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Vol. XVIII No. 4

July - August 2000

ISSN 0115-9097

Weathering the 1997 Asian crisis: How the social services sector survived* by Virginia Pineda**

T

he general response of households to any form of financial crisis would be belt tightening. Aside from avoiding the purchase of unnecessary items, household heads would try to allocate the meager resources among essential household needs, sometimes com-

promising the other needs of the family. In a way, this was how the Philippine government responded to the 1997 regional financial crisis. The general budget for almost all expenditures, including the social services sector, suffered a cutback at the onset of the financial crisis. Administrative Order (AO) No. 372, which took effect on 1 January 1998, directed all government departments and agencies to: (1) reduce total expenditures for 1998 by at least 25 percent of authorized regular appropriations for

What's Inside 4

Political economy 101: Philippine-China relations

8

Measuring poverty in Asia

9

PIDS joins Kabisig exhibit

16

Governance and economics: When legislators and researchers meet

Editor's Notes After the infamous 1997 financial crisis struck the region, almost everyone was concerned on how Asian governments and economies can ever stand up and perform another Asian miracle. In the face of such an economic challenge, more elements were damaged in the process aside from the Philippine peso. The common "tao" was wounded not only by the rising prices of bato page 16

nonpersonal services items and (2) withhold 10 percent of the internal revenue allotment (IRA) to local government units (LGUs). The budget appropriation for the social services sector was not spared. However, compared with other sectors like economic services and national defense whose allocations in the General Appropriations Act (GAA) fell by 30 and 17 percent, respectively, that of the social services sector was reduced by a smaller amount at 10 percent (Table 1). Moreover, six months after, in July 1998, the budgetary reserves imposed on the appropriation for maintenance and other operating expenses (MOOE) for critical basic health and social services programs amounting to P1.5 billion were lifted. Such move was meant to mitigate the adverse impact of the financial crisis on the disadvantaged sectors of society. to page 2 *This article is a condensed version of the study "Impact of the Financial Crisis on Social Services Financing and Delivery" conducted in 1998 under the Impact of the Asian Financial Crisis Project. **Ms. Virginia Pineda is a former Research Associate at the PIDS.


DEVELOPMENT RESEARCH NEWS

Weathering... From page 1

While no reserves were imposed on the Department of Health (DOH), the Department of Education, Culture and Sports (DECS), and the Department of Social Welfare and Development (DSWD) for 1999, the situation was pretty tight for both 1999 and 2000 in real terms. In particular, the 1999 appropriations for DOH were even lower than the 1997 and 1996 levels. And after adjusting for inflation, the proposed new appropriations for DECS and DOH for 2000 are 3 and 8 percent below their respective levels in 1999. This study on the impact of the 1997 Asian crisis on the financing and delivery of social services is most relevant in looking at the effects in 1999 and at the possible similar effects of said low appropriations for the social services sector in the coming years. The major questions that this study attempted to answer are : (1) How did the 1997 Asian regional financial crisis impact on the financing and performance of the three social sector agen-

July - August 2000

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cies’ programs in 19981 and their appropriations for 1999? and (2) How did the government address long-identified budget-related issues? The impact of the financial crisis on the financing of social programs was analyzed in terms of: j how much the department actually spent relative to the appropriated amount (obligations/current appropriation ratio); j how much it was able to use from allotment releases (obligation/allotment ratio); and j how much the government released relative to appropriations (current allotment/current appropriation ratio). To appreciate the implications of these ratios, a definition of terms is in order. Obligations are liabilities legally incurred and committed to be paid for by the government while current appropriation pertains to the amount al-

located by the government for each agency, program, project, and activity for the current year as contained in the General Appropriations Act (GAA). On the other hand, allotment refers to the authorization issued by the Department of Budget and Management (DBM) to an agency which allows the latter to incur obligations or enter into contracts for specified amounts. Based on the Advice of Allotment, DBM releases the corresponding Notice of Cash Allocation (NCA) which specifies the maximum amount of withdrawal an agency can make from a government servicing bank. The obligation/allotment ratio or how much a department or agency was able to use from the allotment releases indicates said department/agency's absorptive capacity. The impact on delivery of services, meanwhile, was evaluated based on the programs’ percentage of accomplishments to targets as measured by performance indicators.

Numbers tell a story

As earlier noted, compared with other sectors, the social services sector was relatively protected from the cutback in expenditures. Nonetheless, in terms of social serTable 1. General Appropriations Act (GAA): Appropriations and Actual National Government vices expenditures Expenditures By Sector per capita, they declined in real GAA Actual Expenditures Share in GAA Actual/GAA terms—from P621 (P million) (P million) (%) (%) in 1997 to P618 in Sector 1998. Still, com1998 1997 1998 1998 1998 pared again with other sectors like Social services 152,301 122,668 137,106 29.50 -9.98 the economic serEconomic services

115,159

108,952

80,786

22.31

-29.85

National defense

46,492

37,366

38,454

9.01

-17.29

Public services

86,692

73,165

78,559

16.79

-9.38

116,371

71,661

105,147

22.54

-9.65

516,215

413,812

439,450

100.00

-14.87

Others Total national government expenditure **

* preliminary ** excluding debt service Source: Department of Budget and Management; Reyes et al. (1999).

Financing and performance of social services programs in 1998 may have also been affected by adjustments related to the transition from the Ramos to the Estrada administration. 1


DEVELOPMENT RESEARCH NEWS

July - August 2000

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Table 2. National Government Expenditures Per Capita By Social Subsectors, 1996-1998 Amount per Capita (P) (in 1985 prices)

Sector

1996

Education Health Social welfare and employment Housing and community development Total social services

1997

Percent Change 1998

1996-97

1997-98

404.97 56.98

474.4 66.17

469.92 55.30

17.14 16.13

-0.94 -16.43

66.93

68.36

79.84

2.14

16.79

25.82 554.7

12.54 621.47

12.66 617.72

-51.43 12.04

0.96 -0.60

Source: Department of Budget and Management; Reyes et al. (1999).

vices sector, that of the social services experienced the smallest reduction, that is, by only 0.60 percent. Within the social services sector itself, meanwhile, real per capita expenditures for health and education seem to have suffered the most, declining by more than 16 percent and by about one percent, respectively, in 1998. For health, in particular, its level of expenditure per capita in 1998 at P55 was even lower than that in 1996 which was at P57 (Table 2).

Impact on 1998 financing and performance of programs2 This section shows how the government financing of the various social services sectors in 1998 affected the performances of the three social services departments in their different programs.

