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March - April 2001

Vol. XIX No. 2

Overcoming obstacles:

What's Inside 8 9 10-11

13 16

ISSN 0115-9097

The Corporate News: Gearing up for future research challenges A cartel in RP’s cement industry? Globalization and the Filipino worker * The search for greener pasture * Are Filipino professionals ready for the world? Preventing another Asian crisis To spur e-commerce growth * Government pushes low-cost access to Internet

Land development in the Philippines* Marife M. Ballesteros**

G

overnments can intervene in the property market through land use

planning. This measure, which involves physical, environmental and zoning plans, is intended to guide the pattern of land development

as well as provide the means to manage problems and opportunities arising from conflicting and complementary uses of land. Land use planning controls, however, may restrict the supply of urban land and thus increase the demand

Editor's Notes

for and value of land.

The feature article for this issue focuses on the problem of land development and the different obstacles that property developers have to overcome in securing clearances and approvals. This piece is written by PIDS Research Fellow Dr. Marife M. Ballesteros, one of the newest and youngest members of the Institute's inhouse pool of experts. Dr. Ballesteros recently graduated from the University of Nijmegen in the Netherlands with a Ph.D. in Social Sciences. Her present field of specialization is institutional economics.

The value of land arises mainly from scarcity1. The price of land rises because of the demand generated by urbanization and competition for sites, which agglomeration has made more productive. However, an expansion of the urbanized area will bring in low priced lands into the periphery. This will have the effect of correcting or modifying the increase in price within the existing boundaries. If there are constraints in the expansion of land in the peripheral areas such as a restrictive land conversion policy, the resulting price correction, though, will not happen. Therefore, higher rates of increase in land prices are expected. In the Philippines, an investigation of residential land prices reveals that the country's land development multiplier (or the average ratio of the median price of serviced land to the median price of raw, undeveloped land) is +2 the highest compared to neighboring Asian countries (Table 1) despite

A condensed version of PIDS Discussion Paper 2000-20 entitled "Land Use Planning in Metro Manila and the Urban Fringe: Implications on the Land and Real Estate Market." ** Research Fellow, Philippine Institute for Development Studies (PIDS). 1 Based on the Ricardian land price theory.

*

+14


DEVELOPMENT RESEARCH NEWS

Land...from page 1

The intent of these regulations is safeguarded through the development control process wherein permissions have to be obtained by a developer or private individual from appropriate authorities...

the more restrictive land policy in the latter. For instance, rural-to-urban land conversion in South Korea is severely restricted because of the rigidly enforced greenbelt regulations and masterplan provisions that limit residential development to only 25 percent of the total land area (World Bank 1993). Japan, on the other hand, imposes a high conversion tax.

* Development of serviceable lots process, which involves putting infrastructures and other services into an area on which several buildings are to be put up;3 and

What brings about this high land development multiplier in the Philippines? The answer to this may be seen in an examination of the land development process which reveals high transaction costs in "servicing" land for urban uses.2

"Servicing" the land The land development process refers to the activity of “servicing” land for urban use. It consists of two phases:

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* Building development process, which involves putting up structures on serviced lands. In the Philippines, most land developments are undertaken by the private sector. Figure 1 documents the process wherein a developer first buys and consolidates parcels of land, and

Table 1. Land Development Multiplier and Construction Costs for Medium-cost Residential Housing, 1990 Country (City)

Land Development Multipliera

Permits Delay (months)b

Philippines (Metro Manila)

6.7

36

Indonesia (Jakarta)

2.2

28

Malaysia (Kuala Lumpur)

4.3

18

Thailand (Bangkok)

2.6

11

Singapore (Singapore)

1.3

2

Japan (Tokyo)

2.0

8

Hong Kong

1.2

2

South Korea (Seoul)

3.8

20

Australia (Melbourne)

2.2

36

puts in infrastructure services. He may then sell individualized serviced lots or put buildings on the serviced lots before selling the buildings and the lot where they stand. The public spaces or common areas such as roads and parks, among others, are then transferred to the municipality or homeowners’ association. The private developer provides for the primary services (onsite developments) and, in some cases, secondary services (offsite services). Private entities undertaking land development have to conform to specific standards that are stipulated in different land use regulations. These include zoning laws, subdivision and building regulations, land conversion/ reclassification regulations and environmental controls. The intent of these regulations is safeguarded through the development control process wherein permissions have to be obtained by a developer or private individual from appropriate authorities before any change in use, intensity or boundary of development can be undertaken. The development control process has been institutionalized in the country since the late 1970s.4 This process Monopoly in the real estate market may also be an alternative reason for a high land development multiplier. Ballesteros (2000) showed, however, that this is not the case in the Philippines based on concentration ratios and market share data. 3 Literally, this is also referred to as the activity of “connecting” the area to be developed to an existing build-up area. 4 Prior to this date, physical planning was limited to major urban sites (Ocampo 1992). 2

The land development multiplier is defined as the average ratio between the median land price of a developed plot at the urban fringe in a typical subdivision and the median price of raw, undeveloped land in an area currently being developed. b Permits delay is defined as the median length in months to get approvals, permits and titles for a new medium-sized (50-200 unit) residential subdivision in an area at the urban fringe where residential development is permitted. a

Source: Housing Indicators Program, United Nations Centre for Human Settlements and the World Bank, Revised Report, October 1993.


DEVELOPMENT RESEARCH NEWS

Figure 1. Land Development Process 1. Acquire raw land

u

2. Clean-up (Check titles, etc.)

u

3. Technical planning

u

4. Secure permits

u

5. Construct

u

6. Sell

u

7. Document

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was initially implemented through a centralized scheme but beginning 1992, a decentralized system was adopted where local government units (LGUs) were given a major role in the physical planning of their respective municipalities/cities. Six major permits have to be obtained for housing land development, namely: * * * * * *

locational clearance, development permit, building permit, environmental permit, conversion clearance, and license to sell.

u

8. Collect

u

9. Turnover to LGU

u

10. Apply for Certificate of Completion

Unlike the centralized scheme wherein approvals and issuances of major permits were tasked to the Housing and Land Use Regulatory Board (HLURB), there are now several agencies involved in the approval and issuance of permits (Figure 2). These per-

mits are issued based on several planning rules and regulations.

