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PHILLIPINE INSTITUTE FOR DEVELOPMENT STUDIES Surian sa mga Pag-aaral Pangkaunlaran ng Pilipinas

January - February 2003

Vol. XXI No. 1

ISSN 0115-9097

Unless revenues and governance shape up

Economy to plateau in 2003

P

hilippine economic recovery from the 1997 East Asian financial crisis and the 2001 global economic downturn was further consolidated in 2002 when the gross domestic product (GDP) posted a higher-than-expected growth of 4.6 percent. Clearly, the Philippine economy is riding the upward phase of the growth cycle that began in 1999 and was interrupted only in 2001 by a weak global economy and a fallout from domestic political strife. Struc-

tural problems, however, have narrowed the phase of the cycle and lowered its peak, reviving anew the leitmotif of a boom-bust sequence. Hence, unless significant breakthroughs are accomplished in both areas of economic and political reform, the economy will likely lose steam toward the end of this year.

The economy in 2002 Many analysts were surprised with the GDP growth of 4.6 percent, as forecasts ranged only from 3.8 to 4.2 percent. Their skepticism seems to be readily supported by data. Agriculture, for instance, posted a high growth of 6.1 percent in the last quarter, thereby pulling growth to 3.5 percent for the whole year. In mining and quarrying, value added expanded by an astounding 49.2 percent, due mainly to the Mal-

What's Inside? 9 10 16

Education planning: Rx to rising unemployment of college grads? Assessing the situation of working women in CALABARZON The Corporate News: PIDSEA chooses its logo

By Josef T. Yap, Ph.D. PIDS Senior Research Fellow

ampaya project. Had these two sectors performed on a normal basis like, for example, the long-term growth for agriculture was 2.5 percent and for mining and quarrying, 10 percent, the aggregate GDP growth would have only been 4.0 percent. In other words, some sectors actually performed below expectation. Besides these, there are also several other worrisome developments. Domestic capital formation as a ratio of GDP, for one, fell for the fifth consecutive year following the 1997 crisis. Among the five hardest hit Asian economies, only the Philippines so far has not overcome this trend. This is reflected in the behavior of the growth of outstanding real commercial bank credit which had remained negative in the first 10 months of 2002 (Figure 1). Rising nonperforming loan ratios have discouraged deposit money banks from issuing fresh loans. In addition, the average capacity utilization rate of the manufac- ✒ 3


DEVELOPMENT RESEARCH NEWS

DEVELOPMENT RESEARCH NEWS Vol. XX1 No. 1 January - February 2003 ISSN 0115 - 9097

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January - February 2003

Editor's Notes What will 2003 offer for the Philippine economy? Will this be another year of struggle for the whole

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.

nation? Or will there be plenty of opportunities for everyone? As the world faces another confrontation in the Middle East and the impending war is sending prices up, how will the country fare? Amidst new bomb attacks, PPA issues and rising oil prices, the local economic scene seems to be wobbling and showing signs of distress. However, economists try to downplay these disturbing events and give out positive feedbacks on the Philippines' economic health. For one, the lady of the house has assured everyone that, yes, she will not run in 2004. This has somehow eased the fears and anxieties of "concerned" individuals who were worried of the lady president's early politicking.

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 Bldg., 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.

The shroud has been lifted and the economy can go forward without fear of being used by any political figure, more so the President. But is this confirmation enough to send positive indicators up and negative ones down? Dr. Josef Yap, PIDS senior research fellow, provides us with yet another forecast this year and zeroes in on a recommendation for the administration: Shape up or else. Yap emphasizes the urgency to pass bills related to the government's tax effort, which according to him, will "definitely go a long way." The government should also endeavor to address unresolved issues if it wants to experience satisfactory—or excellent—growth. Until then, he says, the Philippines should be content in having mediocre growth figures. There are other unresolved issues which need to be addressed, one of which is the lag in infrastructure, so as to move the country forward. The peace issue is another important concern and Yap perceives this problem to pull down whatever recovery the country is going to achieve in the coming months. On the whole, however, Yap remains optimistic that the country—and the administration—shall experience a positive outing this year. On another note, this issue features a report on the working women in the CALABARZON area and evaluates the effects of globalization on their work and the socioeconomic aspect of their lives. Read on and discover how these women fare in a varied environment in the face of global developments. The report is authored by Dr. Divina Edralin from the De la Salle University - Manila. ❏

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, Claudette G. Santos, Ma. Gizelle R. Gutierrez and Edwin S. Martin, Contributing Editors; Valentina V. Tolentino and Rossana P. Cleofas, Exchange; Delia S. Romero, Galicano A. Godes, Necita Z. Aquino and Alejandro P. Manalili, Circulation and Subscription; Genna J. Estrabon, Layout and Design.


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DEVELOPMENT RESEARCH NEWS

4.00 2.00 0.00 -2.00 -4.00 -6.00 -8.00 Dec-02

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And, of course, there had been the burgeoning fiscal deficit and the gloomy global economic environment which is being compounded by the threat of war. All these have dampened investor confidence.

Figure 1. Real bank credit growth rate, January 2000 - October 2002

Feb-00

turing sector for the first 11 months of 2002 was actually lower compared to the same period of the previous year— 75.3 percent versus 77.5 percent. This has reduced the incentive for firms to expand.

January - February 2003

Source of basic data: BSP website (data for IFS) and NSO (for CPI).

In 2002, the manufacturing sector struggled and barely topped its growth the previous year. If not for the surge in food manufacturing during the first and last quarters, this sector would have turned in a disappointing outcome. One reason for the sluggish performance was the sharp fall in the growth of the electronics sector in the last three months of 2002. So far, the orthodox structural reforms that have been implemented since 1980 to improve the performance of the manufacturing sector have yielded mixed results.

immediate impact on revenue collection such as the indexing of specific tax rates to inflation.