DOH Public health services programs were more severely affected by the fiscal crunch relative to health facilities maintenance and operations. The percentage of expenditures to total appropriation was only 49 percent for public health services compared with 67 percent for health facilities mainte-

nance and operations. The procurement of drugs and medicines was likewise adversely affected as the obligations incurred were only 43 percent of appropriations. Among public health services, the ratio of obligations to appropriation was below 50 percent in some programs. These include control of diarrheal diseases (1%), national diabetes program (17%), cancer control program (23%), immunization program (31%), and sexually transmitted diseases/acquired immune deficiency syndrome (STD/ AIDS) control program (42%). The slow releases of allotment in public health services, to some extent, caused the low level of expenditures relative to appropriations. For instance, government allotment releases for drugs and medicines amounted to 87 percent of appropriations as of December 1998 but only 42 percent of the allotment was obligated for the year. The allotment releases had been much delayed—only 24 percent of the appropriation had been released as of September 1998 which constrained the incurring of obligation and slowed down procurement. Moreover, the government has provided 100 percent of appropriation for the immunization pro-

gram at the end of 1998, but as of September 30, only 69 percent has been released. This contributed to a low obligation/allotment ratio of 31 percent. In contrast, in the case of the control of diarrheal diseases program, the allotment has already been released 100 percent as early as September 30 but the amount obligated was quite low at 1 percent. This was attributed to the suspension of procurement due to alleged irregularities.

The DOH performance by program generally showed a declining percent coverage of eligible population3. Full immunization coverage fell from 89 percent in 1997 to 85 percent in 1998. For the same period, under the nutrition program, the proportion of moderately and severely underweight children supported with new food supplementation decreased by about 6 percentage points. Only 4 percent of the eligible population was given iodized oil capsules in 1998 compared to 17 percent in 1997. Similarly, the DOH was able to provide oral rehydration solutions (ORS) to only 19 percent of diarrhea cases in 1998 compared to 32 percent in 1997. to page 10

Except for the schoolbuilding program and purchase of textbooks, data on appropriations, allotments, and obligations incurred are available only for the respective department’s Office of the Secretary (OSEC). These statistics were sourced from the GAA and the agencies. 3 For consistency, DOH's data were adjusted to exclude areas that have incomplete reports in any of the five years covered. The adjusted data are almost the same as the reported data from DOH. 2


DEVELOPMENT RESEARCH NEWS

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t appears that for more than 1,000 years of recorded history, the direction and improvement in economic relations between the Philippines and China have been dictated, molded and forged by good or bad political considerations. The beginnings of Philippine trade with China show that the good trade relations between Philippine chieftains and Chinese traders were forged on the basis of good political relations. Chinese records show that regular and active trade between China and the Philippines took place only in the 10th century. Earlier trade between the two had to be transacted mainly through the Champa (Vietnam) coast. But Mai-I (Mindoro) traders who previously went through Vietnam before proceeding to China decided in 972 to circumvent Vietnam and instead traded directly with China by sailing into Canton. To do so, Mindoro traders had to secure the blessing of the Chinese emperor with a tribute mission. They gifted the emperor with exotic gifts like pearls, frankincense, myrrh and colorful animals. Thereafter, Mindoro delegations were treated as state guests and enlisted as feudatory princes of the empire. They were bestowed with corresponding seals and patents of office. No doubt, the ceremonial acknowledgement of Chinese imperial suzerainty by tributary missions was good politics. It was in turn rewarded by a grant of accreditation to Mindoro

*This paper is part of the Philippine APEC Study Center Network (PASCN) project on China and came out as PASCN Discussion Paper 99-16. ** Dr. Benito Lim is a professor at the University of the Philippines-Asian Center.

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Political economy 101:

Philippine-China relations* by Benito Lim** traders to engage in direct commercial activities with China. Indeed, the good political relations and cooperation of Sulu with China, which dated back to the Yuan dynasty (1278-1368), had also convinced the Chinese to view Sulu as an equal of Malacca. With Chinese cooperation, Sulu subsequently became an international emporium. Since trade missions were viewed by the Chinese as diplomatic initiatives, the later Butuan missions can be viewed as the beginning of official relations between the Philippines and China. The residence of Paduka Batara in Techow, given by the Chinese to his heirs when he (Paduka) died during his visit, can in fact be interpreted as the first Philippine embassy in China.

From 1521 to 1898 By the time of Magellan’s arrival to the Philippines in the 16th century, regular trade and cultural contacts between China and the Philippines were firmly instituted. But the flourishing trade between Filipinos and Chinese deteriorated by the late 16th to the 17th

century. The entry of the Spanish colonial government interposed restrictions to direct Philippine-China trade. The Spaniards sought to monopolize and capture for themselves trade and commerce, and to direct it toward Spain's colonies in the Americas and to Spain itself in what is known as the Manila-Acapulco Galleon Trade from 1565 to 1815. In the process, the Spaniards took over much of the PhilippineChina trade to the exclusion of the native Filipino traders and merchants. Moreover, whereas several Philippine ports were active before in the international trade, the Spaniards then closed all other ports and concentrated trade in the fortress city of Manila.

From 1902 to 1945 During the American colonial rule, the American discriminatory laws, restrictive immigration laws, stringent business requirements, and constraint of the Chinese from professional practices did not deter the Chinese from actively participating in the Philippine economy. They not only continued to ply their trade but also became the largest distributors of American products in the Philippines.

American discriminatory laws, restrictive immigration laws, stringent business requirements, and constraint of the Chinese from professional practices did not deter the Chinese from actively participating in the Philippine economy.


DEVELOPMENT RESEARCH NEWS

However, after World War II, direct trade between China and the Philippines was halted when the Communist Party took over the government of China.

From the 70s to 1986 Trade with China was resumed in the early 1970s. Trade volumes between China and the Philippines increased as an outcome of deliberate positive political decisions made by the leaders of both countries. From zero volume in 1970 to a target of $20 million in 1973, the amount nearly doubled in 1975 and again in 1977. China moved from being an insignificant trade partner in the early 1970s to become the Philippines’ sixth largest trading partner in 1985, even dislodging Taiwan. The Marcos administration indeed demonstrated that good political relations with China can lead to good business relations. China’s purchase of Philippine products had followed soon after President Marcos sent a string of diplomatic missions to China. However, despite friendly political decisions to keep trade mutually beneficial for both China and the Philippines, the balance of trade, except in 1977, had been in China’s favor ever since the opening of diplomatic relations between the two countries. The drop in trade volume from $311.5 million in 1982 to $151.5 million in 1983, and from $355.8 million in 1985 to $215.3 million in 1986, were the outcome of political economic developments. The drop in 1983 was due to the Philippine balance-of-payment crisis as a consequence of the assassination of Senator Benigno Aquino whereas the drop in 1986 was due to the political uncertainties during and immediately after the snap elections. China’s main exports during this period were mainly energy products like crude oil, petroleum products, steel billet, chemical raw materials, ma-

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The Marcos administration indeed demonstrated that good political relations with China can lead to good business relations.

chinery products, and coal and coal products as well as canned goods and textile. The main reason for the imbalance was due to the Philippines’ purchase of large quantities of crude oil at a “friendship price.” Another reason for the trade imbalance stemmed from the fact that the Philippines and China produced similar products, putting the two countries in competitive rather than complementary footing. Moreover, China purchased only those items listed in the Trade Protocol—new products not incorporated in the Protocol were not purchased. No doubt, though, even good political policies during the Marcos administration, including provisions of a trade agreement granting "most favored nation treatment" to each other, could not erase decades of propaganda that inculcated the fear of communism among the majority of Filipinos, including Filipino-Chinese. Thus, political rapprochement did not remove protectionist policies that demanded strict adherence to the maintenance of trade balance.

