Issuu on Google+


NO. 4



ISSN 0115-9097


Emerging Financial Innovations by Gilberto

Llanto, Ph.d.

In recent years, many developing countries started to rely more on the private sector and market signals to direct the allocation of financial resources. These countries took steps to liberalize their financial markets by deregulating interest rates, eliminating subsidized credit programs and encouraging more private bank lending. It was an entirely different approach to financial resource allocation in the rural credit markets as both borrowers and lenders had to rely more on the market mechanisms and less on government supply-led finance to finance economic and business enterprises,

This article tries to provide an overview of the responses of rural credit markets in Southeast Asia to the new orientation of rural credit policy; it argues that the rural economic agents were stimulated by the new policy environment to innovate and that the emerging financial innovations seem to bode well for the rural sector. More specifically, the emerging approach called "integrated savings and credit schemes" and the related "mutual guarantee schemes" that are observed in Southeast Asian rural credit markets wiU be discussed, Why Innovate? A directed credit regime, together with interest rate controls,

Necessity b called the mother of invention. But invention is not an only child as necessity gave birth to another offspring - innovation. Now, scant financial resources can be maximized as they are channeled to the ones that need them the most through some innovative but less costly redesigns. Dr. GUberto Llanto, former Executive Director of the Agricultural Credit Policy Council (ACPC) and Chairman of the Board of Trustees of the Asian .pacific Rural and Agricultural Credit Association - Center for Training and Research in Agricultural Banking (APRACA-CENTRAB) and now Research Fellow of the PIDS, discusses these innovations and how they are practised in Southeast Asia's rural creditmarkets. Intellectual property, though intangible, is consideredproperty"in the legal sense.Like any other property, it deservesthe protectionof the State.But doesthe strictenforcementof intellectualproperty laws equaldevelopment? Meanwhile, a very basic fact is always echoed - development has its human component. Yet, for whatever reasons, policymakers sometimes seem to miss this point. Human development as a precondition for development therefore cannot be overstated. The mangrove is one of the most underrated natural resources. There is more to mangroves than being a source of extractive timber products. They are a natural breakwater and a windbreaker. And in a country where prices of medicine are anything but inexpensive, the mangrove is home to exotic plants with medicinal values. All these, and more, will be tackled in this issue.

prevents efficient financial intermediation in the financial markets. Worldwide experience shows that the credit subsidies were captured by the unintended beneficiaries of the special credit programs who are most often the large farmers, merchants and traders in the community. The provision by governments of cheap money through the rediscount windows of state and central banks had often resulted to the dependence of financial institutions or governments for loanable funds and the neglect of savings mobilization. For developing countries, the decision in 1982 by foreign commercial banks to stop voluntary lending activity and the worsening terms of trade and fecession in major countries in the 1980s were eye-openers. The immediate message was that the era of cheap credits from recycled petrodollars was over and that governments, particularly those of developing countries, could not afford anymore the large credit subsidies lavished on various sectors of the economy. With



The Reality of IPR$ for Glob Efficiency

6 Economic

8 Growth In the Midst Healthy Environment

11 where

Mangroves Concernecl

I S MIMAP Phase ii Results 18 Development with a Human Face

of a


Credit subsidies were captured by the unintended beneficiaries of the special credit programs who were most often the large farmers, merchants, and traders in the community. I II

a lot of push from multilateral sources and from their own internal pressures, developing economies took the road to the market-orientation of their economies, and in our particular concern, the liberalization of financial markets, Financial liberalization is not a bed of roses. While it is argued that a market-oriented financial systern is more efficient (and therefore more beneficial to the economy), there is some evidence from recent research that financial liberalization has mixed impacts on developing economies, depending on the macroeconomic conditions obtaining in those countries; the maturity of the local financial institutions and the efficiency of the supervisory and regulatory agencies of the financial sector. However, in the competitive environment of the 1990s, economic agents, in particular the rural financial institutions, have learned to adapt and innovate in order to sur-




will stimulate the economic agent (which can either be a borrower or lender) to develop new financial instruments and practices in order to maximize its objective function under the new constraints. Legislatire initiatives which require lending institutions to set aside a portion of their loanable funds for lending to target groups will entail new and addifional compliance costs on the part of the lending institutions. This will stimulate the search for (a) new ways to cover compliance costs and meet the lending institutions' profit objecfives and (b) the development of new financial products. Thus, the stimulus to financial innovation may be a result of "an increase in the cost

number of smallholders, landless workers and petty entrepreneurs in the rural areas, together with the seasonal nature and inherent riskiness of agricultural and agri-based economic activities, inhibits access to financial services of banks and other formal financial institutions. This situation is not in any way helped by the traditional collateral orientation of banks. Real estate and liquid assets like government securities and cash deposits are the preferred forms of collateral and these are not available to most rural borrowers.

of adhering ibid),

posed by structural rigidities in principally agrarian Southeast Asian economies, indigenous and ruralbased innovative financial schemes arise to enable low income- and even the marginal groups to enjoy some form of financial services and to get access to bank credit over time.

to the constraint"


The new orientation of rural financial markets policy creates a totally different credit and savings environment in rural Southeast Asia especially in those countries that had