The most disturbing development, though, is the continuing slide in the fiscal balance. The national government budget deficit reached P212.7 billion in 2002, compared to the original target of P142 billion. This is equivalent to five percent of gross national product (GNP), significantly higher than the rate of 3.8 percent the previous year but still below the psychological threshold of 6 percent.

Meanwhile, notwithstanding the bleak scenario, there are also a number of

Poor revenue collection has been cited again as the main culprit, thereby underscoring the need for more effective mechanisms to address this issue. One area that warrants high priority is the drafting of legislative measures that can have

The burgeoning fiscal deficit and unfavorable external environment (see next section) have also caused a rise in the sovereign bond spreads for the Philippines, falling below 300 basis points in June 2002 and then bouncing back to nearly 500 basis points in December. The latter signals a likely slowdown in capital inflows, which usually results in lower domestic investments.

positive developments. For instance, inflation averaged only 3.1 percent for the entire year, much lower than the 6.1 percent recorded in 2001. Stability of food prices was the primary reason for the drop in inflation but the relatively fragile demand also constrained firms from raising prices sharply. The increase in agriculture production and the lower rate of price increase augur well for the poverty situation. After all, roughly 40 percent of the labor force are employed in the agriculture sector. At the same time, many empirical studies have shown the benefits of low inflation in the fight against poverty and in the improvement of income distribution. Lower inflation and the fall in international interest rates allowed domestic interest rates to come down. While a low domestic interest rate had a negligible impact on investment, it contributed to a faster growth in personal consumption expenditures. Still, it remains to be seen if the low interest rate regime can be maintained in the face of the growing fiscal deficit. In terms of private construction activity and finance services, these sectors posted modest but significant recoveries, leaving the real estate sector as the only sector hardest hit by


DEVELOPMENT RESEARCH NEWS

the 1997 crisis that has not yet experienced a turnaround. Nonetheless, because of a decline in real government expenditure in the construction sector, aggregate construction activity remained flat in 2002. Buoyed by a robust expansion in the telecommunications sector, value added in services grew at 5.4 percent. Most of the other sectors also experienced significant growth, further boosting the share of services in total GDP. As mentioned earlier, only the real sector has been flagging in terms of growth. Government policies that can therefore facilitate the shift of labor from other sectors, particularly agriculture, to the service sector can do much to ease the unemployment problem. Another bright spot is the acceleration of fixed investment in the last quarter of 2002 which may signal a reversal of fortune. However, the momentum can easily dissipate if investor confidence is not boosted.

The global economic environment The economic slowdown in 2001 was caused primarily by a cyclical downturn in the global electronics market. This was the channel through which East Asian economies were affected because many of them are heavily dependent on electronics exports. Rapid investment growth in the information communication technology (ICT) sector in the 1990s that fueled the boom in the United States

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January - February 2003

(US) economy also resulted in excess capacity. Adjustment to this condition and the fallout from the September 11 attacks eventually led to a recession in the US. The recovery of industrialized economies in 2002 resulted from a combination of a macroeconomic stimulus—the bottoming-out of inventory cycles— and a rebound in the hightechnology sectors (World Bank 2002). Lower interest rates contributed to a strong demand for durable goods. With inventory stocks depleted, this therefore created the opportunity for increasing fixed investment. At the same time, the electronics market experienced a rebound with the development of new products. There exist many downside risks that could stall global economic expansion. The immediate problem is the threat to additional fixed investment posed by tensions in the financial markets. These reflect accumulated financial imbalances and significant uncertainties. In the US, the large debt overhang of both consumers and corporate sector has led to a declining consumer confidence and weakening business sentiment. This has been exacerbated by the specter of the return of large fiscal deficits. Another source of concern were the accounting scandals that made it difficult to assess the profitability of firms, thereby pushing up risk premiums in equity markets.

There exist many downside risks that could stall global economic expansion. The immediate problem is the threat to additional fixed investment posed by tensions in the financial markets. These reflect accumulated financial imbalances and significant uncertainties.

Meanwhile, Japan continuesto be mired in a 12-year old slump. Domestic demand remains relatively weak and the surge in exports is threatened by an appreciating yen and wavering US economic growth. Japan’s longterm concern is the “hollowing out” of the domestic economy, which can be reversed only with the successful restructuring of the financial and corporate sectors and a resumption of investing profits at home. Like Japan, exports have underpinned the recent economic performance of the Euro area. Hence, the uncertainty surrounding the US economy—which prompted the European Central Bank to shift to a more neutral stance in August 2002— has also clouded the prognosis for the region. The telecommunications sector in Europe still suffers from overinvestment and high debt burdens, severely constraining the capacity for robust growth in what has been one of the most dynamic economic sectors in the world. An IMF study (2002) listed other downside risks that would affect the global economic environment in the short-run:


DEVELOPMENT RESEARCH NEWS

5

…An upheaval in Japanese finance, bringing with it a complete restructuring, is not impossible. But such a restructuring would produce shocks that would reverberate around the world.

✦ The recovery continues to depend heavily on the outlook for the US, which is more subdued than expected. ✦ Oil prices could spike sharply if the security situation in the Middle East were to deteriorate further. ✦ Equity markets remain volatile and could fall further. ✦ While the fall in the dollar has so far been orderly, the US current account deficit remains very high, and a more abrupt and disruptive adjustment cannot be ruled out.