Land use control All cities and municipalities in the country are required to provide comprehensive land use and zoning plans of their specific localities. Zoning restrictions in the country are imposed on land use and building height. There are no minimum area restrictions. The implementation of the land use controls, however, has not really been restrictive because government allowed the issuance of temporary use permits (TUPs). These permits are given to land uses that do not conform to the existing zoning in an area. Nonconforming uses are allowed to operate in the zone for a minimum period of five years and renewable thereafter. The TUPs are essentially government’s response to potential changes in land use. This practice resulted in arbitrary zoning since approvals +4

Figure 2. Decentralized Permit System Permit / License

Locational clearance

Development permit

Building permit

Environmental clearance

Conversion clearance

License to sell

Office / Agency

Barangay Mayor Sanggunian Bayan HLURB DENR

Mayor Sanggunian Bayan LMB SEC Meralco LWUA NWRB PLDT

Municipal/City DOH DENR

DA DAR DENR

NIA DA, DENR Sanggunian Bayan Barangay SEC BARC MARO PARO RARO BALA

HLURB Assessor LGU- Treasurer RD BIR

Notes: BALA BARC BIR DA DAR DENR DOH HLURB LGU LMB LWUA

-

Bureau of Adjudication and Land Acquisition Barangay Agrarian Reform Council Bureau of Internal Revenue Department of Agriculture Department of Agrarian Reform Department of Environment and Natural Resources Department of Health Housing and Land Use Regulatory Board Local Government Unit Land Management Bureau Local Water Works Utility Administration

MARO - Municipal Agrarian Reform Officer MERALCO - Manila Electric Company NIA - National Irrigation Authority NWRB - National Waterworks Regulatory Board PARO - Provincial Agrarian Reform Office PLDT - Philippine Long Distance Telephone Company RARO - Regional Agrarian Reform Officer RD - Register of Deeds Sangguniang Bayan - City/Municipal legislative body SEC - Securities Exchange Commission


DEVELOPMENT RESEARCH NEWS

4

March - April 2001

Land...from page 3 are mainly dependent on administrative decisions.

* Subdivision and Condominium Buyers Protective Decree or Presidential Decree (PD) 957, which requires conformity to standards on roads, drainage, sewerage, water systems, and others, including the registration of all developed properties on sale; and * Rules and Standards for Economic and Socialized Housing Projects or Batas Pambansa 220, which defines the development standards specific to low cost housing developments (i.e., a house and lot worth not more than P375,000 or US$7,500 at US$1 = P50.00).

Building regulations Building controls have been adopted since the 1950s by virtue of the National Building Code or Republic Act (RA) 6541, which was revised in 1978 into PD 1096. The Building Code provides the minimum standards relating to structural, plumbing, sanitary, electrical, mechanical, and fire protection of proposed building plans. Environmental controls The Philippine Environmental Policy was implemented in 1977 through the creation of the National Environment Protection Council (NEPC).

1999 Annual Report, General Insurance Fund

Subdivision development controls Land development has to conform not only to the prescribed land use but also to the physical and legal standards of property subdivision and sale. The minimum design standards for land development are contained in two decrees, namely:

A housing facility in Taguig, Metro Manila. In 1978, the Environmental Impact Statement (EIS) System was set up by virtue of PD 1586. The EIS requires all environmentally critical projects and projects in environmentally critical areas to be subjected to the guidelines. This is to determine quality standards for air, water and land use as well as to monitor the land development projects of both private and public entities with regard to their effects on the environment.

sive Agrarian Reform Law (CARL) in 1988, all agricultural lands have become subject to a conversion clearance.5 The guidelines for the issuance of conversion clearances are provided in several administrative orders issued by the Department of Agrarian Reform (DAR).

Land conversion regulation The agrarian reform law has provided a means to control land use. Aside from the limits imposed on ownership of agricultural lands, the law also places restrictions on the conversion of agricultural land to nonagricultural uses.

Transaction cost in residential land development6 On the average, it takes at least 18 months to secure permits for residential land developments. This is based on the assumption that there are no problems with regard to land titles or disagreements with tenants or squatters (Table 2). Time spent is highest for securing environmental clearance, land conversion and land subdivision approvals.

Initially, this restriction was limited to rice and corn lands. However, with the enactment of the Comprehen-

Getting approval for the conversion of agricultural lands and securing an environmental clearance have been

Prior to the CARL, the agrarian reform law was limited to rice and corn lands planted to by tenants but was later expanded to all agricultural lands except lands devoted to fisheries and aquaculture as well as livestock and poultry. 6 Transaction cost is broadly defined as the “cost of running the economic system.� It includes not only the cost of obtaining information but also costs related to opportunism and shirking behaviors and principal-agent problems (Williamson 1991). 5


DEVELOPMENT RESEARCH NEWS

major areas of conflict in land development. One of the main reasons for this difficulty is that there are different laws that govern land conversion in the country. The Philippine Constitution classifies national lands into mineral, forest, national parks and agricultural. Of these categories, only agricultural lands may be alienated and subject to private rights of ownership. Agricultural lands are thus the source of new lands for urban development. Further classification of land into other uses is governed by various laws such as the following:

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* RA 6657 for agrarian reform, * PD 399 and RA 7279 for urban development and housing, * RA 7357 and 7668 for tourism, * RA 7916 for integrated ecozones, and * RA 7160 (or the Local Government Code), which provides the mechanism for apportioning agricultural lands at the local level.7 While these laws have identified certain areas for industrial and urban uses, the issue on food security has favored the dominance of agrarian laws over other land use laws. This preference has led to overlapping of territo-