Given the initial difficulties of coping with the market-oriented environment and the difficulties

vive and grow in that environment,

depended on cheap rediscounting facilities at their central banks and

Following Silber (1983), the process of financial innovations may be explained in terms of a rural financial institution's or rural economic agents" response to the stimulus provided by changes in internal and external constraints. An objective function which in the case of rural borrowers may, for example be "access to credit at reasonable rates," is maximized subject to constraints. When the external environment changes because of a new policy orientation, a new set of rules or regulations (like the shift away from directed and subsidized credit approach to market- oriented and

highly concessional interest rates to provide credit to the rural sector. The new policy orientation calls for the mobilization of deposits and efficient financial intermediation activities which will require new techniques and practices and innovative financial products. Much will depend on private sector initiative in view of the relative inefficiency of government bureaucracies and their tendency to resist change, Private sector initiative is necessary especially in view of the particular nuances and characteristics of agrarian economies and

Integrated Savings and Credit Scheme. This is a scheme which tries to link credit with the amount of savings deposits generated by the borrower. Self-help groups, credit unions, savings and credit associations and credit cooperatives have long been observed to practice it. Under this scheme, the borrower is given access to credit on the basis of his accumulated savings with his organizafion. His membership in the organization, say a credit union, plus the amount of savings will determine how much credit he can get. Thus, a savings-credit ratio which initially


their rural credit markets. The large

starts with 1:1 on the first loan may




Some Financial Innovations Rural Southeast Asia


/:,: i:iq:7 i(¸:IITIL ¸/-7:'V :,

:,:4:1::i¸!!:/-::i%)71¸¸¸¸¸¸¸ `": /,: 7¸¸7:i::::,:':

be gradually increased to 1:4::as the: : with the banks to:: supplement their ti0nal building programs, Often times borr0wer:proves to be both::a goodl i lending activities with members and in collaboration with international credit: riskand saver, This scheme is: more importantly, perhaps, to deal agencies. practiced by individual members:of: with these:banks: at market terms, the organi_tion or by groups within : What this: means is that by pooling ..... The reverse lilxk-up process theorgafiization;




This oldpracticelhasrecentiy been:givenl a new twist or: angle by these indigenous l organizati0ns [: at-i

members' i savings and depositing these at:the banks, these indigenous groups have :realized the power of consolidated: savings to extract reasonable and favorable 10an terms

also happens. This iakes place when the bank realizes not only the savings potential but also the business (and profit) potential of the rurM areas. The banks are aware of the resiliency

tempts to link up: with the banking : for the organization: and/or the of the agricultural and rural sector syStem so that they may have access ii members, "lhe Consolidated savings: and the fact that the rural borrowers to the banks': financial services. While:: are converted into long term fund are also good credit risks given certhe: traditional _vings-credit:scheme :: placements with the:banks and are i tain _ffeguards. The banks also is:inwardly directed, i.e., it operates I used :::as: :collateral against the: recOgnize the weakness of their se> only:f0r: members and only within organizati0n, s and/0r members' vice delivery system s in the rural i the Confines of the organization, thel loansWith thebanks,: areas. Since the establishment of an new:::and::innovative approach is: to: .... :: extensive: 'branch network may not link: up with the: bank in order to widen ihe: _ale and _ope of: finan_


:These :savings: in effect bargaining tools with

are I yet be feasible, owing: sometimes to l the: constrained bai_k entL-y and branch-

¢iai: Services that Can be made avaib, : banks m_d: as_security to: encourage: ing rules of centrat banks and also to: abie to the organlzation's men_tbers, the:banks tolend to:the:organization : the relative expense of establishing Tl_e advantages of fl_e::i:traditional and/0r imembers_ :individually, the new branches;:banks have learned to savings2credit are mernbers::who mostly:belong to the establish inst_tx_fional :and financial : flexibility and inm_ediate : acces 2 hope to: links with rural-based credit organi_ .....sibility to members m_d thelow lend_ competei::: witlx other :types :of bank zat_ons: ing rates imposed 0n members:: H0w_............b0rf0w:ei;s:but through tl_e integrated .... ii i:.... : ..... ...... .... ..... . _, _,o r e, .................scale ot- lending . _ ........ .......... ................ ...... they The__ banks the._e ever,:the ,s qmt__ .... sawn_s and c redlt schemes, ..... ": have, ' : lnmtedmwewot:tbe . . :__ ._ .... ............. ¢ s able:to : ......... seem:to:be deal:w_th the' ....tried to use,. : the _'ural or g _anizations as fon_ial: organizations:to efficiently bal_ks at market terms. In some infinancial agents or credit conduits in and:effectively intem_ediatetherural : : Stances, :the mutually safisfacto W view of the costs of establishing and surplus m_d fl_ei_, flxin: loan: portfor:: relations}_ip:ibetweeni:the bank and maintaining branclies and ti_e recog-. lios, F0r:::example; in the PhilippineS; ........ tt_e orgartizationhas led not only to a nized comparative: advantage of Central:Bank rules dictate that onlya financial Co0peration:but also to a rural credit o_'ga_:_izations in such bank: ca:n:collect deposits from the tectmical: cooperation wherein the areas as ide_ti.fying and Kreening general.::public. Thus,the bank:helps:to build: up the financial; good loans ancl good borrowers, ira-.. i ganiZai:ions car_ at best collect or mo:.:: management and tectmical capacity: posing repayment of loansand securii biiize savings deposits: only from:: i:i:of: fl_e organization tl_'oug'h instim-, ing the safety of _he principal The thei_ memberS_ There is dso a:limited : ..... number:: of ii,_anCial:i::services: itl_atl : membei4s can avail: tl_emsdves:of :i_ contrast; :t0 fl_e wide,. .... array: 0f bat_i _g and:: financial _rvices offered by ba_@:S and otl_er formal financial in_i Stilntio_s.i i: :: ......... TM