The first three factors require no further elaboration. In terms of the last issue, the IMF explains it in terms of the need for an orderly balancing of domestic demand from deficit to surplus countries. From another perspective, this requires distributing the adjustment commensurately between a quantity change via total expenditure and a price adjustment (i.e. the exchange rate) in order to bring about a smooth decline in the dollar’s value. The IMF argues that because domestic demand in the major surplus countries is constrained by structural factors,1 this increases the likelihood that the adjustment in the US current account will be accompanied by a weaker global growth. The implication is that there is a significant

chance of a sharp fall in the dollar’s value since the growth of domestic demand in Japan and the Euro area will be limited. The IMF analysis neglects the relatively small role that exports play in the US economy and the small share of exports of about 30 percent to the Euro area and Japan. Hence, even if Japan and the Euro area will experience stronger growth, the pull on US exports may not be enough to prevent a significant drop in US domestic spending and a sharp dollar depreciation to curtail imports. However, stronger economic growth in these two areas will definitely shore up global trade. This may likely be enough to generate a soft landing for the US dollar, which remains to be the principal medium of exchange in the world economy. Resuscitating domestic demand in Japan has a direct link to the ongoing reform process there and to said country's ability to lure investment. What may have been overlooked is the risk these factors—particularly corporate and bank restructuring—pose to the smooth decline of the dollar, depending on how the process will affect the banks, depositors, and borrowers. A recent news editorial describes this predicament succinctly:2

The structural problems in the Euro Area relate mainly to labor market inflexibility. Mikuni A. and R. Taggart Murphy. 2002. Why reforming Japan’s banks could ruin the U.S. The International Herald Tribune. 2 November. 1 2

January - February 2003

“…An upheaval in Japanese finance, bringing with it a complete restructuring, is not impossible. But such a restructuring would produce shocks that would reverberate around the world. Japan as a nation holds nearly $3 trillion in dollar-denominated assets, many of them ultimately supported by the very deposits that would be withdrawn in a wholesale reorganization of Japanese banking. Those dollars have played an indispensable role in permitting the United States to swell its trade deficits far beyond the levels of most nations. That so many foreigners are willing to keep their earnings from trade inside the U.S. banking system - what ‘holding dollars’ literally means - helps the United States tolerate its deficits. But this situation is precisely what restructuring in Japan threatens.” The message being carried here is that the manner by which economic agents in Japan will consolidate their balance sheets may create a policy


DEVELOPMENT RESEARCH NEWS

dilemma. In order to bring about a smoother adjustment in the yendollar exchange rate, domestic demand in Japan must be revitalized through financial and corporate restructuring in the short-to-medium term and investment reallocation in the long-term. However, this very process will likely trigger a downward spiral in the value of the dollar, leading to dire consequences for the global financial system. The failure to break out of this policy dilemma and the slow pace in which financial uncertainties are resolved will result in global economic stagnation in the medium-term. For the US, this is somewhere between the scenarios of a double-dip recession and sustained recovery. Japan’s economy has already been floundering due to the balance sheet problems of its banks and corporations. The main characteristics of the global stagnation would be a delay in instituting required reforms in Japan and muddling through in the US in response to the need to reduce the level of corporate and consumer debt.

Domestic Policy Issues In the Philippines, the most relevant development last year was the declaration by President Macapagal-Arroyo that she would not be seeking a second term. The result has been a shift in attention to the economic and political reform agenda, focusing on measures that can be implemented effectively in the next 18 months.

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January - February 2003

...The most relevant development last year was the declaration by President Macapagal-Arroyo that she would not be seeking a second term. The result has been a shift in attention to the economic and political reform agenda...

In this regard, two key legislative bills were immediately signed into law. One is the Special Purpose Vehicle (SPV) Act which aims to facilitate the reduction of nonperforming assets of banks and other financial institutions. Reducing nonperforming loans (NPLs) will help resuscitate credit and investment activity. The other bill is on procurement where the critical concern is the manner by which the implementing rules and regulations are drawn up and followed. Meanwhile, the administration highlighted anew its 8-point agenda that capsulizes the thrust for the remainder of President Arroyo’s term. The eight items vary in terms of specificity, with some having broad scope (e.g., to increase fiscal resources) while others having more focus (e.g., to develop Bagong Nayong Pilipino Tourism Estate along Roxas Boulevard). The University of the Philippines School of Economics (UPSE), in turn, came up with its own proposed set of

Major infrastructure projects will provide a shot in the arm to investment spending. This will likely lead to an increase in the investment-GDP ratio, finally breaking the five-year trend. The continuing recovery of the financial sector...will also facilitate the turnaround in investment.

priorities. The common elements in both the administra-tion’s agenda and the UPSE’s response (which may be considered the more important issues) relate to improving tax administration. Several legislative bills pending in Congress will definitely go a long way in improving the administration’s tax effort. One is the indexation of specific tax rates to inflation, a pro-posal that stemmed from the observation that the fall in excise taxes was the main cause of the structural decline in the tax effort. However, the present version of the bill excludes fuel taxes from consideration, thereby leaving out a substantial amount of potential revenue. Another bill deals with shifting vehicle taxes to value basis and away from physical attributes. The bill, however, that carries the most weight is the proposal to overhaul the Bureau of Internal Revenue (BIR) and create the Internal Revenue Management Authority (IRMA), recently recast to the National Authority for Tax Administration (NATA). This latter measure aims to restructure the incentive system in tax collection efforts in order to favor government. In addition, some of the programs scheduled to be implemented in 2003 will have immediate impact. For instance, the rehabilitation of the


DEVELOPMENT RESEARCH NEWS

7

January - February 2003

North Expressway has begun and is scheduled to be completed in January 2005. Financial assistance to small and medium enterprises has also been put in the pipeline. Housing loans have likewise been made more available. At the same time, there are also many long-term structural issues that remain unresolved. These include the backlog in physical infrastructure, the need to upgrade technological capability, the lack of effective competition policy, and the need for more realistic and comprehensive population and antipoverty program. As mentioned in last year’s outlook article by this author, these are not new issues and until such time that these are addressed, the Philippines has to content itself with mediocre growth figures.

Prospects In view of the above, what does 2003 have to offer? Unfortunately, unless there are clear signals that the revenue effort is on an upswing and key governance issues are being tackled squarely, investor confidence will remain subdued and economic performance will consequently plateau this year. It is very likely that there will be minimal progress in key reform areas, thereby squandering the opportunity presented by the nonpartisan gesture of President Macapagal-Arroyo. The adverse situation will be compounded by the stagnation of major industrialized economies.