From 1986 to 1992 Although China was one of the first few countries that recognized the Aquino government two days after the EDSA “people power revolution,” the Aquino government did not give due attention to China. China was the one who took the initiative to revitalize its relations with the Philippines. One

July - August 2000

month after EDSA, the Chinese Minister of Culture came to Manila to sign a Cultural Agreement Executive program. In May of the same year, the Chinese agreed to: j restructure payment of $11.2 million in rice import credit given to the Marcos administration in 1985, and j renew a credit line for $20 million given to the Philippines by the Bank of China. Given these developments, it was widely expected that Philippine-China relations under the Aquino administration were headed to a good start. Expectations, however, were proven wrong. In sharp contrast to the earlier Marcos policy where commerce, security and friendship were the substance of Philippine-China relations, President Aquino’s East Asia policy was clearly dominated by Taiwan. It took the Aquino government almost three years to reactivate RPChina relations, albeit, mainly through the initiative of Filipino-Chinese who supported her presidency. Although the Aquino administration officially maintained Marcos’ oneto page 6

No doubt, though, even good political policies during the Marcos administration...could not erase decades of propaganda that inculcated the fear of communism among the majority of Filipinos...


DEVELOPMENT RESEARCH NEWS

China... From page 5

China policy, the Philippine-China relations under her administration came to a near standstill. The policy of maintaining trade balance continued but was accompanied by the creation of the Philippine International Trading Corporation which literally replaced the Joint Trade Committee (JTC). The JTC required importers to insure that the equivalent value be exported to China. While this requirement somehow improved the Philippines’ trade balance with China, it also brought down imports from China. The volume of trade may have also diminished due to political decisions to accommodate Taiwan which was seen by China as an attempt to pursue a two-China policy.

From 1992 to 1998 The Ramos Presidency coincided with the easing of global superpower conflict, the opening up of China via full-blown economic reforms and the lingering euphoria of restored democracy at home. President Fidel V. Ramos was credited for having engineered the country’s economic recovery, the pursuit of peace negotiations with the Muslim and Communist rebels and for hav-

The Ramos Presidency coincided with the easing of global superpower conflict, the opening up of China via full-blown economic reforms and the lingering euphoria of restored democracy at home.

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ing more or less neutralized quarreling factions within the military. However, in the last year of his administration, problems emanating in part from economic restructuring and in part from the Asian economic currency problem erupted in quick successions, plummeting the peso into a "shocking" level. Unlike President Aquino, President Ramos took immediate steps to mollify the Chinese. He made a state visit to China in April 1993. His agenda ranged from the expansion of commercial relations with China to the resolution of the Spratlys dispute. To emphasize the agenda, President Ramos not only ordered the termination of the trade balancing program but also brought with him six top Filipino-Chinese tycoons to China. The new trade protocol encompassed pledges of best-efforts on the part of the Philippines to buy Chinese power plants, transmission lines and towers, transformers, metal manufacturing and roadbuilding equipment, electrical products, coal, textiles, steel billets, mineral products, chemicals, cotton, foodstuff and other consumer items. For China’s part, it was to buy Philippine phosphatic and compound fertilizers, chromite ores, copper cathodes and concentrates, tin plates, coldrolled steel, manganese, coconut oil, fatty acid and alcohol, bananas, coffee beans and shelled cashew. The most controversial issue between the Philippines and China during the Ramos administration centered on rival claims on the Spratly Islands West of Palawan. This occurred even after an agreement was signed during President Ramos’ state visit to China. The agreement stated that both countries would shelve the sovereignty issue and adhere to the 1992 ASEAN Manila Declaration enjoining all claimants in the Spratlys to settle their conflicting claims peacefully.

July - August 2000

The most controversial issue between the Philippines and China during the Ramos administration centered on rival claims on the Spratly Islands.

After the Ramos visit, cooperation between the two countries went on smoothly until China’s occupation of the Mischief Reef in 1995 with the recurrent entry of Chinese patrol boats, fishing vessels, and the attempted occupation of the Scarborough shoal. These developments not only engaged the attention of the Ramos government but also led to confrontations that soured Philippine-China diplomacy over the Spratlys. It led the Department of Foreign Affairs to shift its strategy from quiet diplomacy to “internationalizing the issue” by questioning the legitimacy of China’s occupation of the Mischief Reef in international fora. It also brought Congress into the controversy and convinced many of its members to seek a stronger security arrangement with the United States of America. Some of the members of the House of Representatives had questioned the wisdom of the Philippine Senate in rejecting a new agreement on the American military bases previously rejected during the Aquino administration. They claimed that with the presence of the American bases, the Chinese would not dare occupy the islands. The Philippine military interpreted the Chinese presence as “invasion,” “intrusion,” “violation of Philippine territorial sovereignty” and “occupation of Philippine territory and waters.” Since 1995, the Philippine military has considered Chinese presence in the Mischief Reef as a threat to Philippine security.


DEVELOPMENT RESEARCH NEWS

In 1995, it was feared that friendly relations between China and the Philippines would deteriorate after the Chinese occupation of the Mischief Reef. In fact, most observers linked Chinese occupation of the Mischief Reef with commercial and trade issues. They argued that commercial relations would only improve if and when the Chinese occupation of the Mischief Reef was resolved. Several Filipino political leaders demanded that the Chinese leave the Mischief Reef as a precondition to improve Philippine-China relations.

What’s next? Indeed, over the past decade, there has been a tendency by many observers to associate political developments with economic performance. For instance, some quarters have claimed that rampant kidnapping of ethnic Chinese in the Philippines have led to a flight of capital to China. There is also talk that the tension in the Mischief Reef could only exacerbate our commercial relations with China.

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less increased dramatically over the same four-year period.