: :T0 expl0it scale: :and scope economies : fl_at ::are found :in the moderni multi_product ba_xking in--:i: stitUtions) : the more d3mamic selfi:: help:gr0ups, credit unions, Credit:: c0opera:fives and saVings and credit : aK_ociafions haw. la_ken ithe steps to longer rely on banks as ordinaryll : depOsitory institutions for their members!::: pooled: savings, They are: : now ::attempting to forge linkages: : eh_*otaken

from the 1983 AnnualReport

of the Commercial Bank OfM_'u_a (Combar_k)


vantage in a market-0riented financialsystem. :

rural :.......

savings but they will also guarantee the bank that the group loan will be totally repaid; :otherwise, an in-

Mutual: Guarantee Scheme. dividua..ldefault will trigger a "crossThere::are: many variants of thisl default : of all other individual scheme but only one common ver, liabilities .....and :will .....Cause the : sion in view oftime and space limita_: foreclosure of the pledge savings un.... tions is discussed. The informal less the individual defaulted loan is : credit: markets have employed dif-settledl within a mutually agreed' i ferent techniques to: secure a loan. upon rea_nable:period of time. A The threat of denying access to:future corollary is the iproduction, to the i credit aswell as various interlinking lenders':il satisfaction, of a joint

:transactions: between tra.ders and: liability agreement among:the group small farmers, for instance, are tom-members who will be denied access ....... : mon ways to enforce the (informal) ii to future loans if One or several memloan contract. Having recognized the bers default or renege: on the Ioart .... potential :of "guarante_e schemes" likeii: contract .....These ::agreements may ....... joint liability schemes and third party either be jointly or individually pracii i guarantees,: ...... the rural economiC: riced by : borrowers and formal :: :

agents have adapted the practice to lendersin therural areas, suit their particular circumstances:, ...... : .......... : ....... : : i i : :i i The :rant.oral i guarantee ::mutual: guarantee:i scllemeintroduces a fresh dimension :scheme isan extension of the earlier-: to rural Credit rnarketsi The emphasis mentioned integrated: savings and and attention have:always been credit:scheme,:It is an:extension be--given to credit delivery; the need to caUSeit revolves around the use of have a good credit delivery system

mobilized: _vings as the base for the: and savings mobilization which are: :i mutual guarantee agreement. The .....expected to offset: the withdrawal by ....... philosophy of the mutual guarantee: government of special time deposits agreement is: the: use oflthe group : and/0r:subsidized .... rediscounting ..... : savings:deposit s as collateral against: : facilities by making available funds i future: loans by the organizati0n:or: i for surplus units inthe community, the:gr0upwith the mutual:agreement : NOw, equal:attention is being given nott0cau_ thewithdrawallof the to loan recovery Whose lack of pledged amount0f savings until each prominence in many credit programs : and: every:individUal loan of the: will prove costly to the rural bori group: haSi::i: been: fuUy settled or: : r0Wers; financial institutions and the repaidi iNot only will the group: government once an agressive credit i


campaign_ by welbmeaning govern, merits to promote credit delivery is hit by defaults and high past dues: Moral hazard problems may arise from the aggressive credit campaign; thus it is important to install safegum.ds to avoid a repeat of largescale and widespread defaults under past credit programs. : Borrower: attitude and cornmitment to credit repaymeut, among others, largely deter_Nne the loan repayment rate. On the other hand, the inability of banks and other formal financial institutions to efficiently screen and effectively motivate bon_owers to repay their loans will doom any credit:program. The mutual guarantee _heme Which operates through peer pressure and •the well-knit character of indigenous self_hetp groups and similar orgauizations seems to provide a convenient mechardsm for enforcement of loan contracts. Havi_g recognized the advantage of mutual guarantee scheme, rural organizations such as self-help groups and credit cooperatives are observed to be moving towards the institutionalization of the scheme. The Asia-Pacific Rural and Agriculmrai Credit Association (APRACA) reports that a step towards the associamutual guaranteeinstitutionalizing scheme is for' an fion of self-help gn'oups or a self-help promoting institution to set up a Mutual Guarantee Scheme whose basic features are as follows: (a) Capital cm_trlbution from organizatiorts that pracrice _n integratedsavings and credit schemes; (b) guarantee fees h'om bor, rowers in an integrated savings and credit scheme;i ...... (c) the : MutuM Guarantee Scheme will be operated as a legal entity outside



July-Auj ust 1992

the association of self-help groups as well as the government; (d) distinction


the in-

ternal guarantee function of the integrated savings and credit schemes and the external guarantee function of the Mutual Guarantee Scheme. (e)

possible matching fund from the national government or an international donor agency that will augment the capital contributions of the incorporators, i.e. the rural self-help groups, etc.