The prediction for GDP is a growth rate of 4.3 percent (Table 1). If there is a spike in oil prices due to the conflict in the Middle East, growth will be pared down to between 3.5 and 4 percent, with the actual figure dependent on how long the higher oil prices will take place. One positive note, though, is that despite predictions that El Niño will linger up to the second quarter of this year, the agriculture sector should expand at a fairly steady pace, with growth peaking in the third quarter. Average growth for the entire year is expected to be at 2.9 percent. However, the manufacturing sector will remain in its low-equilibrium growth path, supported mainly by food manufacturing. The increase in value added, though, is expected to be slightly higher in 2003, which is estimated at 3.8 percent. Perhaps the

Major infrastructure projects will provide a shot in the arm to investment spending. This will likely lead to an increase in the investment-GDP ratio...The continuing recovery of the financial sector...will also facilitate the turnaround in investment.

government can make a comprehensive evaluation of the structural reform programs and determine areas where changes can be made, with the objective of boosting value added in manufacturing. The theme of such a study should be the improvement of competitiveness in various sectors, with focus on exports. One aspect would be policies—e.g., a more strategic approach, as opposed to a passive one, to foreign direct investment—that would result in higher value added of Philippine exports. The service sector, meanwhile, will continue to expand at a relatively robust pace. The telecommunications sector will carry the momentum of past investment and growth. The finance sector should benefit greatly from the SPV act. Retail trade, which has experienced a solid growth in the past four years, partly due to the liberalization of this sector, is likely to continue said growth in 2003. The service sector may also likely receive a boost from tourism. The year 2003 has been dubbed as Visit the Philippines Year (VP 2003) and the increase in tourist arrivals in 2002, after four years of decline, bodes well


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DEVELOPMENT RESEARCH NEWS

January - February 2003

Table 1. Selected Macroeconomic indicators, Philippines, 1992-2002, Forecast for 2003 (annual growth rates and share to gdp, the latter shown in italics)

Gross National Product Gross Domestic Product Agriculture, Fishery and Forestry Agriculture/ fishery Forestry Industry Sector Mining and quarrying Manufacturing Construction Electricity, Gas and Water Service Sector Transport, communication and storage Trade Finance Ownership of dwellings and real estate Private services Government services Personal Consumption Expenditure Government Consumption Capital Formation Exports (nominal $) Imports (nominal $) Inflation (average) 91-Day Treasury Bill Rate (average) Nominal Exchange Rate (average)

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003 Forecast

1.6 0.3 0.1 22.75 0.4 22.17 -12.0 0.58 -0.3 34.41 8.1 1.60 -1.7 25.03 6.1 5.04 0.7 2.74 1.0 42.84

2.7 2.1 2.0 22.75 2.5 22.28 -15.7 0.48 1.6 34.25 1.1 1.58 0.7 24.69 5.7 5.22 2.8 2.76 2.5 42.99

4.6 4.4 3.4 22.36 3.8 21.98 -16.3 0.39 5.8 34.71 -7.2 1.40 5.0 24.84 9.4 5.45 13.9 3.01 4.3 42.93

4.9 4.7 1.2 21.55 1.9 21.32 -37.1 0.22 6.8 35.38 -5.6 1.25 6.8 25.34 6.6 5.55 13.0 3.25 5.0 43.07

7.2 5.8 3.9 21.13 3.9 20.91 7.7 0.22 6.4 35.58 1.4 1.20 5.6 25.27 10.9 5.81 7.6 3.30 6.4 43.29

5.3 5.2 2.8 20.71 3.3 20.56 -39.0 0.15 6.2 35.91 2.9 1.16 4.2 25.04 16.4 6.42 4.8 3.29 5.5 43.38

0.4 -0.6 -6.6 19.50 -6.5 19.34 -21.0 0.15 -1.8 35.35 3.3 1.20 -1.0 24.91 -8.5 5.83 3.4 3.41 3.5 45.15

3.7 3.4 6.0 20.09 6.4 19.91 -45.5 0.19 0.9 34.49 -8.4 1.06 1.6 24.47 -1.6 5.55 3.1 3.40 4.1 45.42

4.5 4.0 3.3 19.90 3.6 19.75 -19.5 0.14 3.9 34.67 10.0 1.12 5.6 24.76 -5.0 5.40 4.2 3.40 4.4 45.44

3.4 3.2 3.7 19.99 4.0 19.90 -33.5 0.09 1.3 34.04 -6.6 1.01 2.9 24.67 -3.6 5.04 0.7 3.31 4.4 45.98

5.2 4.6 3.5 19.79 3.5 19.70 9.1 0.10 4.1 33.87 49.2 1.44 3.3 24.38 0.0 4.82 2.1 3.24 5.4 46.34