Table 2. Average Time Spent in Permits and Licenses for Residential Land Developmenta Activity

Permits and Licenses

Duration (days)

b

% to Total

360

100.0

NIA Clearance

5

1.4

Barangay Clearance

5

1.4

Locational Clearance

5

1.4

Locational Viability

5

1.4

Department of Agriculture Certification

5

1.4

Environmental Impact Study

40

11.1

Environmental Compliance Certification

60

16.7

DENR Clearance

5

1.4

65

18.0

Transfer of TCTc to Developer

5

1.4

Transfer of Tax Declaration to Developer

5

1.4

Development Permit

10

2.8

LMB Approval

60

16.7

NWRB Permit

5

1.4

MERALCO

20

5.6

License to Sell

20

5.6

Individual Titles

20

5.6

Individual Tax Declaration

20

5.6

DAR Clearance

Time spent under normal conditions. Abnormal conditions occur in cases such as the following: (1) disagreement with farmers, tenants or illegal claimants; (2) conflicts among LGU personnel or between LGU and the national government; and (3) social pressure. b 1 month = 20 days c Transfer Certificate of Title a

Source: Report of the Office of the Special Assistant to the Executive Vice President. 1996. Filinvest Development Corporation.

ries and confusion on which land may be converted. Moreover, the agrarian reform laws have been interpreted inconsistently, thus resulting in irregular conversions. There have been cases where irrigated and prime agricultural lands have been converted into urban uses despite prohibition under the agrarian reform laws (Table 3). In fact, a total of 2,848 applications were submitted for land conversion between 1987 and 1999. Only about 163 applications or 5 percent of total land area were disapproved. The possibility that the decisions for the remaining disapproved applications will be reversed is not remote.8 A major limitation in the conversion laws is that the town plans of most cities/municipalities are not well conceived and were not based on any systematic planning procedure. 9 Thus, town plans are not effective as basis for the issuance of permits (e.g., locational clearance and conversion clearance) for land development. These problems increase conflicting interests among government agencies and may further subject the planning control system to the political and personal biases +6 of authorities.

The area allowable for reclassification by the local government ranges from 5 - 15% of the municipality’s total land area, depending on the economic status of the municipality. For instance, Class A municipalities can reclassify up to 15% of their alienable and disposable lands. Reclassification in excess of the limits may also be allowed subject to the approval of the President upon recommendation of the National Economic and Development Authority or NEDA (1991 Local Government Code). 8 For instance, between the period 1994 and 1998, the Department of Agrarian Reform (DAR) has disapproved 8 land conversion cases, covering an area of about 926 hectares. The decision of the DAR was, however, reversed by the Office of the President despite conditions that do not conform with the agrarian laws. 9 Silva 1993. 7


DEVELOPMENT RESEARCH NEWS

Land...from page 5 Similar cases happen in the issuance of environmental controls. There is an apparent conflict between the LGUs and the Department of Environment and Natural Resources (DENR)

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on guidelines for environmentally critical land development. Moreover, the quality standards and actions required for environmental assessment are subject to different interpretations. In addition to the delays in getting conversion approval and environ-

mental clearance, obtaining approval for land consolidation and subdivision also takes time due to the property rights problem in the country. Land records in the Philippines are also fragmented. So are the various agencies tasked to store and main-

Table 3: Corporate Subdivisions Developed in Agriculturally Productive Lands, 1985-97 Name of Subdivision and location

Sunshine Village Residential Subdivision General Trias, Cavite Tierra Grande Residential Subdivision General Trias, Cavite Green Breeze Village 6 General Trias, Cavite Kingsland farm General Trias, Cavite Arcontica Village Dasmariñas, Cavite Don Gregorio Heights II Dasmariñas, Cavite Vine Village Dasmariñas, Cavite Saint Anthony Village Dasmariñas, Cavite Green Breeze 4 Dasmariñas, Cavite Dasmariñas Industrial-Residential Subd. NDC-Marubeni Industrial Dasmariñas, Cavite Meridien Homes and Development Corp. Tierra Linda Subdivision St. Agnes Village Dasmariñas, Cavite BF Homes landbank property Dasmariñas, Cavite DARA Subdivision Dasmariñas, Cavite Laguna International Industrial Park (LIIP), Biñan, Laguna Capitol Golf and Country Club landbank Rodriguez, Rizal Republic Asahi Glass Industrial Plant Bauan, Batangas Sources:

Area (hectares)

Developer

Land use before conversion

12.0

State Land Investment Corp.

tenant-cultivated upland

36.0

State Land Investment Corp.

tenant-cultivated upland

80.0

Cityland Devt. Corp.

tenant-cultivated upland

50.0

AMA Devt. Corp.

tenant-cultivated; rainfed upland

5.9

Arcontica Investment Corp.

tenant-cultivated, irrigated upland

4.4

F & C Realty Corp.

tenant-cultivated, irrigated upland

20.0

Vine Devt. Corp

tenant-cultivated upland

19.9

Hone Devt. Inc.

14.0

Cityland Devt. Corp.

tenant-cultivated, irrigated, and rainfed upland tenant-cultivated, rainfed upland

150.0 230.0 52.0 6.0

500.0 2.7 114.0 53.1 34.4

Dasmariñas Estates and Devt. Corp. Construction and Devt. Corp. Meridien Properties. Devt. Corp E.B. Verzosa Enterprise St. Agnes Realty and Devt. Corp. B.F. Homes, Inc.

tenant-cultivated upland tenant-cultivated, irrigated, prime agricultural land tenant-cultivated, irrigated upland tenant-cultivated, irrigated tenant-cultivated, irrigated riceland tenant-cultivated upland

DARA Realty Corp.

tenant-cultivated, irrigated

LIIP, Inc.

tenant -cultivated irrigated for CARP beneficiaries tenant-cultivated rainfed

Capitol Golf and Country Club, Inc. Republic Asahi Glass Corp.

tenant-cultivated, rainfed communal irrigation

J.P. McAndrew Urban Usurpation, 1994, Tables 8 and 14 Case Brief of Land Conversion Reversals of the Office of the President. Office of Secretary Aguirre, 1997.