China set up subsidiaries in the Philippines. The Haier Group of China set up a subsidiary company for the proTrade volume increased from duction and marketing of air condition$456.9 million in 1994 to $1,306 mil- ers in the Philippines and the China lion in 1995 or an increase of 65 per- National Technical Import and Export cent. Indeed, the trade volume in- Corporation (CNTIEC) established the creased more markedly in 1997 when CNTIEC Philippine Mechanical and the Mischief Reef controversy became Electrical Products Co. Ltd. Currently, more pronounced and the Asian finan- too, Harbin Power Engineering Comcial crisis occurred. More striking per- pany Ltd. is engaged in a coal power haps is the fact that while the trade vol- station project in Mindanao which costs ume between China and the Philip- $220 million. For this project, China pines increased during the 1997 finan- will provide $165 million of seller’s credit. It appears that these new subsidiaries are direct mainland ventures and Table 1. Philippine trade with China (In US$ million) have no capital contributions from the Filipino-Chinese. Year Total Exports Imports

Chinese investments were brought in by the Ramos liberalization policy and as part of the broader incentive measures extended for foreign investments. However, when President Ramos issued Executive Order No. 244 which removed China from the list of socialist countries under Letter of Instruction (LOI) No. 444, this eased trade between the two Sources: Philippine-China Trade 1995-1998, China's General AdminSome quarters likecountries. LOI No. 444 reistration Customs; and 1994-1996 Foreign Trade Statistics of the Philwise say that from an interquired strict adherence to ippines. national relations perspecthe maintenance of trade tive and particularly from a balance, meaning that political standpoint, security concerns cial crisis, China’s trade volume with whatever is bought or sold between the that are given primary importance as other ASEAN countries plummeted sig- two countries must always be on par. in the case of the Chinese occupation nificantly. It also required that all trading activiof the Mischief Reef would reduce ties with China be coursed through the trade activities. Yet a review of trade The same thing happened to Chi- Philippine International Trading Corstatistics from 1995 to 1998 appears to nese investments in the Philippines. poration that monitored the impleprove these observers wrong. From 1995 to June 1998, when the Mis- mentation of trade balance. The rechief Reef issue was smoldering, China moval of the “trade balancing proAs gleaned from Table 1, it ap- opened over 100 enterprises with a to- gram” led to an increase in the trade pears that despite China’s construction tal investment of over US$140 million. volume between China and the Philipof a structure in the Mischief Reef in Then, at the height of the Mischief pines. From 1994 to the first quarter 1995 and the controversy it has Reef controversy, when the Philippines spawned since then, trade volumes be- threatened to internationalize the isto page 15 tween the two countries have nonethe- sue, two of the largest corporations in 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986

2013.00 1666.00 1387.00 1306.00 456.97 354.53 297.64 351.27 223.86 271.33 309.08 293.51 215.38

512.00 327.00 372.00 275.00 163.94 173.87 113.90 127.77 61.76 50.23 66.80 87.95 104.69

1501.00 1339.00 1015.00 1030.00 293.03 180.66 183.74 223.50 162.10 221.10 242.28 205.96 110.69


DEVELOPMENT RESEARCH NEWS

P

overty eradication remains the biggest development challenge in the Philippines as well as in many other Asian countries. Understandably, in the aftermath of the East Asian financial crisis, individual governments, development agencies and research institutions have undertaken various efforts to understand both the short- and long-term impact of the crisis.

The Philippine Institute for Development Studies (PIDS) has long been involved in the study of poverty and poverty alleviation in the hope that the concept and dimension of poverty could be better understood and, thus, be properly addressed. In light of this, the Institute linked up with the World Bank Institute (WBI) in the conduct of a twoweek training course on poverty analysis held from 29 May to 9 June 2000 at the ACCEED Conference Center in Makati City. The main objective of the workshop was to help develop local capacity in the various affected countries in the Asian region in analyzing household survey data on the impact of the regional financial crisis on poverty in order that these information may be utilized for better and timely policy planning, evaluation and research on poverty. The resource persons for the course were Professors Jonathan and Dominique Haughton, Dr. Kathleen Beegle from the RAND Corporation, Dr. Gaurav Datt and Dr. Shahid Khandker from the World Bank Institute, Dr. Nanak Kakwani from the Asian Development Bank, and Dr. Celia Reyes from PIDS. Participating countries included Cambodia, Thailand, Indonesia, Malaysia, Vietnam, Korea, Mongolia and the Philippines. * With report from Ms. Hope Gerochi, a research assistant at the Institute.

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July - August 2000

Measuring poverty in Asia* Panel data from the Vietnam Living Standard Survey (VLSS) were utilized and participants were taught to observe poverty dynamics (such as persistence of poverty and transitions into/out of poverty), present a beforeand-after-crisis scenario, and draw inferences from these surveys. Although participants examined the Vietnam poverty landscape, they were expected to draw inferences for their individual data sets so that they will be able to gain insights on statistical and data collection issues that may have been experienced by statistical agencies in their respective countries. Participants were taught the basic concepts on and measures of pov-

erty, public policy, modeling, and monitoring. Most importantly, they were allowed to perform hands-on analysis of cross-section and panel data using the STATA software to examine the (a) construction of household consumption aggregates and poverty lines, measures and incidence curves; (b) basic inputs in a poverty profile; (c) management of panel data for poverty analysis; and (d) analysis of poverty transitions. In the process, the participants appreciated better the importance of identifying who the poor are as the basic step toward creating a poverty profile. And while identifying a monetary indicator of household welfare, a de-

Dr. Jonathan Haughton, an assistant professor of economics at the University of Suffolk in Massachusetts, handled the policy analysis sessions during the joint WBI-PIDS workshop.