5.0 4.3 2.9

1.4 5.82 1.6 15.27 0.4 4.06

2.5 5.85 2.4 15.32 2.4 4.07

4.2 5.84 4.0 15.26 5.5 4.12

5.8 5.90 5.6 15.39 7.3 4.22

7.4 5.99 5.5 15.34 13.7 4.54

8.2 6.17 4.0 15.15 13.0 4.87

6.5 6.60 2.5 15.61 4.5 5.12

5.3 6.72 4.9 15.84 1.9 5.04

10.4 7.11 5.2 15.95 0.9 4.87

8.8 7.50 5.6 16.32 1.2 4.78

8.9 7.81 5.7 16.50 3.2 4.72

0.7 5.64 0.6 6.89 0.2 5.15

1.8 5.62 2.9 6.94 2.9 5.18

2.9 5.54 4.3 6.94 5.5 5.24

3.1 5.46 4.3 6.91 3.8 5.19

4.2 5.37 5.0 6.86 5.9 5.19

3.8 5.30 4.9 6.83 2.6 5.06

1.6 5.41 4.7 7.19 2.6 5.21

0.6 5.27 5.8 7.36 3.7 5.19

0.0 5.04 4.8 7.39 1.4 5.06

-0.5 4.86 4.4 7.48 2.7 5.03

1.6 4.73 5.5 7.55 4.6 5.03

3.3 78.10 -0.9 7.70 8.5 21.46 11.1 20.5 8.6

3.0 78.81 6.2 8.00 7.9 22.67 15.8 21.2 7.0

3.7 78.31 6.1 8.13 9.0 23.59 18.5 21.2 8.3

3.8 77.66 5.6 8.20 3.7 23.33 29.4 23.7 8.0

4.6 76.76 4.1 8.07 13.3 24.78 17.7 20.8 9.1

5.0 76.62 4.6 8.03 11.6 26.32 22.8 14.0 6.0

3.5 79.73 -2.1 7.92 -16.4 22.16 16.9 -18.8 9.7

2.6 79.13 5.3 8.17 -1.7 21.01 18.8 4.1 6.7

3.5 78.47 -1.1 8.31 2.3 21.24 8.7 2.1 4.4

3.6 78.75 0.3 8.07 1.3 20.85 -15.6 -5.9 6.1

3.9 78.25 1.8 7.86 -0.6 19.82 9.1 13.3 3.1

12.0 15.0 3.8

16.0

12.4

12.7

11.8

12.3

12.9

15.0

10.0

9.9

9.7

5.5

7.5

25.3

27.2

26.3

25.8

26.2

30.1

40.8

39.3

44.7

51.1

51.7

54.0

4.1 7.0 3.8 5.0 4.0 5.0

4.1 2.0 7.0

Source: National Accounts of the Philippines, National Statistical Coordination Board; Selected Philippine Economic Indicators, Bangko Sentral ng Pilipinas; and forecasts of J.T. Yap Note: Export and import data 2001: Jan-Dec; Export and import data 2002: Jan-Nov.


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DEVELOPMENT RESEARCH NEWS

Education planning: Rx to rising unemployment of college grads?

for its success. Additional programs have also been implemented to support the VP2003, namely: ✦ the Volunteer 12 program which was launched in 2002, encouraging Filipinos abroad to promote the Philippines as a tourist destination; and ✦ the Balikbayan law which grants additional benefits to balikbayans and overseas Filipino workers.

T

here is an ongoing debate on whether the problem of high unemployment and underemployment rates of educated workers can be resolved through education planning. Dr. Aniceto Orbeta, senior research fellow at the Philippine Institute for Development Studies (PIDS), said the implementation of education planning is commonly justified by the high unemployment rate of educated workers. The unemployment rate, he pointed out, is taken as an indication of the mismatch between what is produced by the education sector and what is needed by the labor market.

Major infrastructure projects will provide a shot in the arm to investment spending. This will likely lead to an increase in the investment-GDP ratio, finally breaking the five-year declining trend. The continuing recovery of the financial sector, which should lead to an expansion in credit in real terms, will also facilitate the turnaround in investment. However, many factors will constrain the rebound such as:

Orbeta’s study titled “Education, Labor Market and Development” noted a drastic decline in the proportion of college graduates in the professional and technical category to the availability of positions in the sales, service, agriculture and production sectors.

✦ the unfavorable external environment, ✦ dwindling capital inflows, ✦ slow pace of reforms, particularly in the area of governance, and ✦ peace and order concerns.

Inflation is expected to be slightly higher in 2003, due mainly to the expected rise in fuel prices. Nevertheless, the low-inflation regime should carry over and the full year average should be about 3.8 percent. Higher inflation and the ongoing deficit problems should push interest rates upward, with a forecast full year average of 7.5 percent. Finally, problems with the Anti-Money Laundering Act (AMLA) and the increasing possibility of war in the Middle East are likely to derail overseas remittances.3 This will put

January - February 2003

“Thus, overall, the quality of jobs held by college graduates has deteriorated. There is not much additional pressure on the peso, which is already reeling from the fallout from the fiscal deficit. As such, some analysts expect the exchange rate to hit P56 by the end of the year. We expect an average exchange rate of about P54. ❏

The problem with the AMLA has recently been resolved. 3

shift in the proportion of college graduates in employment across industries. Among the discernable movements are increases in proportion in manufacturing, finance, insurance and real estate, and wholesale and retail trade sectors. Community and personal services, however, are the heavy losers of college graduates. Likewise, there is a decline in proportion of college graduates among the wage and salary workers, particularly government agencies and corporations, and a rise among self-employed workers,” Orbeta explained. Moreover, Orbeta explained that decisions of students on which education careers to pursue are dependent on good information on what courses there are, the costs, and employment and income opportunities. Unfortunately, as pointed out by Dr. Edita Tan of the UP School of Economics in a related study on inflation and education (refer to the main feature of the SeptemberOctober 2002 issue of the Development Research News) regard- ✒ 15

References International Monetary Fund. 2002. World Economic Outlook [online]. Washington D. C.:IMF (cited September 2002). Available from the World Wide Web:(http://www.imf. org/external/pubs/ft/weo/2002/02/index.htm) World Bank. 2002. Global Economic Prospects and the Developing Countries 2003. Washington D. C.: WB [online]. Available from the World Wide Web:(http:// publications.worldbank.org/ catalog/contentdownload? revision_id=2194861)


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Assessing the situation of working women in CALABARZON

O

ne significant change that globalization has brought to certain industries is the feminization of its workforce. This is notable in the garments manufacturing and electronics assembly industries of various countries regardless of their level of development. Indeed, women’s participation in the economy has changed dramatically in both volume and composition. However, even in the face of globalization, this has not ameliorated the economic condition of the working women and their sheer number in the workforce does not necessarily imply gender equality. There is thus a growing interest to investigate more thoroughly the impact of globalization on female workers. This paper aims to assess the situation of working women in the CALABARZON (an acronym for CAvite, LAguna, BAtangas, Rizal and QueZON area) in terms of: (1) recruitment and selection; (2) working conditions; (3) compensa-