DEVELOPMENT RESEARCH NEWS

expressed in terms of delays in the development of serviced lands, which can in turn adversely affect the supply of land in the market because timing influences the value of land and, consequently, the development gain. Raw and undeveloped land bought before the onset of urbanization will be priced at an almost equivalent amount to the existing value when the same land is sold at a later period. Likewise, given a volatile real estate market, poor timing of a sale can affect development gain and may result in loss of profits. This implies that high transaction costs lead to scarcity of land supply in the market and may poten-

Squatting has also become a problem in land tenure security. While government upholds private landownership, its populist attitude toward illegal occupants undermines the private property rights system in the country. The presence of illegal occupants has become a major bottleneck in subdivision and infrastructure developments undertaken by both private and public sectors. This increases the holding cost of raw land since landowners have to incur significant costs to secure land from illegal occupants or to enforce private property rights. A housing facility in Imus, Cavite. These conditions have resulted in the use of bargaining as the basic mechanism to obtain permits and licenses. Obtaining permits has not been a simple “yes” or “no” but a bargaining process with all kinds of intermediary outcomes that can be subsequently manipulated.

The supply of housing land Transaction cost in land development process is high due to the uncertainties and confusion in the issuance of permits and licenses. This cost is

tially reduce the development gains that accrue to the developer. Under conditions that the developer is a price-taker in the market,10 he would opt to buy unserviced land (raw land) at a cheaper price. This provides the incentive for developers to do “land banking” or land hoarding. However, the development of these land banks is influenced by the conditions in the market. Delays will hamper the release

of these lands and the expansion of urban lands in the peripheral areas thus creating scarcity in the market. This leads to high increases in land prices and a high land development multiplier. The scarcity results not from a restrictive land policy but from high transaction costs.

Conclusion and policy recommendations Bureaucratic problems and uncertainties in planning controls contribute to the constraints in the supply of serviceable lands. These result in a scarcity of land in the market, higher rate of increase in land prices and, consequently, in housing prices. These findings bring to fore the need to review the process of land development controls in the country, in particular, land use conversion and environmental issues, the system of planning permission, and the extent of government participation in land development. 1998 Annual Report, Pag-Ibig Fund

tain these records. There is no complete or unified set of cadastral maps that contain titled and untitled properties. Cadastral maps at the Land Management Bureau (LMB) do not match with baseline maps stored in other agencies as well as with records in the Registry of Deeds (RD). Title records are in fragile condition and have been damaged by either fire or water. Incidents of theft of survey maps and title records have also remained unchecked. Under these conditions, it has become difficult and costly to obtain accurate information.

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The present system has resulted in a situation where the private sector has to deal with right-ofway problems, easement problems, and size of drainage, among others, which further increase transaction costs and provide an avenue for developers to “cut corners.”

Moreover, it has provided an avenue for the use of speed or grease money (which takes place among the principal [government], agent [local government], and client [developer]) to facilitate the pro- +14 The existence of monopoly in the Philippine real estate market is not strongly supported by concentration ratios (Ballesteros 2000). See footnote 2.

10


DEVELOPMENT RESEARCH NEWS

March - April 2001

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The Corporate News section includes brief accounts of inhouse PIDS activities, staff training and workshop results. It is intended to inform both the readers and PIDS staff members of the various activities participated in by the latter. There are stories that document the staff's effort to improve their knowledge and skills through trainings. Other stories highlight the personal interaction among the staff in the process of carrying out their individual tasks. Most of the time, the stories focus on serious matter while on certain occasions, they simply talk about the PIDS staff having fun. Whatever the topic is about, the objective is to show that each activity is meant to help the staff become better persons and performers in their respective fields so that they can contribute more to the attainment of the Institute's overall mandate.

Gearing up for future research challenges

The Corporate

NEWS

Rafaelita Aldaba*

T

he 21st millennium poses new challenges for the whole research community. There are emerging development issues and concerns as well as existing ones begging to be answered. In this regard, the Philippine Institute for Development Studies (PIDS), being in the forefront of providing research relevant to policymaking, reinvented itself to face these challenges and keep up with new trends. In 1997, the Institute's contributions to policy research were evaluated by a group of experts from various fields. Three years later in 2000, another group of equally distinguished experts helped develop what was to be the Institute's research agenda for the next five years until 2004. The formulation was based on the outputs of the senior research staff in their annual workshops. The importance of having a planning workshop for the Institute cannot be overemphasized. It has become a venue for the research staff to brainstorm for its future endeavors. In its recent annual planning workshop last January 2001 in Makati City, PIDS President Dr. Mario B. Lamberte noted that the timing of the workshop was perfect given the change in the country’s political leadership1. The new political environment and anticipated economic recovery are expected to have a major effect on the direction of policy research in the coming months. 2000 in retrospect Every planning workshop is an opportunity for the Research Fellows to review their previous and present commitments to the Institute as well as a venue to lay out their research agenda for the coming years. For the previous year, the Research Fellows reported on a number of research works accomplished that are expected to provide valuable and necessary inputs to policymaking in the country.

