, but accepts they are key to her campaign strategy, for they are as much community entertainment – the whole neighbourhood turns out to watch – as they are political rallies.

After our visit to Baguio, I accompany the campaign team to pageants on the beach in the nearby city of Dagupan. Ang Ladlad's local coordinator here is Santy Layno, a former sex-worker with the tiniest set of hotpants in politics. Offstage, she is as lewd as Benedito is buttoned down, but onstage she is all business: her speech is masterful.

She is not the only one campaigning tonight: several local candidates take the mic, outdoing each other in campaign promises for bakla constituents. The pageant contestants themselves are in campaign mode too – and not just for the crown. As well as having to compete in four categories – national dress, swimwear, casual wear and evening wear – they must give interviews, in which they often opine, rather grandiloquently, on the situation of gay people. To rapturous applause, one contestant says: "We are here to show you that we homosexuals have an extraordinary ability to entertain you and to fill your life with happiness and joy."

Benedito's point is, precisely, that bakla should aspire to do more than that. She joined Ang Ladlad after she was sexually assaulted at work. When she complained to her boss, he responded: "I thought you gays want this to happen for you to be validated that you're a woman?" When she tried to pursue sexual harassment charges, she failed, given that she is legally a man (the Philippines does not have gender recognition legislation that allows for official gender change).

One nonetheless gains the impression, on the Ang Ladlad campaign trail, of the Philippines as a particularly tolerant society. There are one or two giggles, and the occasional question asked of Benedito as to whether she has a penis, but there is no contention and no aggression. In a Catholic country that has just been riven by a national debate on whether the state can provide contraception and where there is no divorce law, this is remarkable. There are many possible explanations for this public tolerance, ranging from a sometimes slavish aping of the US, through the country's creole culture, which mixes up traditions in a way not dissimilar to Latin America, and the legacy of the babaylan, who were indigenous gender non-conforming healers and priests.

Benedito has her own way of understanding it: "Filipinos are kind," she says. "That might mean tolerance, so long as you stay in your place. But it does not necessarily mean acceptance. And certainly not equality, yet."

A Ladlad poster trying to win the straight vote. Photograph: Mark Gevisser

The problem facing Ang Ladlad is that the kindness of straight people, even augmented by the parlorista vote, might not win it a seat. And so, to make it to congress, Ang Ladlad has had to dirty itself in the rough and tumble of Filipino politics, which is all about vote-buying and deal-making. Every congressman gets 70m pesos (£1.1m) a year to spend on community projects from a fund that everyone unashamedly calls "the pork barrel". If a local strongman is willing to tell his supporters to vote Ang Ladlad, his city might be the recipient of some of the party's largesse once it is in congress.

Perhaps more importantly, Ang Ladlad, which has almost no war chest, has had to make pacts with other candidates. Remoto is blunt about this: "They give us campaign materials, and we give them our endorsement." He qualifies himself immediately: "Well, they also have to show themselves to be in support of the anti-discrimination legislation in congress."

Remoto is unrepentant in his assessment that you make it into power in the Phillipines not by what you stand for, but by whom you know. He also sees it as a triumph that candidates across the spectrum, from the far left to the far right, have sought a gay endorsement. But many liberals do not plan to vote for the party because of the alliances it has made with rightwing politicians: some of these politicians are firmly in the Catholic anti-abortion camp on reproductive rights, and even worked against including sexual minorities in the anti-discrimination legislation. Many lesbians, too, will probably stay away from the party and choose one of the women's party lists instead – in part because of Ang Ladlad's refusal to address same-sex relationships, which it sees as too divisive for the moment.

But for Benedito, the election is a moment that should not be squandered: "If we don't make it, it will only prove that we don't have the force. If we win, it will show that there's an LGBT sector that all politicians have to court if they want to be in power."

The Ang Ladlad candidates are bullish, but it is impossible to predict their chances, as the opinion polls are inconclusive. The party boasts some powerful media supporters – including Boy Abunda, the country's most influential news anchor, an openly gay man; and Kris Aquino, a talkshow host who is President Noynoy Aquino's sister. The party list system's lack of credibility also works, paradoxically, in Ang Ladlad's favour: because of the way the special interest parties have been discredited by pork-barrel politics they attract a very low turnout. This means that if the party can bring out its faithful, it should easily be able to make the 2% threshhold.

And the faithful are passionate: "Of course I will vote for Ang Ladlad," says Valerie – an ageing parlorista in a boob-tube with an androgynous peroxide hairdo – after Benedito has swept through her salon. "I'm tired of doing hair all my life. I want to do politics now!"

Mark Gevisser is an Open Society Fellow writing a book on "the global sexuality frontier"