Dr. Divina Edralin De La Salle University

tion; (4) development; (5) special working conditions; (6) health, dental and occupational safety; (7) labor relations; (8) post-employment condition; (9) socioeconomic impact of globalization; and (10) the significant differences in their situation based on the characteristic of their company. This paper also evaluates the impact of globalization on Filipino firms and relates the general issues and problems confronting the working women in the CALABAR-ZON to the APEC environment. In order to address the above objectives, a survey among 172 firms registered with the Philippine Economic Zone Authority (PEZA) and operating in the economic zones in Cavite, Laguna, and Batangas was conducted. Of the 327 respondents who were interviewed or answered the survey questionnaire, 219 were

...Women’s participation in the economy has changed dramatically in both volume and composition. However...this has not ameliorated the economic condition of the working women and their sheer number does not necessarily imply gender equality.

women workers and 108 were management representatives.

The Profile Based on the responses, a typical participating CALABARZON company is owned by a Japanese national and locted in Cavite; manufactures semiconductors/electronic products; is usually export-oriented; has a large employment; is registered as a corporation; has been operating for six years; and has an average level of profits in the past year. On the other hand, a typical female worker in the CALABARZON has an average age of 24 years old; is either the first- or second-born child; a Catholic; has reached high school; single; has three dependents on the average; comes from an average family size of six; a regular rank-andfile employee (usually a production operator) ; and has been with the company for about two years.

Recruitment and Selection Majority of the women workers were walk-in applicants who went through an average of four (fairly easy according to their assessment) screening steps. According to them, the most difficult stages in the recruitment process were the long wait for the interviews and the subsequent release of test results. It took them about 36


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by company characteristics. However, the test of difference illustrates that there are significant variations in the women’s assessment of their present working conditions when grouped by nature of business and level of profitability.

Compensation Women workers receive a monthly salary ranging from P2,000 to P12,000 per month while those paid on a daily basis have salaries from P120.00 to P461.00 per day or an average monthly salary of P5,926.79 (for an average daily pay of P229.75). The salaries are given twice a month through automated teller machines (ATM). The long wait: The most difficult stages in the recruitment process were the long wait for the interviews and the subsequent release of test results.

days before they were accepted by the company. In general, there is a significant difference in the number of days that women workers had to go through from application to acceptance based on type of ownership. Upon acceptance, the women were given orientations by the firm before they actually started working. The orientation mainly focused on company policies and the actual tasks they have to perform.

Working Conditions Women workers perform their jobs 6 days a week for an average of eight hours per day with a 54-minute lunchbreak and two nine-minute snack breaks in the morning and afternoon. They are given more than 10 percent of their regular wage for each hour of work performed at night and an average overtime pay of 28 percent of their daily regular rate, which is a little higher than the 25 percent premium required by law. The average premium pay received on rest days is 34 percent of the regular wage, which is higher than

the 30 percent minimum requirement of the law. On the other hand, the average premium payment for working during regular holidays is only 148 percent of their regular rate, way below the minimum law requirement which stipulates that it should be twice the workers’ regular wage. During special

Generally, women workers receive basic wages above the minimum amount required in the CALABARZON area. Results show no difference in the compensation based on a daily salary rate when women workers are classified according to the type of their companies. With regard to the adequacy of their compensation in meeting the needs of their families, more than half of the women workers assessed their

During special holidays, women are paid an average premium of 28 percent of their regular wage, a little less than the minimum requirement of at least 30 percent.

holidays, women are paid an average premium of 28 percent of their regular wage, a little less than the minimum requirement of at least 30 percent.

salary level to be fairly adequate. However, when classified by company location, working women have varying perceptions on the adequacy of their salary.

The above results show no significant differences in the working conditions of women workers when segregated

Development There are training opportunities given by firms in the form of appren-


DEVELOPMENT RESEARCH NEWS

ticeships, on-the-job trainings, and both inhouse and outside seminars. The latter are mostly related to the technical aspects of their jobs such as developing their skills and performances that would contribute to their companies becoming globally competitive. The women, however, have encountered three major problems in the trainings they have attended, namely: (1) the content of the seminars; (2) methods used in the trainings; and (3) logistics of the seminars. On the whole, there are more significant differences on the assessment of trainings by women workers when classified according to company location and ownership. Since their entry, majority of women workers have been promoted only once—mostly one step higher and still within the rank-and-file level rather than moving up to the

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Since their entry, majority of women workers have been promoted only once—mostly one step higher and still within the rank-and-file level rather than moving up to the managerial level...it took them from about a month to four years or an average of two years before they were promoted.

managerial level. According to the women, it took them from about a month to four years or an average of two years before they were promoted. A considerable number assert that their promotions have been based on merits reflected in their performance evaluation reports. Majority of women workers consider the current systems of personnel promotion adopted by their respective companies as satisfactory. This assessment significantly varies according to company ownership. Despite the satisfactory rating given to the promotion system, several problems have also been cited, namely: 1) discrimination in promotion (no equal chance is given, “backdoor’ referrals, favoritism, and “palakasan”); 2) unlimited promotion for office employees only (contractuals are not promoted); 3) additional responsibility upon promotion; 4) competition with coworkers for promotion; and 5) difficulty in adjusting to the environment of another department after promotion.

Special working conditions The study also shows that the provision of specific facilities for women, family planning services, health, dental and occupational safety measures for the protection of women workers in the CALABARZON companies are relatively lacking.