DEVELOPMENT RESEARCH NEWS

bate arose on which type of data—income or expenditure-based—is more reliable. While the statisticians among the participants contended that income data exhibit less "noise," the policy analysts among them maintained that expenditure is more reliable since people are very cautious in divulging their real income even though this information can be easily deduced from expenses on basic needs. At the end, the participants agreed on using an expenditure-based measurement. The workshop participants also confronted the problem of assisting the poor given their limited resources. Discussions thus centered on targeting issues such as interventions in the form of subsidies, food stamps, health care, education, and other programs that could assist the marginalized population. Approaches in targeting as well as issues and concepts on income distribution and growth and their connection to poverty were later tackled. The capacity-building aspect of the workshop provided participants with knowledge on state-of-the-art poverty analysis tools, an awareness of certain issues concerning their own poverty data sets, and the capacity to utilize and disseminate results. At the end of the course, participants were asked to draft country reports with emphasis on the impact of the Asian financial crisis on poverty incidence and poverty gap in their respective countries. They were likewise asked to evaluate whether adjustments in the current official methodologies in measuring poverty in their countries have to be implemented. Said reports are expected to be presented in a follow-up forum in either February or March 2001 wherein one or two policymakers from each of the participating countries will comment on the feasibility of the recommendations and plans stated in the country reports. DRN

July - August 2000

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PIDS joins Kabisig exhibit

T

he Philippine Institute for Development Studies (PIDS) participated in the Kabisig Service and Investment Information Exhibit 2000 last February 2428, 2000 at the SM Megamall in Mandaluyong City. The event was sponsored by the Kabisig People’s Movement in Mindanao, a nonpartisan, multisectoral voluntary movement of concerned citizens which helps provide linkages between and among private sector groups and government agencies. The annual exhibit aims to (a) provide opportunities for the public to be informed of how government bureaucracy works; (b) showcase the various profiles, accomplishments, service facilities, programs and projects of government agencies and instrumentalities, including government-owned and controlled corporations, government foreign-assisted projects, and nongovernment organizations; (c) provide opportunities for local government units to promote their investment and tourism potentials; and (d) promote the new products of various small and medium entrepreneurs. The exhibit was made possible through the cooperation of the Civil Service Commission (CSC), Philippine Information Agency (PIA) and Philippine Charity Sweepstakes Office (PCSO). Several fora/seminars were conducted during the exhibit to inform the public about the mandates, service facilities, and accomplishments of the The author, Ms. Melalyn Cruzado, is a Supervising Research Specialist at the PIDS.

participating government entities. The fora served as a venue for discussion on how these government agencies can be of better service to the public. For its part, the Institute displayed its various research outputs, ongoing and pipeline projects, and other service facilities such as the Institute’s databases, among others. It was a rare occasion when different government agencies were assembled in one place with their respective services brought closer to the public. Indeed, the exhibit was an opportunity to promote an awareness and understanding of how the government bureaucracy works. As for the Institute, it was an excellent opportunity for disseminating to the public its role in national development. DRN

The author with Kabisig Mindanao President Mr. Daniel C. Guillen.


DEVELOPMENT RESEARCH NEWS

Weathering... From page 3

Under the National Tuberculosis Control Program, the DOH reported that the ratio of treated tuberculosis patients to the target population decreased from 76 percent in 1997 to 63 percent in 1998. Likewise, of the diagnosed cases for the same years, the proportion that was provided treatment fell from 88 to 51 percent for malaria and from 68 to 29 percent for filariasis. These coverage reductions could increase the incidence of diseases and permanently impair the physical and mental health of the affected population.

DECS The government provided the lowest allotment releases relative to appropriations for Teacher I positions (24%), purchase of desks/chairs, textbooks/instructional materials, tools, furniture, fixtures, computers and other equipment (37%), and land and land improvement (20%). Consistent with such low allotment releases, the obligations/appropriations ratios for Teacher I positions (24%), and land and land improvement (17%) were also low while no

...the number of school building projects (construction, rehabilitation, replacement, completion, repair) declined substantially...by 60 percent. This further worsened the classroom backlog.

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amount was obligated for the purchase of desks/chairs, textbooks/instructional materials, tools, furniture, fixtures, computers and other equipment. However, in contrast to the DOH, the DECS had high utilization rates of the amounts released, such as 89 percent for land and land improvement and 100 percent for most of the specified programs except preschool education and the purchase of desks. Also severely affected by the fiscal constraint was the DECS School Building program. The program is administered by the Department of Public Works and Highways based on the work program submitted by DECS. Its programmed amount for 1998 was cut by 52 percent relative to the 1997 level. This was aggravated by the very low disbursement in 1998 as it covered only 46 percent of obligations for the same year. As a result, the number of schoolbuilding projects (construction, rehabilitation, replacement, completion, repair) declined substantially from 12,147 in 1997 to 4,903 in 1998 or by 60 percent. Furthermore, the proportion of completed projects to the programmed target was much lower in 1998 at 76 percent compared to those of 1996 and 1997 which were almost 100 percent. This further worsened the classroom backlog which was estimated at 10,942 in 1997 (NEDA 1998). On the provision of textbooks, the allotment released for the purchase of textbooks for 1998 as of 30 June 1999 was only 78 percent of appropriations. Delays in the releases of NCAs slowed down procurement. For regions with data on both actual and planned purchases (CAR, Regions 2, 4, 5, 13), the proportion of actual to planned purchases was quite low at 50 percent.

July - August 2000

These coverage reductions could increase the incidence of diseases and permanently impair the physical and mental health of the affected population.

DSWD Out of the appropriated amount for the Department, only 42 percent was released for assistance to persons with disability and senior citizens, 46 percent for nationwide emergency assistance/calamity relief operations and 63 percent for protective services for children and youth in especially difficult circumstances. Greater priority was given to the maintenance and operations of centers and institutions. Allotment for this item reached 80 percent of appropriation. This covered reception and study centers for children, Lingap centers for streetchildren, regional rehabilitation centers for the youth, women centers, and centers for persons with disabilities. In terms of the obligation/appropriations ratio, the same ranking applies. For the locally funded projects, allotment released was 75 percent of appropriation and the obligated amount was 99 percent of allotments. As noted from the data, the DSWD has a high absorptive capacity similar to the DECS. Except for the family welfare fund which has an obligation/allotment ratio of only 22 percent, the obligation/allotment ratios of the other items ranged from 86 to 100 percent. However, the DSWD fell short of its targets in some activities, particularly


DEVELOPMENT RESEARCH NEWS

under the Sulong Dunong Para sa Kabataan and the Self-Employment Assistance Kaunlaran (SEA-K) projects. Sulong Dunong provides relevant skills training to out-of-school youth while the SEA-K is a livelihood assistance program under the Social Reform Agenda (SRA). For 1998, the DSWD achieved only 15 and 17 percent of its target number of youth associations to be organized and involved in community projects and activities, respectively. On the other hand, the actual number of SEA-K associations assisted was only 15 percent of its target. The DSWD was also able to provide self-employment assistance to only 5 out of its targeted 21 families (24 percent of target). In other projects, however, the DSWD surpassed its targets. Most notable is the Comprehensive and Integrated Delivery of Social Services (CIDSS), an SRA flagship project. DSWD accomplishment/target ratios ranged from 105 to 307 percent. The Department likewise exceeded its targets in the Community-Based Rehabilitation Services (CBRS), a program which aims to rehabilitate youth offenders with suspended sentence and to assist them and their families in their reintegration into the mainstream of society.