Drs. Erlinda Medalla, Myrna Austria, and Melanie Milo teamed up to look into relevant issues regarding competition policy in the Philippine context. As project director, Dr. Medalla wrote several papers dealing with issues on the adoption of a national competition policy framework. Dr. Austria authored a paper on the market structure and the need for competition policy in the air transport industry while Dr. Milo assessed the state of competition in the insurance and banking sector. The project was funded by the Philippine APEC Study Center Network (PASCN) whose lead convenor is the PIDS. On the other hand, Drs. Cristina David and Arlene Inocencio spearheaded the joint PIDS-Bureau of Agricultural Research (BAR) project, which focused on five issues facing the Philippine agriculture industry. Meanwhile, Dr. Danilo Israel continued his environmental economic research and authored studies on fishing ports, hatchery-bred milkfish fry, and mercury pollution due to small-scale mining. Dr. Rosario Manasan’s work centered on fiscal issues: public sector governance, the President’s budget for 2001, and tax evasion. Dr. Josef Yap wrote papers focusing on dollarization and its impact on the exchange rate and monetary policy in the Philippines, lessons from the Asian financial crisis, and issues on managing capital flows. He also updated the PIDS annual macroeconomic model. Dr. Mario Lamberte’s research work revolved around The author is Research Associate at PIDS. Vice-President Gloria M. Arroyo was sworn in as the 14th president of the Republic of the Philippines after President Joseph Ejercito Estrada was booted out of the Malacañang Palace as a result of a People Power II uprising and when majority of the Cabinet members and several high-ranking generals of the Armed Forces of the Philippines (AFP) defected to the opposition in the afternoon of January 20, 2001.

* 1


DEVELOPMENT RESEARCH NEWS

March - April 2001

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cost differences, firms are quoting identical prices.

A cartel in RP’s cement industry?

I

s there a cartel in the Philippine cement industry? This question was posed by Ms. Rafaelita Aldaba, a research associate at the Philippine Institute for Development Studies (PIDS), in her paper entitled "Tacit Price Collusion in the Cement Industry?"1 Aldaba particularly expressed her reservations on why cement firms increased their prices by almost the same amount at a period when there is excess supply, excess capacity, and depressed demand. She noted that the observed uniformity in cement prices

1 The paper came out as PIDS Policy Notes 200013 and is part of the PASCN project on competition policy framework.

is inconsistent with competitive behavior and conditions. Since the cement industry is highly dependent on the activities of the construction industry, the slowdown in the construction and property sector resulted in an oversupply of cement in the market, which rose tremendously from an average of 3 million bags prior to 1997 to 9.5 million bags between 1997 to 1999. This situation should have forced cement firms to cut prices. Aldaba added that the only explanation for the low variation in and almost identical prices could have been if firms had a more or less similar cost structure. However, in her study, she found out that existing cement firms have different cost structures. It is, therefore, puzzling why, given their

topics such as challenges for sustaining the Philippine economic recovery, transforming Land Bank into a microfinance development institution, and reforming the international financial architecture from an East Asian view. Meanwhile, Dr. Gilbert Llanto’s papers looked into microfinance issues such as protecting deposits in savings and credit cooperatives and managing government guarantees and contingent liabilities. Dr. Celia Reyes continued managing the Institute’s Information and Database as well as the Geographic Information Systems. She also updated the macroeconomic model of the Philippines. Finally, Dr. Aniceto Orbeta wrote papers on the human resources section of the MNAAP and e-commerce in Southeast Asia. Where to now? The need to undertake a midterm assessment of the country’s economic performance was raised during the workshop. Thus, it was agreed

Moreover, she stressed that it is difficult to believe that the consistent and simultaneous increases in cement prices since 1999, as claimed by industry players, were due to high production costs brought about by increasing fuel and power prices, and interest payments on their dollar-denominated loans. She cited the findings of a study on cement prices conducted by the National Economic and Development Authority (NEDA) which indicated that fuel and power accounted for 25 and 14 percent, respectively, of total production costs. Most cement plants have already shifted from bunker to coal fuel since the 1970s. Between 1997 and 1999, the price of imported fuel dropped from an average of US$40/ MT to about US$34/MT, indicating that the fuel cost of the industry has been declining. Industrial power rates did not change substantially from 1998 to 1999 either, with average rates at about P2.38/kwh and P2.50/kwh, respectively. In addition, Aldaba asked in her paper if all cement +15

that by year 2003, the Institute will have come up with an evaluation of the economic performance of the Philippines focusing on the period from 1998 up to early 2003. The report will highlight the policy changes and directions that the economy should take. These will be made available to all presidential candidates for the coming 2004 elections. Starting this year until 2003, the Research Fellows committed to carry out research studies which correspond with the new five-year research agenda of the Institute as formulated by former Board of Trustees Chair Dr. Cielito Habito and former Negros Oriental Representative Mr. Margarito Teves. The agenda, which is responsive to the changing domestic and international economic policy scenario, focuses on the following topics: macroeconomic management in a globalized setting; competitiveness and competition policies; governance; social sector reform; infrastructure development; modernizing Philippine agriculture; environment and natural resource management; and policy analysis, planning tools and monitoring systems. DRN


O

verseas Filipino workers (OFWs) play an important role in the Philippine economy as they bring in billions of dollars of remittances into the country. But in this era of globalization, continued international labor migration needs examining as it may have possible detrimental effects on the development of the country’s labor market. This was the rationale of the study on trade liberalization and international migration1 by Dr. Fernando Aldaba, executive director of the Ateneo Center for Social Policy and Public Affairs and assistant professor at the Ateneo de Manila University. Aldaba's study looked into the major determinants of international labor migration and examined whether or not trade liberalization has a role in the increase or reduction as well as the effects of continued labor migration.

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10

Globalization and the Filipino worker*

The search for greener pasture 2000 Philippine National Oil Corporation (PNOC) Calendar

DEVELOPMENT RESEARCH NEWS

According to Aldaba, the key determinants of international migration include: * expected higher income – employment rates, wage rates and economic growth are the key variables affecting migration; * travel and other related costs – application fees, transport fares, visa fees, start-up costs, and others influence workers’ decision to work overseas; * existence of networks – support systems provided by relatives and friends in destination countries; * The author of the articles on pages 10 and 11, Miss Barbara F. Gualvez, is an information officer at the Philippine APEC Study Center Network (PASCN). The articles are based on two papers presented during the Annual PASCN Workshop held on December 4, 2001 at the Foreign Service Institute. 1 The study is entitled "Trade Liberalization and International Migration: The Philippine Case" and appeared as PASCN Discussion Paper 2000-04.