This is particularly true in the aspect of adult education, conduct of health programs and safety programs, and provision of insurance coverage benefits. These may lend some truth to the women’s claim of experiencing fatigue due to too much work and perceived unpleasant work environment. Only a handful of firms in the CALABARZON have established unions. Of these firms, most are Japanese export-oriented companies in Cavite, with large employment, have been existing for an average of 9.5 years, and had average profits last year. Data show that export processing zones (EPZs) are havens for nonunionized firms—a factor in attracting foreign investors—with a very low level of women participating in union matters and still very few holding leadership positions. Based on their responses, women look up to men to take the lead when it comes to union matters. Meanwhile, data show serious misconduct of women workers or willfull disobedience of orders of their employers or their representatives as the main reason for their termination. The second reason is fraud or willfull breach by the worker of the trust reposed in her by her employer or the duly authorized representative. A big percentage of the women workers say that their company undertook retrenchment due to


DEVELOPMENT RESEARCH NEWS

economic crisis, company costcutting, low profits and possible closure of the company.

Impact of globalization on their socioeconomic life Only 57 out of the 219 women workers opined that the economic and social aspects of their lives have been affected by globalization while 162 believe that it has no effect on their lives at all. Women workers in the first category mostly come from Cavite and work in domesticoriented companies owned by Filipino-Chinese. Their mediumsized companies, which have been existing for more than 15 years, made low profits last year.

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✦ information technology, which induces them to adapt to the use of new tools such as internet, cellphone and media networks due to necessity but which could

Among the more frequently cited negative effects of globalization are the following: ✦ conditions of work, such as the need to render overtime frequently in order to meet rush orders and deadlines of company requirements; casualization/ contractualization of workers; or difficulty in finding a regular job; ✦ salary, including difficulty to have salary increases, low salary, or inadequate salary to meet family needs and cope with changes in technology (e.g. need to buy cellphone or computer); ✦ company condition, such as dropping sales/profit due to stiff competition which, in turn, leads to stricter implementation of policies to produce quality products;

not be availed of by everybody because they cannot afford the prices; and ✦ financial difficulties, which hinder working women from buying all their family needs due to increasing prices. On the other hand, the positive effects of globalization that women workers perceive are related to work conditions such as easier jobs because of the availability of modern equipment like computers and other highspeed technology machines, and more employment opportunities for more people because of free trade that enables many firms to operate in the Philippines.

...Data show serious misconduct of women workers or willfull disobedience of orders of their employers or their representatives as the main reason for their termination. The second reason is fraud or willfull breach...of trust.

Meanwhile, management representatives gave varied responses to the question on the effect of globalization on Filipino firms. On the positive side, they feel that globalization has opened up opportunities for women who are now preferred over men because of the former’s attitude toward work and their capacity to learn. However, because of heavy workload, women workers are prohibited from taking extended leaves. Thus, family planning services are beginning to be emphasized in the companies while attempts are being made by firms to observe labor laws regarding proper compensation such as allowing women workers to monetize their leaves. They are also given the chance to develop their technical skills through various trainings to meet the demands of their jobs. They are likewise being encouraged to play major roles in the companies but not within the unions.


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On the other hand, the management representatives also see the trend toward a leaner but multiskilled manpower base which would increase the tendency to retrench permanent employees and hire more contractuals.

Similar to other women workers in EPZs around the world, Filipino women workers work long hours in the day, including rest days and holidays, to meet the demands of their firms’ clients, particularly those in the global market.

Conclusions The findings clearly indicate that globalization has resulted in a significant change in the volume and composition of participation of women in the economy.

The use of high-technology equipment and processes has also changed the nature of their jobs and the level of skills expected of them. Women workers, therefore, have to acquire new skills by attending technical trainings.

In particular, it has resulted in the feminization of the workforce in the export processing zones, notably in the semiconductor/electronics and garments industries. Although women workers are given preference by CALABARZON employers because of their attitude, values, patience and dexterity, women still find difficulties in getting even low-wage and low-skilled jobs like production operators.

Moreover, the socioeconomic and political aspects of their lives have been altered because of the long hours of work they have to put in as well as the pressure of their work. Although they receive appropriate compensation for rendering overtime work, they now have less time for personal concerns like further studies, longer rest periods, and fulfilling family obligations like rearing their children.

January - February 2003

Their participation in union or community activities has likewise been reduced. This means less time or no time at all for getting involved in concerns such as women’s issues and rights. Finally, there are no significant differences in the situation of women workers in Filipino- or foreign-owned firms, and in export- or domesticoriented firms. This implies that globalization has not fully improved the working conditions of women and that firms in the EPZs have not truly performed their corporate social responsibility in protecting the rights and welfare of women in their workplace.

Policy implications Based on the above data and conclusion, some recommendations are necessary. One is the need to lobby for structural adjustment programs that will protect women’s right, health and well-being as well as promote family and community relations.

Preferred: Management perceives that "globalization has opened up opportunities for women who are now preferred over men because of the former’s attitude toward work and their capacity to learn."

In this connection, firms in EPZs could implement the following: 1) improvement of facilities for family planning services, health, dental, and occupational safety measures; 2) continuation of training and development efforts, particularly in enhancing the skills of women workers to handle new technology; and 3) enhancement of training modules to include behavioral and human relation skills. At the APEC level, policymakers in


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different countries may look into the following issues: 1) provision of better education and technical training for women, with emphasis on basic knowledge and technical skills needed by industries to fill betterpaying jobs; 2) review and revision of the objectives in setting up EPZs in terms of implementation of laws that afford protection to all workers, particularly women; and 3) promotion of the concept of social partnership by encouraging the creation of labor management councils even in the absence of labor unions. ❏

Bibliography Aganon, M. 1999. Women workers and unions in the formal sector: adjusting to the crisis. In Carrying the burden of the world. UP CIDS: Quezon City. Bureau of Labor and Employment Statistics (BLES). 2001. Current labor statistics. DOLE: Intramuros, Manila. Dau-Schmidt K. 1996. Dividing the surplus: will globalization give women a larger or smaller share of the benefits of cooperative production? Indiana Journal of Global Legal Studies 51(4). Edralin, D. 1998. Human resource management practices of small, medium and large