Impact on 1999 appropriations4 The 1999 GAA explicitly states that no budgetary reserves shall be imposed on DECS, DOH, and DSWD. Despite this, though, financing was tighter in 1999 relative to 1998. New appropriations in 1999 were lower in real terms by 22 percent for DSWD, 20 percent for DOH and 4.5 percent for DECS compared with their 1998 levels. For DOH, its 1999 appropriations were even lower than the 1996 level by about 4 percent. 4

Appropriations are valued in 1996 prices.

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The 1999 GAA explicitly states that no budgetary reserves shall be imposed on DECS, DOH, and DSWD. Despite this, though, financing was tighter in 1999 relative to 1998.

DOH Maintenance and operation of health facilities had the lowest reduction at 2.5 percent and accounted for 60.8 percent of the DOH appropriation in 1999. In contrast, the budget for public health services suffered a bigger cut at 15 percent, constituting 11.5 percent of appropriations in 1999. The provision of drugs was accorded high priority in 1999 as its appropriation increased by 27 percent, the only item with a positive percent change. Under public health services, appropriations for most of the programs decreased by 17 percent. Within family health and welfare, the greatest reductions were on nutrition services and maternal and child health service, by 26 and 24 percent, respectively. In contrast, family planning services had the smallest reduction at 13 percent. For the immunization program, appropriations fell by 17 percent. Within the disease control program, the greatest reductions were for smoking cessation (56%), cancer control (33%), blindness prevention (27%) and AIDS/STD control (26%). For the dengue control program, the decrease in appropriation may be considered moderate at 17 percent.

DECS Among operations, the greatest reduction in appropriations in real terms was on the requirement of

Teacher I positions (about 98%), followed by buildings and structures (61%), and land and land improvement (40 percent). The smallest shrinkages were for pre-school (2%), elementary education (4%), purchase of desks (5%), Government Assistance to Students and Teachers in Private Education or GASTPE (8%), and purchase of textbooks (10%). Only secondary education posted an increase in appropriation by 6 percent. Appropriations for the DECS School Building program also fell by 26 percent in real terms in 1999 while the secondary level was most severely affected as its appropriations became lower by 51 percent.

DSWD Among DSWD operations, the assistance program for the distressed and disadvantaged population had the greatest reduction in appropriation, by 43 percent. Within this program, the appropriation for assistance to persons with disability and senior citizens was slashed by 52 percent and that for assistance to victims of disasters and calamities by 47 percent. For the other programs under operations, technical assistance to LGUs, nongovernment organizations (NGOs), and people’s organizations (POs) and maintenance to page 12

Among DSWD operations, the assistance program for the distressed and disadvantaged population had the greatest reduction in appropriation, by 43 percent.


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Weathering... From page 11

and operation of centers and institutions, the reduction in appropriation was comparatively lesser at 16 percent. Meanwhile, the CIDSS continues to be the top priority project as its appropriation even rose by 5 percent in 1999.

Budget-related issues in the social services sectors There are long-standing issues in the education and health services which have posed some challenges to the government. By comparing previous expenditure patterns5 with those of recent years, this study will indicate whether the government has made some progress in addressing these longidentified weaknesses.

Health In the health area, the following constitute the major challenges: Underinvestment In 1993, the general government expenditure (national government and local government units) on health per

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capita at P95.10 ($3.51) was not enough to cover the price of a minimum package of basic health interventions estimated to cost $12.61 in 1993 (based on World Bank estimates of $12 per capita in 1990 adjusted for inflation). For 1998, national government and local government expenditures on health amounted to a total of P26.6 billion or about $8.65 per capita (based on the 1998 Philippine population of 75.2 million and exchange rate of P40.89/$1).6 Adjusted for inflation, the World Bank-estimated 1998 price of a minimum package of basic health interventions, however, would be equivalent to $18.45. Thus, the shortfall between such price and the general government expenditure on health further widened from $9.10 in 1993 to $9.80 in 1998.

Overallocation for curative care On the average, from 1986 to 1993, about 70 percent of the DOH expenditures was spent on curative services and only 21 percent on preventive health services. In recent years, though, the proportion of curative services had become lower at 55 percent in 1997 but it rose again to 60 percent

Education plays a crucial role in the children's overall formation. As such, the financial crisis’ adverse social impact, in particular on education, may be longterm and irreversible.

in 1999. On the other hand, the share of preventive health services to total health expenditures declined further to 11 percent in 1997 and to 10 percent in 1999. This is an indication that curative care is still being prioritized, even increasingly, over preventive health care.

Overallocation for administrative services The DOH outlays for administrative services have not been reduced in proportion to the devolution of a substantial number of DOH personnel. In 1999, the proportion of general administration and support services to DOH's new appropriations remained high at 13 percent. Hopefully, the current streamlining being undertaken in the central office through the reduction of staff, resources and functions will help decrease general administration expenditures. Underfunding of MOOE Low allocation for MOOE had resulted in a shortage of complementary inputs like drugs, medicines, supplies, fuel, and building and vehicle maintenance. This in effect reduces the effectiveness of the health staff. Relatedly, there has been a marked increase in the ratio of DOH personal services expenditure to maintenance and operating expenditure—from an average of 0.63 in 1980-1982 to an average of 1.02 in 1989-1991. In recent years, based on the appropriations under the GAA, said ratio fell to 0.82 in 1996 but has been increasing to 0.86 in 1997, 0.91 in 1998, and 0.95 in 1999. Education Meanwhile, the major challenges in the area of education are:

Based on the study by Manasan et al. (1996). Data were sourced from the Key Indicators for Asian and Pacific Countries, Asian Development Bank (1999) and the Commission on Audit Report on LGU Operations. 5 6

OECF 1998 Annual Report


DEVELOPMENT RESEARCH NEWS

Financing the operation of 107 state universities and colleges (SUCs) has strained the limited public resources which could have been channelled to basic education.

Underfunding of education Provision of adequate and quality educational inputs and facilities for the growing student population requires resources. Compared with the other ASEAN members, education in the Philippines is underfunded. The country had the second lowest ratio of education expenditures to GDP in 1990. This ratio was higher in 199719987 at around 4 percent but is still below the ratios of the ASEAN members in 1990. Currently, there is the Omnibus Education Bill in the priority legislative agenda which provides for a budget allocation that should meet the full requirement of basic education and shall be provided annually in the GAA. As proposed in the bill, the share of education in the total budget for the year shall not be less than that of the previous year and shall in fact be increased in proportion to enrolment.

Low allocation for MOOE The allocation for the maintenance of existing facilities and other operating expenditures is relatively very little compared to personnel services. In 1990, 16 percent of DECS' new appropriation was for MOOE while 71 percent was for personnel services. In 1999, the share of MOOE decreased Computed based on data from Key Indicators of Asian and Pacific Countries, Asian Development Bank (1999). 7

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further to 10 percent while personnel services rose to 89 percent. Thus, the sector continues to experience chronic shortages in textbooks, desks and other facilities.