photo taken from the 1981 Annual Report of the Land Bank of the Philippines

Under this set-up, the initial collateral to be presented by the organization to the banks will be the pledged deposits of its members. If

monitoring costs of banks. With respect to the latter, there is some scope for specific government intervention through such risk-reducing mechanisms such as credit guarantees and crop insurance and other incentive measures to encourage bank lending,

liberalization requires not only effective bank supervision and a sound regulatory framework for financial institutions. It also requires price stability. Fry (1988) states that high variable inflation destroys existing financial markets and prevents potential financial markets from

the project for which a loan is applied for, is still collateral-short, the additional collateral will be in the form of a Mutual Guarantee Agreemerit which will be assigned to the

An important area is the production of information on the rural areas and entrepreneurs that will help lending institutions gauge the borrowers creditworthiness and

developing. To a great extent, inflation is largely influenced by the extent and amount of the fiscal deficits that governments carry. When governments compete for the finan-

bank. This way, the banks will be encouraged to lend to the rural smaUholders, landless workers, petty merchants and entrepreneurs who

the viability of projects. The state may also. allocate resources to upgrade the creditworthiness of individual rural borrowers and even

cial resources through high interestbearing government securities, the ultimate loser is the rural sector and the rural-based borrowers who face

may have







but may not possess the traditionally acceptable collaterals to banks and other formal financial institutions. Some



Before we touch On the macroeconomic issues related to financial liberalization, there are some cornmerits on the role of government in this new approach to rural finance, Various research studies have pointed out the huge informational problems and transaction costs associated with agricultural and rural credit. In this respect, governments can provide the pertinent infrastructure (social, physical and institutional) to upgrade the creditworthiness of the rural borrowers and establish mechanisms to reduce the risks and



associations and/or through skills training



organizations on the various

from banks.O


aspects of credit financing, project identification and preparation of feasibility studies and project and financial management. A related area

Asia Pacific Rural and Agricul_ral Credit Association (APRACA). In* novations in the Rural Finance Systems in Asia in the 1990s." December 1990.

is risk-sharing scheme with the borrowers and lenders wherein governmerit takes part of the risks associated with rural lending by providing, as earlier said, a guarantee cover for bank loans to rural borrowers. The possible use of the government credit guarantee as collateral substitute may be worth exploring in view of the recent experience of some Philippine banks in this respect.

Fry, Maxwell. Money, Interest and Banking in Economic Development. Baltimore: The Johns Hopkins University Press, 1988. Llanto, Gilberto M. "Innovations in the Philippine Rural Finance System in the 1990s." Agricultural Credit Policy Council, Manila, December 1990. Quinones, B.R. "APRACA Integrated Savings and Credit Scheme for Small Entreprenuers. Unpublished paper, 1992.

On the macroeconomic level, it is also recognized that financial

Silber, William. "The Process of Financial Innovations." American Economic Review, May 1983.





The Reality of IPRsfor Global Efficiency Economic




(IPRs) rights, secret - patents, trademarks copyrights, and design trade registrations - are as important as rights to tangible properties. Fully specified property rights provide efficient use of resources. Transaction costs and costs incurred in the enforcement of these rights, however, limit the opportunities for the exchange of fights and reduce the value of property rights. In a session of the Pulong Saliksikan sa PIDS held on 13 August 1992, Dr. Sumner La Croix, professor at the Manoa,

_ _ [_

University explained

of the

Hawaii at advantages

and enforcing IPRs.disadvantages Speaking onof the topic, strict "The Political Economy of intellectual Property Rights," he said that a strong patent system may help or harm a country, depending on the economic environment where the system will be applied. Coming Paris

A Long Way For decades Convention

since the 1883 on Industrial

Property established a principle of national treatment on inventions, trade names, trademarks, service marks, industrial designs, indications of source, and appellations of origin, economists have argued the'importance of IPR for dynamic efficiency. Unlike tangible property, intellectual property has a non-exclusive consumption technology whereby additional users can consume the good without incurMng additional production costs. Without interference, this set-up violates dynamic efficiency since it depresses the rate of return on innovating activities, thereby, reducing resources devoted to research and development (R&D). Although this consequence may seem favorable at a glance, this actually leads to a reduced flow of new products and processes that will eventually stunt growth in the coming years.




from Big Brother


Jul t-August


just their IPR systems along margins which are difficult to measure or

What's Politically Feasible

The United States has been pressuring several developing countries in Asia to reform their in-

monitor. forcement IPRs.

higher enthe value of

Developing countries will demand more of the capital-saving process inventions because they have

tellectual property laws and to increase their enforcement efforts lest they face trade sanctions. For ex-

Several policies increase enforcement costs and, thus, tend to contribute to the ineffectiveness of

lower capital-labor ratios. Industrialized countries, on the other hand, tend to be labor-saving. If develop-

ample, in a recent report U.S. Trade Representative Ambas-

IPRs. Among




As mentioned, costs diminish


are resource


sador Carla Hills, "priority" countries that deny adequate





International pressure on identified. ThePhi- developing countries to establish lippines is cited in the report forpiracy a strong patent system may of sound recordings and motio, pictures, prove futile and even harmful and rampant

capital-saving inventions, thus, they will forever be beholden to

and effective protection of IPR were

counterfeiting trademarks.