Education from page 9 ing tuition costs at higher education institutions (HEIs) and licensure examination performance of various HEIs, the essential data to improve education investment choices are not processed and properly disseminated to the public even if these are already available. “Some data sets such as the passing rate in professional board examinations have remained to be difficult to obtain particularly at the school level. Unemployment and rate of return

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enterprises in Metro Manila. Manila: DLSU Press. _______. 1999. Issues in human resources management and approaches to their resolution. Manila: PHILEXPORT-TAPS. _______. 2000. Factors influencing the observance of the core ILO Labor Standards by manufacturing companies. PASCN Discussion Paper Series 2000-02. Makati City, Philippines: Philippine APEC Study Center Network. Foz, V. (ed). 1999. The Labor Code. Philippine Law Gazette. Fuentes, A. and B. Ehrenreich. 1981. Women in global factory. Boston: South End Press. Go, M. 2001. Ecozone investment soar 101% in 2000. The Philippine Star. 3 January:7, 20. Hartigan, P. 1997. Women's health in a changing global context: the impact of globalization on women’s lives and women’s health [online]. Paper presented at the Conference on women health and emerging issues sponsored by the California Public Health Association-North. Available from the world wide web:(http//www.cphan.org/libr/ hart01.html) Henderson, C. 2000. Globalization Part 2 [online]. APMF Asian Business Strategy Ezine. Available from World Wide Web:(http://www.apmforum.com/columns/ orientseas15.htm) Illo, J. F. 1999. “Gender and markets: A framework of analyzing the effects of th

economic crisis on women.” In Carrying the burden of the world. Quezon City: UP CIDS. Kohl, J. 1989. Wanted: Recruitment advertising that doesn’t discriminate. Personnel 66(2):18-26. Mears, R. 1995. The impact of globalization on women and work in Americas. Paper presented in the Inter-American Bar Association Conference XXXII in Quito, Ecuador. Anon. 1999. ILO Report: globalization, commercial circuits shifting employment among women. Philippine Daily Inquirer. November. Peña, F.V. 1999. Industrialization of CALABARZON: Evolution and prospects. The Journal of Business 1(2):18-26. Rosenau, J.N. 1997. The complexities and contradictions of globalization. Current History 96(613):360-364. Tujan A., Jr. 1998. Globalization and Labor: The Philippine Case. Institute of Political Economy.

studies need to be done more regularly at more disaggregated levels, that is, by discipline. Comprehensive cost data for different HEIs are still difficult to obtain,” Tan stated.

(BLES) and other statistical agencies. Orbeta also called for the rationalization of government’s investments in tertiary education, particularly the state universities and colleges (SUCs), where most of the government resources in higher education are concentrated. He is thus proposing a shift to full-cost tuition-based financing in place of the existing block subsidy.

Thus, Orbeta suggested that the comprehensive and periodic provision of education and labor market information should be a continuing concern. This has to be developed in coordination with the National Statistics Office (NSO), National Statistical Coordination Board (NSCB), Commission on Higher Education (CHED), the Bureau of Labor and Employment Statistics

Note: This paper is a condensed version of the author's book with the same title under the PIDS Research Paper Series (2002-08) published by the Philippine APEC Study Center Network (PASCN) and the Institute. The paper also came out in draft form as PASCN Discussion Paper 2001-14. For a complete bibliography, visit http:// pascn.pids.gov.ph/.

Lastly, Orbeta recommended that SUCs should identify which fields of studies and activities are worthy of government subsidy and how grants are to be administered and awarded.❏


DEVELOPMENT RESEARCH NEWS

PIDSEA chooses its logo

T

he Institute’s research department showed how creative its staff was when six intelligent ladies joined the 2002 PIDSEA Logo Design Contest organized by the Philippine Institute for Development Studies Employment Association (PIDSEA). The contest, which was open to all PIDSEA members and officers, kicked off in August 2002. The contest was aimed at having a uniquely PIDS-made logo that would be able to represent and show the image of PIDSEA as a public sector union based in a premier government research institution. The participants were encouraged to send in original entries accompanied by a detailed explanation of every choice of color, shape or pattern used to capture the image of PIDSEA. The winning logo was judged according to the play of balance/symmetry/color, depiction/interpretation of visual design, uniqueness of design,and written explanation of design. The members’ votes comprised 50 percent of the total score while the remaining half was the sole assessment of professional artist Noli San Jose. This decision sharing ensured the participation of the mem-

bers in the selection of the winning logo that would embody the vision of their association for the coming years. The awarding of prizes was held during the PIDS Christmas Party on December 19, 2002. The tandem of Lucy Melendez and Eden Villanueva, who both work under PIDS Senior Research Fellow Dr. Rosario Manasan, proved to be a formidable combination as they proudly received

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THE CORPORATE

News 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.

the accompanying cash prize of P1,000 for their winning entry. Their creative design was chosen from among seven entries. The ladies of the PIDS Database and Information Resource Program (DIRP) composed of Bless Datu, Shine Cagas, Aubrey Tabuga and Ronina de Asis— better known as the DIRP girls—also emerged victorious as three of their entries were chosen as the second, third and fourth place winners. According to Lucy and Eden, the three connected circles in their entry represent the importance of the harmonious presence of leadership (red), wisdom (yellow) and patience (blue) in the Association. The triangle signifies stability and growth of PIDSEA. The name of the Association is written on a brown background, which is the color of PIDS, and signifies that PIDSEA has been recognized by the Institute since 2001 when it was founded. The new PIDSEA logo will be the official mark of the association. This will reinforce a sense of group identity within the association and among the members. ❏ --With report from Iris Acejo, Research Analyst and Chairman of the Ad Hoc Committee on the PIDSEA Logo Design Contest


Economy to Plateau in 2003