* political stability in the sending country – in the Philippines, labor migration was highest when political situations deteriorated especially in 1983; and * immigration rules in destination countries – the openness of a certain country in accepting foreign labor determines the number of foreign workers. Countries with inadequate labor force are more open while those with excess supply are relatively more strict. Figures reveal that in terms of OFWs deployed per year, a remarkable

1,975 percent increase occurred in the late 1990s when the 1975 figure of 36,036 OFWs soared to 747,696 OFWs in 1997. During the same period, remittances increased by 5,474 percent from US$103 million to US$5.7 billion. Data also show that remittances per OFW have increased over the years. Compared to only US$2,858 in 1975, it rose to US$7,697 in 1997. Meanwhile, in relation to Philippine trade performance, exports only grew tenfold during the same period from US$2.2 billion to US$25 billion. The top destinations for Filipino workers are Saudi

+12


DEVELOPMENT RESEARCH NEWS

11

Are Filipino professionals ready for the world?

H

ow qualified are Filipino professionals to face international competition? Do they have the necessary requirements to slug it out with other professionals? These are the questions fielded by Dr. Tereso Tullao, Jr., dean of the College of Business and Economics at De La Salle University - Manila, in his study1 of the capacity of Filipino professionals to face international competition under an environment set by the General Agreement on Trade in Services (GATS). GATS is one of the two agreements conceived by the World Trade Organization (WTO) to set the rules for the flow of international goods and services. The other was the General Agreement on Tariffs and Trade (GATT), which was established to govern global trade of goods. Under the GATS, several set of rules or principles were laid down to promote global trade in services. First is market access, which refers to "the lifting of various forms of limitations on the number of service providers, value of service transactions, number of persons employed, value of foreign capital and restriction of specific type of legal entity in establishing a supply provider." The study is entitled "An Evaluation of the Readiness of the Filipino Professionals to Meet International Standards" and came out as PASCN Discussion Paper 2000-01.

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March - April 2001

He clarified that the concept of “readiness” may be viewed from several perspectives: * the capacity of Filipinos to work abroad and compete with foreign nationals with similar skills; * the ability of Filipino professionals to compete with their foreign counterparts; and

Second is national treatment, which means nondiscrimination in the treatment of nonlocal service and service providers. Third is most-favored nation treatment, which requires nondiscrimination in the treatment of all signatories in the agreement.

* their ability to meet the standards and human resource requirements of foreign as well as domestic enterprises.

And fourth is transparency, which requires the publication and dissemination of all laws and regulations relevant to the conduct of trade and services.

The study revealed that the number of higher education institutions (HEIs) in the country increased from 809 in 1991 to 1,379 in 1998. In terms of faculty, there were 80,585 teachers in HEIs during the school year 19961997 but only 7 percent had doctorate degrees while only 25 percent had masteral degrees.

Tullao’s study identified and critically reviewed the educational qualifications, licensing requirements and continuing educational programs available for various professionals in the Philippines.

In addition, most teachers did not have the qualifications to conduct independent studies and those who were qualified were not given sufficient time to carry out research and related studies. Moreover, +12


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Search...from page 10

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Arabia, Hong Kong, Taiwan, Japan and the United Arab Emirates. In a little more than a decade from 1984 to 1996, OFWs deployed in Asia increased 4 times, in Europe 3 times and in the Americas, less than double. In the same period, land-based OFWs increased by 30 percent while sea-based workers grew by 250 percent.

researchers do not submit their studies for publication in international journals.

Continued labor migration has undeniable effects on the Philippine labor market, which include: * reduction in unemployment and underemployment rates in the country – while remittances of OFWs may do a lot for the economy, it was found, however, that only a very small fraction of the total remittances go into investments; *skill shortages and decrease in productivity – the level of productivity of experienced workers cannot be fully replaced by new ones; *supply shortages – certain types of labor requiring specialized skills and even key social services like health and education may suffer shortages which, in the long run, may affect the labor market and the economy; *loss of investments in human capital – human capital is lost when the more educated and experienced workers leave as they carry with them investments in health, education and nutrition; and *deterioration of social capital – studies have shown that sustained migration have taken its toll on the family and its weakening eventually translates into an economy having decreased productivity and human capital.

Tullao also said that the competence of Filipino professionals is comparable with that of their ASEAN counterparts as they have similar educational qualifications as well as curricular requirements in various professional programs. Filipino professionals are ready to face international competition based on their job performance, their technical competence, and the adequacy of the HEIs’ course offerings. However, Tullao recommended that HEIs must regularly update their curriculum programs to keep up with the changes in the market and technology. The Philippine Regulatory Commission (PRC) should also refocus its continuing professional education (CPEs) program away from seminars and toward research, publication, inventions and graduate education. He also suggested giving professional organizations more flexibility in developing their members through a professional ranking system. Distance education must also be set up for professionals who can earn a degree with-

Aldaba recommended general policy measures that will help “enlighten policymakers on whether [or not] labor exports are necessary to push the economy forward.” He concluded that in the short run, government has to rely on both commodity and labor exports to provide the impetus for growth and alleviate employment pressures. The government should also craft policies aimed at maintaining certain types of skilled la-

March - April 2001

out too much sacrifice on their practice and income. To minimize the social cost of migration, he also proposed that students in state colleges be made to internalize the cost of education and be charged with user fees. He also batted for the rationalization of government funds to higher education which may require, for example, a moratorium on the establishment or conversion of state colleges and universities. Lastly, he encouraged the integration of existing stage colleges and universities instead of establishing autonomous campuses.