Need to rationalize tertiary education Financing the operation of 107 state universities and colleges (SUCs) has strained the limited public resources which could have been channelled to basic education. There is a consensus among studies that it is better for the government to subsidize the student’s education directly through well-targeted and well-defined scholarship schemes for poor but deserving students rather than operate universities and colleges (DBM 1996). In this regard, in July 1999, President Estrada ordered a moratorium on the creation of state universities and colleges. At present, the DECS has the GASTPE scheme to help needy students but its low support level has enabled only relatively better-off families to benefit from said scheme. At the same time, the Omnibus Education Bill also has provisions for the setting up of a voucher system for educational financial assistance.

Inequity in regional allocation The inequitable allocation of resources among regions is reflected in the wide disparity of educational performance across regions. Less developed regions have lower educational performances. The current Fair and

The financial crisis’ adverse social impact as outlined above could be long-term and irreversible since human capital formation is affected.

Equitable Access to Education Act (RA 7880 of 1995), which allocates capital outlay based on student population and classroom shortages, does not address the conditions of small areas that are equally disadvantaged in terms of education and does not close the gap between the well-endowed and the less-endowed areas. A review of this Act should therefore be a priority.

Conclusion The financial crisis’ adverse social impact as outlined above could be longterm and irreversible since human capital formation is affected. Delayed or foregone health care and dropping of students from school reduce the health and education status of the population. Thus, there is a need for the government to undertake specific measures on health and education to (1) cope with the short-term impact of the crisis, (2) assist those who have already been severely affected (e.g., special programs may be implemented for those who have dropped out), and (3) address long-identified structural weaknesses. The government could consider carrying out the following measures already identified (Knowles et al. 1999 and Reyes et al. 1999) in dealing with the short-run effects of the crisis as well as in minimizing costs and enhancing better utilization of resources: j stabilization of food prices and expansion of well-targeted feeding programs; j reduction of the number of textbooks to cover only core subjects and requiring better-off families to pay for their children’s textbooks; j exploration of other more cost-effective options instead of pushing the objective of having an elemento page 14


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Weathering... From page 13

tary school in every barangay and a high school in every municipality. Such other options may include the provision of (a) bus services in areas where there are good roads, (b) dormitory housing for students from far-flung areas (if bus services are not feasible), and (c) incentives for teachers to locate in areas where schools can be costeffectively provided; j increase of the support value of subsidy under the GASTPE and coverage of out-of-pocket costs so that more poor families could be benefited; j facilitation of the rapid expansion of training facilities (e.g., by temporarily employing the educated unemployed like teachers, and temporarily renting unused space for training facilities) to help the youth acquire additional skills during crisis; and j establishment of a strong monitoring system on crisis impact to be able to identify those who should be targeted for assistance and to provide feedback on the effectiveness of policies. Meanwhile, some long-identified structural weaknesses in resource allocation have persisted and even worsened. These include the rising share of curative vis-Ă -vis preventive health care services in the health budget, the declining share of MOOE in DOH and DECS appropriations, and the continuing high proportion of general administration and support services in DOH appropriations despite the devolution of its many personnel. In some of these areas, there may be possible future improvements. In the health sector, for instance, the DOH is in the process of streamlining

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its central office. In education, the priority legislative agenda include a review of the Fair Access to Education Act and the Omnibus Education Bill. Among the provisions of the Omnibus Education Bill are, in particular, as follows: (a) the budget allocation should meet the full requirement of basic education and shall be provided annually in the GAA; (b) the share of education in the total budget for the year shall not diminish from the previous year and shall in fact be increased in proportion to enrolment; and (c) a voucher system for educational finan-

Implementation of these measures could help the social services sector weather the financial crisis and become structurally strong to face the challenges of the new millennium. cial assistance should be set up. In comparing yearly budget levels, it is advisable to make adjustments for inflation rather than just consider nominal values. Another positive development for the three agencies covered in the study is the approval of the current project under the Social Expenditure Management (SEM) loan from the World Bank which aims to improve their core management capacity, including financial and procurement systems. Other specific ways to address structural weaknesses have already been identified in previous studies. Hence, what needs to be done is implementation of these measures which include the following:

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j Promotion of cost-recovery in public hospitals by providing them fiscal autonomy and stopping the renationalization of devolved hospitals. This will free resources for preventive health care and MOOE; j Provision of support to the Philippine Health Insurance Corporation to improve its coverage of indigents and fund utilization; j Integration of uneconomicsized SUCs to achieve economies of scale, implementation of full-cost pricing, and privatization. These will free resources for basic education and MOOE; and j Inclusion of poverty incidence among the budget allocation criteria to minimize inequity in regional allocation. Implementation of these measures could help the social services sector weather the financial crisis and become structurally strong to face the challenges of the new millennium. DRN Bibliography Asian Development Bank. 1999. Key Indicators of Asian and Pacific Countries. Manila: ADB. Associates in Rural Development. 1999. 8th Rapid Field Appraisal (RFA). Governance and Local Democracy (GOLD) Project. Capones, E. 1998. Impact of the Asian Currency Crisis on the Philippine Health Sector. Paper delivered during the International Symposium on Health Initiatives in Asian Economic Crisis-Human-Centered Approach, United Nations University, Tokyo, Japan. Contreras, V. 1999. Erap Stops Creation of New State Colleges. Philippine Daily Inquirer. 10 July. Knowles, J., E. Pernia and M. Racelis. 1999. Social Consequences of the Financial Crisis in Asia. Asian Development Bank Eco-


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60.

____________. 1999. DECS Seeks Aid of LGUs.” 6 June.

Lim, J. 1998. The Social Impact and Responses to the Current East Asian Economic and Financial Crisis: The Philippine Case. United Nations Development Program. Manila.

____________. 1999. Gonzalez Bares DECS Problems and Reforms. 12 April.

nomic Staff Paper Number Mandaluyong: ADB.

Manasan, R. 1994. Breaking Away from the Fiscal Bind: Reforming the Fiscal System. Makati: PIDS. Manasan, R. 1995. Fiscal Decentralization: The Early Years of Code Implementation. PIDS Development Research News. Vol. XIII, No. 4. July-August. Manasan, R., G. Llanto, and W. Nuqui. 1996. Financing Social Programs in the Philippines: Public Policy and Budget Restructuring. Makati: Philippine Institute for Development Studies (PIDS). Manila Bulletin. 1999. Educators Speak. 31 October. ____________. 1999. TEEP Seeks to Upgrade Basic Education in 26 of the Country’s Poorest Provinces. 27 June.