of I

Reforms have been tied to the annual review of the Generalized System of Preferences (GSP) benefits and by the new "Super" 301 Section of the 1988 US Trade Act. In response, some countries have strengthened their IPRs but others remain unyielding. If IPRs assure dynamic efficiency in the world economy, why then do some countries refrain from adopting strong IPRs? No Two Countries Are Alike Countries have different supplies of and demands for inventions, enforcement costs, legal institutions, and transaction costs. In an open economy, costs and benefits produced from IPRs in one country often spill over to other countries, This means that while the world economy gains from properly specified IPRs, some countries actually lose. Standardization of IPRs across countries has also been difficult to enforce because countries at a disadvantage have incentives to ad-

II llll

location priorities of governments, nuances in the legal procedures, national barriers and the inherent idiosyncrasies of patent laws (e.g., if patents are strictly enforced, firms may be inhibited from innovating; if otherwise, firms will lose interest in investing in research activities), The mix of manufacturing firms also affect the structure of IPRs. In most cases, firms in developing countries would rather skirt patent protection even if it is available due to a number of reasons: (1) competing firms vary in time and cost to develop closely related products not enjoined by patents; (2) they also vary in their ability to manufacture these products within the standards required by consumers; (3) patents reveal additional information about how a product is produced or designed; (4) sunk costs in production may be sufficient to deter entrance by imitating competitors; and (5) firms with superior sales and service capabilities can capture gains from innovation without patent protection.

do not protect IPRs, local firms will have few incentives to develop

industrialized countries for their needs This



idealthinkingratheriS' ofthanCOUrSe,real.

What's happening is that the establishment of a patent system in a developing country af _ fects only a miniscule proportion of its output relative to that of an industrialized country. The free- riding by the industrial sector on foreign patents only reinforces this tendency. "

If this is the case, a weak IPR system is optimal until such time that the agriculture sector becomes a smaller part of the economy. Furthermore, if the political forces determine the state of patent law, then "international pressure on developing countries to establish a strong patent system may prove futile and even harmful," Dr. La Croix admitted. What can be done at the very least by the developing countries is to establish a patent system that can encourage adaptations of foreign technology to local circumstances. The Philippine "utility" model whereby domestic firms can make minor modifications of the foreign inventions has been cited as feasible. This type of patent can stimulate R&D without markedly affecting the capture of rents by foreign patent holders. •



J_uly-August 1992

To sustain development, according to Steer, two types of policies are required: those that build on the positive links between development and the environment, and those that break the negative links. "Win-win" Policies


Building on the positive links or the so-called "win-win" policies indude actions that promote income growth, poverty eradication and environmental improvement in developing countries. Specifically, subsidies that encourage excessive use of fossil fuels, irrigation water, and pesticides and excessive logging should be removed. Likewise, giving land fights to the poor will serve as incentive for them to clean their surroundings. ducted in

A scientific study Thailand showed



photo taken from the July 1992 issue of National Geograpl_ic

forest lands, deforestation was dramatically reduced. In the Philippines, if squatter families are given rights to own the land where they live, they will budget their earnings to provide for garbage and sanitation.

uncertain and irreversible effects into . .proving the environment for account. How much of the environdevelopment calls for an increase of ment has been sacrificed for investment rates --in- developing economic growth? How much of countries by 2-3 percent of GDP by economic growth is being given up the end of this decade. This will for environmental protection? enable stabilization of soil condition, Weighing costs and benefits is espeincrease protection of forests and cially important for developing natural habitats, improve air and countries, where resources are scarce water quality, double family plan-

Moreover, sanitation, clean

and where basic needs are yet to be met.

ning expenditures, improve school enrollment rates for women and universal access to sanitation and

Standards and policies to be realistic and consistent

clean water by 2030.







investments in water, education,

family planning services, agricultural extension, credit and research should be encouraged. Farmers, local corn-

need with

monitoring and enforcement capacity and the administrative traditions of

Two Heads Are Belier Than One

should be educated and properly informed to empower them to make the right decisions and investments

the country. The government economize on administrative ces. Policies need to be

Partnership between developed and developing countries to find, implement and finance solu-

for their own long4erm interests, Steer also stressed the importance of educating women because they, especially in Africa, manage almost half of the resources. Yet, surprisingly, they have little education. Many are left out of extension programs,

friendly emphasizing incentives rather than regulations. Finally, the government should involve the local communities to curb the power of vested interests, to hold institutions accountable, and to increase willingness to pay the costs of protection,

tions should be established. First, developing countTies should use lesspolluting technologies and learn from the success and failure of industrial countries' environmental policies. Open trade and capital markets, the restoration of creditwor-

Specific Measures

Local participation in setting and implementing environmental policies and investments will yield high returns,

thiness through policy reform and selective debt relief as well as a robust, environmentally-responsible growth in the world economy are necessary ingredients. Second, note that the benefits of protecting tropical forests and bio-diversity in developing countries accrue instead to rich countries. Therefore, they should