...pricing education properly will improve its quality and may even attract foreign students again... On the deregulation of higher education and privatization of state colleges, Tullao commented that although education is already being criticized as commercialized, pricing education properly will improve its quality and may even attract foreign students again like in the past. Regulated tuition fees in the country have also prevented many universities from employing high quality teachers, he added. DRN

bor needed to sustain growth and, at the same time, establish support and protective instruments for OFWs. In the long run, the government must continue pursuing economic reforms such as the improvement of trade openness and liberalization as it promotes labor intensive export orientation and greater efficiency. Eventually, though, the government should aim to reduce labor migration. DRN


DEVELOPMENT RESEARCH NEWS

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he financial crisis that plagued the Asian region in 1997 is likely to happen again if Asian countries will not guard themselves against the volatile capital flows caused by speculative investments. This was the contention of Dr. Josef T. Yap, a senior research fellow at the Philippine Institute for Development Studies, and Dr. Pradumna B. Rana, manager of the Regional Economic Monitoring Unit of the Asian Development Bank, in their research paper entitled "Tracking East Asia’s Recovery from the Capital Account Crisis: Analysis, Evidence and Policy Implications."1

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Preventing another Asian crisis lization policy of raising interest rates to stem currency depreciation made loan repayment more difficult, worsening the balance sheet difficulties of firms and commercial banks. Moreover, the exchange rate did not respond to the hike in interest rates.

Yap and Rana also advised countries to reduce microeconomic distortions such as asymmetric information and moral hazard that normally result in overborrowing or overlending. The adoption of international norms for regulatory standards, information disclosure and bankruptcy proceedings is also important to achieve this objective.

They suggested that the panic Yap and Rana explained that situation could have been avoided by Asian leaders need to understand first introducing a debt standstill and bringthe nature of the crisis in order to de- ing borrowers and lenders together to sign appropriate policies. According to reschedule short-term debt. Rapid prothem, the regionwide crisis was caused by the abrupt and large withdrawal of capital by investors from East Asia following In addition, they recomYap and Rana explained that Asian leadthe devaluation of Thailand’s mended that the supervisory ers need to understand first the nature of the baht in July 1997. They argued capacity of monetary authority, that the analysis of the Intersuch as the Bangko Sentral ng crisis in order to design appropriate polinational Monetary Fund Pilipinas (BSP) in the case of (IMF) that the crisis was a curthe Philippines, must also be cies. rent account problem brought strengthened in order to enby excessive monetary growth sure that banks meet capital reand imprudent fiscal policy quirements, make adequate was inaccurate. Thus, they contended vision of international liquidity should provision for bad loans and subscribe that the relevance of the policies rec- have been reinforced to replenish re- to limitation on connected lending. ommended by the IMF after the crisis serves and provide current financing. Subsequently, international standards is questionable. They said that a more orderly crisis for prudential risk management should management process at the interna- be implemented and domestic capital They concluded that IMF’s tight tional level can be achieved by intro- market be strengthened. monetary policy exacerbated investor ducing bail-in measures for private panic that resulted in a twin crisis—a creditors. These measures constitute They likewise suggested that incombination of currency and banking collective action clauses that reduce the dividual countries should implement crises. For example, they pointed out incentive for pre-emptive action on the explicit inflation targeting along with that the advice of IMF to close some part of private creditors. a more flexible exchange rate policy banks further reduced investor confisince this promotes greater transpardence. Likewise, IMF’s standard stabiAt the domestic level, they recom- ency and independence in monetary mend that every country should strive policy. They explained that this will to build an efficient financial system, enhance policy credibility and help which is capable of intermediating in- lower inflationary expectations, 1 ternational capital flows. This could be thereby reducing actual inflaThis paper came out as PIDS Discussion Paper 2001-01. achieved through institutional reforms. tionary pressures and lowering +14


DEVELOPMENT RESEARCH NEWS

Land...from page 7 cess. This system of corruption not only creates the impression of “opportunistic� government officials and developers but also defeats the purpose of instituting development controls in the country.

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References

...provide a check-and-balance system between the government and the LGU specifically with regard to local development planning.

What then is expected from the government and the other players? Although it is difficult to totally eradicate speed money in the real world, this practice can be minimized through clearer guidelines and better monitoring system. There should be institutional mechanisms that would provide a check-and-balance system between the government and the LGU specifically with regard to local development planning. Contradicting policies have to be likewise corrected. On the one hand,

Preventing...from page 13 interest rates. It would also be worthwhile to consider reserve requirements and withholding taxes on capital inflows. Policy options at the regional level include the expansion of the existing ASEAN currency swap agreement as a more feasible option. They rationalize that a currency swap arrangement creates a mechanism by which countries with strong foreign exchange reserves can provide short-term, hard currency loans to others whose currencies are under pressure or are experiencing balance of payment problems. Another option is the establishment of the Asian Monetary Fund (AMF), which would serve as a lender of last resort in the East Asian region. However, this idea has been set aside due to the opposition of the IMF and the United States. GRG

March - April 2001

the government wants industry to expand and housing to improve. On the other hand, there are strong barriers to expanding the industrial and residential areas because of agrarian zoning and DAR regulations. These competing land uses are practiced worldwide. However, the situation creates a real problem in countries where governments have been aloof in land planning and have been sending confusing signals with regard to planning controls. DRN

Editor's Notes

Ballesteros, M. 2000. Land Use Planning in Metro Manila and the Urban Fringe: Implications on the Land and Real Estate Market. PIDS Discussion Paper 2000-20. Makati City: Philippine Institute for Development Studies. NEDA. 1991 Local Government Code. Rules and Regulations. Pasig City. Ocampo, R. 1992. Planning and Development of Pre-War Manila: Historical Glimpses of Philippine City Planning. Philippine Journal of Public Administration 36:305-329. Silva, W. 1993. Land Use Conversion: Present Problems and Possible Solutions. Paper submitted to the Technical Support to Agrarian Reform and Rural Development (TSARRD) Project of the Food and Agriculture Organization. Williamson, O. 1991. Comparative Economic Organization: The Analysis of Discrete Structural Alternatives. Administrative Science Quarterly 36:269-296. World Bank. 1993. Housing: Enabling Markets to Work. Washington, D.C.: The International Bank for Reconstruction and Development/ The World Bank.