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National Economic and Development Authority. 1999. Medium-Term Philippine Development Plan, 1999-2004. Manila. ________ . 1998. The President’s 1997 Socioeconomic Report. Manila, June.

ing the DOH-PIDS Roundtable Discussion on Health Care Financing, Makati, 8 April. Solon, O. 1999. Inter-LGU Cooperation : the Key to the Issues of a Devolved Health Care System. Policy Notes No. 99-01. Makati: PIDS. February. World Bank. 1998. The Socio-Economic Impact of the Financial Crisis in the Philippines: A Mission Report. 11 June. DRN

Manhit, V. 1999. Gonzalez’s Vision for DECS. Philippine Daily Inquirer. 23 April. Reyes, C., R. Manasan, A. Orbeta and G. de Guzman. 1999. Social Impact of the Regional Financial Crisis in the Philippines. Paper presented during the Finalization Conference: Assessing the Social Impact of the Financial Crisis in Selected Asian Developing Economies, ADB, Manila, 17-18 June. Rimando, T. 1999. No New Teachers. Manila Bulletin. 6 June. Romualdez, A. 1999. An Agenda for Health Financing Reforms. Paper presented dur-

Vol. XVIII No. 4

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Editorial Board Dr. Mario B. Lamberte President Mr. Mario C. Feranil Acting Vice-President and Director for Project Services and Development Ms. Jennifer P.T. Liguton Director for Research Information

China... From page 7

of 1999, Chinese foreign direct investments (FDI) into the Philippines, despite uneasy political tensions over Chinese occupation of Mischief Reef, also increased. Chinese FDI ventures started in 1995. The investments were mainly in selected ASEAN countries such as Malaysia and Thailand and in 1997, the Philippines. These ventures were undertaken with the Chinese government’s encouragement. Paradoxically, trade and FDI data show that good economic relations seem to be much less of a problem between China and the Philippines than the political issues. The question is why

there are still tensions between the two countries. And how these tensions may be eased, if not eliminated altogether. But where did these tensions come from? The source of these tensions may be attributed in part to some Western propagandists who trumpeted the idea that the Chinese have imperial designs on Asia. They may also have been fanned by some of our politicians who portray China as encroaching into Philippine territory. Apparently, these politicians believe that arousing fear of China is sufficient political capital to be voted in the next elections. At any rate, despite all the talk of Chinese “encroachment in the Philippine territory,” the fact remains that our relations with this country, especially in trade and commerce, keep on improving. DRN

Ms. Andrea S. Agcaoili Director for Operations and Finance Atty. Roque A. Sorioso Legal Consultant

Staff Jennifer P.T. Liguton Editor-in-Chief Genna J. Estrabon Issue Editor Sheila V. Siar, Jane C. Alcantara Liza P. Sonico and Edwin S. Martin Contributing Editors Valentina V. Tolentino and Rossana P. Cleofas Exchange Delia S. Romero, Galicano A. Godes, Necita Z. Aquino and Federico D. Ulzame Circulation and Subscription Genna J. Estrabon Layout and Design


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Governance and economics: When legislators and researchers meet

C

ompetition drives every individual to perform better. It also sustains the life of every enterprise. A performance has to be either at par or above the accepted standards in order to survive, moreso in a global economy where companies have to dis-

play their competitive advantage if they want to make continuous successful trips to the bank. In the local scene, the Philippines needs to encourage its manufacturing firms to keep up or stay out indefinitely.

PIDS President Mario Lamberte, Senator Loren LegardaLeviste, and NEDA Deputy Director-General Raphael Lotilla listen intently to PIDS Senior Research Fellow Erlinda Medalla's presentation of the results of the competition policy research study conducted by her team.

Thus, the government needs to implement rational competition policies so as to promote efficiency by encouraging efficiency and growth as well as consumer welfare that is consistent with social objectives. Employing such policies can further enhance the competitive process and ensure that a market in a regional and global setting will be able to function effectively.

DEVELOPMENT RESEARCH NEWS is a bimonthly publication of the PHILIPPINE INSTITUTE FOR DEVELOPMENT STUDIES (PIDS). It highlights the findings and recommendations of PIDS research projects and important policy issues discussed during PIDS seminars. PIDS is a nonstock, nonprofit government research institution engaged in long-term, policy-oriented research. This publication is part of the Institute's program to disseminate information to promote the use of research findings. The views and opinions expressed here are those of the authors and do not necessarily reflect those of the Institute. Inquiries regarding any of the studies contained in this publication, or any of the PIDS papers, as well as suggestions or comments are welcome. Please address all correspondence and inquiries to: Research Information Staff Philippine Institute for Development Studies Room 304, NEDA sa Makati Building, 106 Amorsolo Street, Legaspi Village, 1229 Makati City, Philippines Telephone numbers 892-4059 and 893-5705 Telefax numbers (632) 893-9589 and 816-1091 E-mail address: publications@pidsnet.pids.gov.ph Reentered as second class mail at the Makati Central Post Office on April 27, 1987. Annual subscription rates are: P200.00 for local subscribers; and US$20.00 for foreign subscribers. All rates are inclusive of mailing and handling costs. Prices may change without prior notice.

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Advocating for the formulation of such a rational policy for competition in the country as well as evaluating the competitiveness of certain industries were the focus of a recent joint Legislative-Executive Development Advisory Council (LEDAC) and PIDS seminar. PIDS Senior Research Fellow Dr. Erlinda Medalla, who headed a study team sponsored by the PIDS-based Philippine APEC Study Center Network (PASCN) on competition policy, presented the findings and other relevant results of the team's study in the seminar keynoted by Senator Loren Legarda-Leviste. In her speech, Sen. Legarda expounded on the crucial roles of the legislative and executive bodies in the creation and implementation of policies and laws affecting competition. GJE

Editor's Notes From page 1 sic necessities but also by the reduced and inefficient delivery of social services as well. The government's responsibility to finance and provide for these social services was thus put to a test. The continuing decline in the per capita expenditures for social services especially since the 1997 financial crisis as indicated in this DRN issue's main story consitutes one of the biggest challenges for the government to overcome. Unless certain structural reforms are instituted especially in the budget and financing process, the social dimension of development will continue to deteriorate. In the ultimate analysis, it is the deterioration in this aspect that will remain etched in our minds for there will always be faces of suffering that will stare us in the eye. The government is finding ways to remedy this issue as evident in a number of proposed bills. What is more important, however, is the implementation of several measures geared toward the development of a "structurally strong" social services sector. DRN


Political Economy 101: Philippine-China Relations