While benefits are great, "win-win" policies are not enough, In case of pollution, for instance, specific instruments are needed. For example, tradeoffs between income and environmental quality need to be carefully assessed, taking long-term,

should resourmarket-

True, the costs of protecting the environment are high in absolute terms, but the benefits that will come later on are much much greater. Im-



A scientific when people I



Jul c-August 1992

study conducted in Thailand showed that were given rights to forest lands, deforestation was dramatically reduced. I

also bear part of the costs in protecting the environment. Third, global warming and ozone depletion come from over-consumption in rich countries. Thus, they should assume primary responsibility in addressing worldwide problems which they are causing. Fourth, the strong and growing evidence of the link between poverty reduction and environmental goals makes a compelling case for greater support of programs that reduce poverty and population growth and address environmental damage that hurts the poor. For his part, Undersecretary Ganapin noted that the 1992 WDR emphasized too much the financial transfer of resources. Agenda 21 of the Earth Summit, Ganapin cited, proposes an increased transfer of resources in the form of concessions and/or grant instead, to sustain development. Beyond Poverfy'




The Prico of Mother Ncflure Dr. delos Angeles, meanwhile, emphasized two things. First, the government should prioritize policies in addressing the most urgent needs by setting up strategies to provide for clean water supply, for example. Second, tradeoffs should be recognized. Natural reso-ilrces and environmental accounting (NREA) should be included in the computation of national income accounts. It is important to measure the depletion of forests and the deterioration of the environment so that managers will be informed of how much of the environment is wasted away. In this way, NREA can facilitate correct pricing of natural resources. Corollarily, safeguards against the wasteful use of the environment should be implemented, II's All Beeouse

of Power

Ganapin also cited other factors which could have contributed to the poverty of developing countries, These factors are colonialism, foreign debt and equity (transfer of resources) issues. He also cited war as another environmental, issue as scarce resources are shifted to the

For his part, Mr. Kalaw pointed out that the issue of market mechanism is one of power. Market mechanism means not equal power of market players. For example, in granting logging concessions, small loggers cannot compete with large logging companies because the former do not have capital. In addition the system proposed in the WDR

production of war equipment. Strong statements about energy conservation, Ganapin proposes, should be pushed by all sectors. Moreover, a plan that will provide practical steps that can be done immediately while waiting for administrative/legislafive actions concerning the environment should be carded out.

1992 is based on the international comparative advantage, that mobility of capital will facilitate technology transfer. However, it should also recognize that it obliterates cornparative advantage. Kalaw also suggested congruity between word and action. For example, only one percent of logging in national forests is sus-




tainable but the World Bank is supporting more than one percent of the logging industry. Moreover, the concept of participation and democratization should first be practiced by the World Bank. It should concern itself more with redistribut_ing wealth, not in reinforcing the present structure of wealth distribution. Inform lhe People



Discussions during the open forum pointed to the need for more investments in education and information to solve environmental problems. In other words, understanding how the "lahar"/mudflows move is essential before infrastructure projects may be set up. Also, it is suggested that the World Bank look into the recommendations of Agenda 21 for a possible fie-up of strategies to implement them. With regard to the projects it funds, the World Bank should bear part of the burden for the less successful developing countries since they are carried out with prior World Bank approval. Provide


Finally, a more explicit way of integrating NREA into the national accounts is by funding it. Concomittantly, new technologies are needed to calculate NREA to facilitate costing of natural resources. Like other resources, treated as the an environment asset and should thereforebe should


a corresponding


Note that the environment is not protected so it can be given away for free. •

aclua:flccreat_r_S.:: : i:

ii i:isay;:fishponds, is greate r than the :benefit :of:retaining the area as :i mangrove f0rests,:then conversion is i ::maint:air_ them as



lit helps recl,_im: land by accUmulating::sedimentsai_d::0thersubstances: I along the sl_0relines, Thick roots:0f: as: : b_e_ding:

......... ............ ,:said Dr:Marian delos grouna:::ifor .:PiDSI:FelI0w:_d head of : : aquaticlanimals:: _::Resource Valuation ..... buffer: a Fisheries and:: tall Waves:: : : and the : (DA) :


on :i:

6 ::i

partS of the:i_




use means


verting such forests into fishponds, salt beds, agricultural land and even residential areas. This shift in use has its positive

and negative



July-Au_ ust 1992





The economic value (in peso terms) of gingiSro_desinc°met°rnany, italso mangroves is based only on on-site can reduc&--the forest's vegetative cover anddis_ptitsecosyste.,--marketed goods, particularly extracthat is, impair mangroves' protective functions, _isturb its br_ing, tire timber products. Its lesser-known spawning, nursery grounds_'-and reduce its flora detritus. '"" ....................... functions---such as its role as buffer of the Accounting Philippine for natural breakwater (to prevent Natural Results Resources

• .cussions. Take clearcutfing ber resources for instance.

of its timWhile log-

Project (Phase I), a 1991 study cornmissioned by the Department of En-

erosion) •.....

vironment and Natural Resources (DENR), show that a large part of the depletion of old-growth mangroves from 1970 to 1974 was due to a decline crease

in their growth and an inin harvesting activities for

fuelwood exportation. In later years, however, direct conversion of mangroves to fishponds mainly caused their depletion,



mangrove firewood sumption fishponds

the Other hand, stock in second-growth

forests resulted from harvesting for home conand their conversion into and other land uses.