...From page 1

A spinoff from her thesis entitled "Land Use Planning in Metro Manila and the Urban Fringe: Implications on the Real Estate Market," this featured article takes a look at the the various issues and problems plaguing land use and development in the Philippines. Since time immemorial, land--and for that matter, anything connected to it--has been the cause of so many disputes. Whether they be big or small, the resolution lies in the hands of the authority as always. At present, although land use has been the government's sole responsibility, its implementation and the various processes attached to it have been found wanting. Conflicting policies, overlapping authority, under-the-table negotiations and compliant officials have added to the confusion surrounding the use and development of land. While it is easy to recommend new policies to address obvious problems, a thorough evaluation of the processes should be carried out first. To expect the Phillipine government to strictly implement the laws it created and continue the programs it has put up may simply be asking too much. After all, the Comprehensive Agrarian Reform Program (CARP) is well into its 13th year and yet nothing much has happened. For an efficient land use and development, Ballesteros suggests a number of ways in which the government can have a constructive, creative and more meaningful relationship with the key players in land development. DRN


DEVELOPMENT RESEARCH NEWS

Cartel...from page 9 firms are paying exactly the same amount of interest payments to warrant the uniform price increases. Aldaba argued that the history of coordination in the industry is a significant factor in establishing the presumption that collusion among cement companies is indeed taking place. For one, there are relatively few firms in the industry which makes industry coordination easier. The industry also has a very active association, the Philippine Cement Corporation (Philcemcor), that aggregates industry statistics and may facilitate the exchange of individual price and quantity data among competitors. Price leadership, another facilitating device for successful tacit collusion, seems to be widely practiced in the industry. An official of the Philcemcor admitted that the 1998 price war among cement manufacturers stopped after industry leader Phinma announced that it would no longer engage in any price reduction. As expected, every-

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body in the industry followed, which in turn, resulted in the rise of average ex-plant prices by around 17 percent in 1999. This trend has continued up to the year 2000 amid excess supply and depressed demand. Finally, Aldaba pointed out the need for competition from imports in the cement industry as a mechanism to address price collusion. She maintains that while anti-dumping regulations are necessary to prevent predatory dumping, the government must be cautious in introducing such regula-

March - April 2001

tions and other protective measures like tariffs. It must carefully weigh the welfare gain of consumers and user industries against the injury to the industry. The government must take into consideration that unrestricted imports are necessary. This is because, in the absence of competition laws in the country, importing promotes competitive discipline in an industry characterized by limited competition and a tendency to engage in collusive behavior. GRG Development Research News Vol. XIX No. 2 March - April 2001 ISSN 0115-9097

Editorial Board: Dr. Mario B. Lamberte, President; Dr. Gilberto M. Llanto, Vice-President; Mr. Mario C. Feranil, Director for Project Services and Development; Ms. Jennifer P.T. Liguton, Director for Research Information; 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, Edwin S. Martin and Gizelle R. Gutierrez, 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.

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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nternet is not exclusive. Even with low technology, people can access information from sites in the World Wide Web." National Computer Center (NCC) Director-General Ramon V. Señeres made this point in a recent Pulong Saliksikan at PIDS where Dr. Aniceto Orbeta Jr., PIDS senior research fellow, presented his paper on e-commerce.1 Señeres noted that the government should not focus solely on highend browser-based Internet access. Instead, it should start with low technology so that people who do not own high-end personal computers (PCs) can easily access data that are available online even with the use of DOS-based browsers.

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To spur e-commerce growth

Government pushes low-cost access to Internet and high-end options in choosing their way to the various sites in the World Wide Web depending on their capacity to pay.

e

Recently, for instance, the NCC introduced the Computipid computer system scheme. In addition to this, Señeres said that the NCC supports the promotion of Internet access through cafes and kiosks.

Based on NCC estimates, access to the Internet in the Philippines is only more or less 2 percent due to very low PC ownership rate. It is imperative, therefore, that the government encourages the promotion of open-source software and low-end computer systems so as to boost access to online information.

Señeres also recommended that the government establish a toll-free access to the Web. He said that the problem will always be access, aside from bandwidth and storage. According to him, people should be given low-end

1 The paper is entitled "E-Commerce in Southeast Asia: A Review of Developments, Challenges and Issues" and came out as PIDS Discussion Paper 2000-38. A more detailed article based on this paper will appear in the May - June 2001 issue.

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People at the grassroots level should also have access to the information highway. In the municipality level, Señeres suggested that local governments could maintain or establish local intranets that would contain information such as weather condition, prices of primary commodities and other data that would be useful to their constituents. These intranets could be accessed through a telephone and a modem. This will be beneficial in inculcating the culture of putting data online. Aside from intranets, people should also be encouraged to visit sites that can be accessed without the need for a dial-up account with an Internet service provider. Examples of these are the Pinoymail, Pinoycentral and Edsamail.

Meanwhile, Orbeta noted in his paper that a lot of opportunities can be made possible through the Internet by e-commerce. However, consumer benefits from e-commerce in the Philippines remain limited, again due to low PC penetration and credit card ownership. He added that the government has various roles to play in the promotion of e-commerce in the country. It can, for example, encourage businesses, particularly small and medium enterprises (SMEs), to set up electronic procurement systems. It can also promote the use of the Internet to deliver government services online like the case of the Singapore’s eCitizen website. Finally, government can also encourage SMEs to sell their goods online.GRG


Globalization and the Filipino Worker: Are Filipino Professionals ready for the World?