Puffing o Price foresters,

and windbreak---are ••m_derestimated.

Dr. delos Angeles's team of marine biologists and


are faced


a tough

task of accounting the mangroves' natural and environmental resources, Today, the Philippine mangroves' lesser-known functions_such as its role as buffer for natural breakwater (to prevent erosion) and windbreak--are underestimated. Its economic value (in peso terms) is based only on on-site marketed goods, particularly extractive timber products, However, even on-site marketed mangrove uses are undervalued, mainly arising from undermeasurement of products such as

fuelwood, crustaceans, invertebrates and. medicinal plants gathered for home consumption only. In other countries such as Trinidad, Fiji and Puerto Rico, steps had been taken to valuate the whole

jecfives of the project's three technical components (forest products and services, coastal and marine fisheries, and aquaculture) and economic valuation and optimization cornponent.

mangrove ecosystem (i.e., both their marketed and non-marketed products/uses). Most, however, such as Thailand and the Philippines, still base their valuation solely on marketed output,

The results of the Mangrove Valuation project will have policy implications. Once the social net benefit of mangrove forests as well as their alternative uses are estimated, the government can then implement

Who! lies Aheocl

the appropriate rules on mangrove use and specify the price for such use. Q



is more

to be

done. The current project, in fact, is not only concerned with valuating the mangrove resources. It also entails (1) analyzing the social and economic trade-offs between mainraining mangrove forests and resorting to their alternative uses; (2) generating information that are useful in their natural resources and environmental accounting; and (3) valuating the changes in the various types of mangrove ecosystems and their impact on direct as well All as on other sectors of theusers economy. these concerns are the overriding ob-

i_: A catalogue listing_all PIDS publications is available, upon request. Write or call the: Research lnformation Staff Philippine Institute for Dewlopment Studies Room 306, NEDA sa Makalt Building 106 Amor_olo Street, Lega_pt Village 1229 Makati, Metro Manila Telephone Numbers: 88.40-59 and 86-s7-0s. Fax No. (632) 8161091

compensate for the sharp decline in capital outlays; (4) increasing the


suits: :::




banking policy which ismo eliberal than the current policy; and (5) accelerafing the tariff reform program


: The::resultsofallcomponent Studiesof ihe:MIMAP: (Micro hnpacts of : Macro:Adju:stment Polities) Project Phasellw'ere: consolidated in an: Integrative .....Report that was: the subject of a techinical Workshop On :22:July: 1992 at the Hotel :: Nikko:Manila Garden, ..... :.... :

competitiveness of the banking systern through bank entry, and branch

for some keyitems; "_"=_°_I_"_t_;m 's'.,'_:io_! M,;',.C_'_<::i_';li_;_'v,a: A .G_i_r_e_"_:._ P_":"G>_=_<:'_tiv.;_









.The way .theadjustmen! _,._mvtis aesimnea ana lmolementecl pro-1s

: :.... , ....._¢_i;_' : : bomei: economists pomteo .... ¢.:t_::¢_t_:d;A:di(_._h_.._i....i._ M_,_.:::I_;_.._,;._ out that the social costs of stabiliza, tion could have been lower had the :: : During: .the : period i:1986;: policymakers given: exchange rate 1992; the::Aquino administration in: : policy a greater role and reliance on stituted reforms to bring the: fiscal: and monetary policies was economy:into the path of economic reduCed. SO long as the Central Bank ..... : recovery, ::But external and internal: pursues the same strategy, foreign factors created an unsustainedl i exchange inflows will continue and : growth for the economy. The Gulf : will cause more appreciation of the war crisis_: decelerating growth of :: peso. : : .....:

critical to a successful launching o the economy to the growth path There may: be strong resistance against its : implementation in a developing economy like the Philippines because it can aggravate the economic circumstm_ces of certain

developing: countries, the:series of :: :::Tim:s; adjustme"t :measures natural calamities and several coup necessary to address these structural attempts conspired to make the weaknesses: must be: implemented, country experience macro-econOmic : Some of these are: (1)accommodatimbalances These :imbalances took .... • • mg me increase in demand for real the form of:a rising fiscal deficit:and cash. balances, which: means that .... a worsening balance of payment: monetary: aggregates Should be al_ crisis: Thus, the new administration lowed to grow higher than what is

likely impact of corrective or prevenfive measures, the routes or channels through which these measures will 'work and the mechanism or manner

undertook a new economic stabiliza-being prescribed in: the current tion program to correct these im; stabilization program; (2)increased balances.: This program was charac-mobilization of domestic savings; (3) terized essentially by a tight increasing government revenues to : monetary: and fiscal policy,:i: While the program seems to have worked; : still it: inflicted high: social costs and : unexpected phenomena. In this case; ..... foreignlexchange shocks coincided .... with the severe drop :in import : demand causing the appreciation of the peso:: : : :



of the transmission mechanisms groups. For this reason, knowledge of adjustment policies is important. Thus, one l_as to understand not only what ails the economy but also the

in which these measures will affect households and firms whose welfare is the ultimate objective of adjustmentmeasures/policies. the

..... :

An important study of


assumption in transmission

is that rational



i To remedy this situati0n; tl_e : Central Bank started to deregulate the foreign exchange market in the : hope:that the peso would depreciate. Howe:ver, th e opposite occurred - the ii::

ii: peso:had: appreciated; The response of the Central Bank was to purchase foreign exchange and freeze its other:: ....... purchases: to meet the monetary ceil-ffr0m

ings under the tionprogram. .....




Dr. Mario



Dr, Lamberte" s left)Dr.


sistant .Project Director Dr. Gilberto Llanto listen.

:i ,_i::±:::::: :


: ....


Aniceto Orbeta, PIDS President



Dr, Ponciano


a point as

IntaI, and MIMAP


_ .<i_ __:

/i ¸¸ :

: ........

, .....









economy.:_i However, ;ithe: i:MIMAP ; framework:paper disfinguishedl _; ii tween subslstence: and above-subsis-/il I tenc e househ01ds who are affected::) differentlyl by adjustInent policiesii:il The:subsistence households' interac, iii tion Witl_ the formal economy is min_ i imaEi while : abovesubsistence: :i households_: i:p°site: i:

participation :

is the: op-il i k:


: : The: integrative _;eport iden_ titles tlxr_ transmission mechanisms_i i i namely: (1)relative prices; (2)incom-: ii: es or purchasing power and (3) ac- .... icess: for lack of it) to: resources; like : : Dr:: Marian delo s Angeles; PIDS Resear& iZellcno (with microphone), ,_ves her ob._rvations on ...... : tile impac_ of adjustment policies on natur _1redo _rc'e_ P ublic g:0ods : .... ...... ..... _ .... : i i :ii : p0sition of output and: employment detriment of Consumers and the com....... H_e nrst _naot mec_amsm _ . . " " • , _ . . . . vonewayto assess : tlaeimpacts ot acipetifiveness of the economy s inrelates: to a: :slnlatlon wnen ..... ......: ..... jnstmentooliciesis to:look at the industrialsector° nousenolas, wno possess sRms mat -. _ . ....... .... : . ; _ _ : vestment decisions ana exvectations .... nave ceaseta to generate:aemanct De, . _, .. : . - . .-::....... ot capltamsts, uncertainty ano rlSK cause or:the mcreaseo proflucuon m ..... : " :iil;e.,_"vi_:;:@s an0ther:favored sector, suffer a WeP perception:over:: What adjustment fare loss:::The second set of transmispolicies entail ..... and how the im.... of adjustment, the: : .... In: an era: ::sion:::m_hanism affects houselmlds : plementation of adjustment policies and i:firms : byway of decreased i sometimes becomes a drawn-out government the difficultto choice of what makes expenditure items demand:for goods and services and: process, dampen the Willingness to unrealized profitsl I The: invest:and expose more risk capital cut and what subsidies to withdraw. into: new but promising ventures; Affected sectors whether these are mecl_anism ..... stresses: that: the absence (or:presence) of those public goods pursuant:: to specific adjustment policies will define to: Some degree tlie overall level of productivity ofl tl_e :::economy w|aich determines: whether or:not the economy can trek path, : ....tl_e growth:........... ....... ..... :

"llaisisn0t to say that all adjustment policies will have a dampening effect on:investment decisions. Efficiency considerations are introduced by the adjustment package:and progressive= minded capitalists take advantage of

households ways and of firmscoping have with various a creative

tl_e potential offeredventures. by newThebusinesses or industrial be-

themselves public goods the and beriefits services. of It scarce is the

havior 0fcapitalists is determined to ,r ::: ......... g ' " " : .... _:" ...... " :: :..... :: a::very: great extent by: the Changes in : ::::: ::Theadjustment:poiicies:mus_: ......... : : _ :: : relafive P flees of caP italto labor . F

alSo contendwith the struetaire : labOr: :markets which will nd :. r• y:

to the ::: a: Adjustment: :pOlicies change mose : : :the_ Structure ........ .............. .... ....... of incentives and st_mu-

:i policies:



of the


late::the:reallocation tO::: ....... are


of resources beIn this

regime: of declining availability of' public goods and services. The politically strOnger entities or groups can more easily appropriate for

vulnerable groups benefit from the

which available

fail to public



of their


lack of capability to deal with the changes introduced, by adjustment policies and the lack of access to the aw_ilable public goods or services.




Vulnerable: firms and affected by the :Too often

Income and prices :affeCt health status through their impact on

@hich are:suporlproduc_ them:S0memeasure of ...... _., _ . .... . stre_gth::in the short term so that important aimension Ot the impacts : , . : :.... . ....., : ::::...... ...... .. they may become competitive in the Or: acijustment poncms working .... . ,_ ...... . long run serve ordy to:create more througntnemoor marKets_stnewel-: : :: . ...., , ........ , aepenaence: On these policies to the rare _mpucanon ot snlitS in tne cona.....

health care utilization and exposure to envirortmental .....contamina_on, among oflaers, and:these are compounded, by nutriti.onal status and initial demographic and social characteristics of households.


_............. :,,,:,,, :,,:II,:,,,,>,F?,,,,,, i _ _:__ .................




Exchange rate controls produce an overvalued currency and reduces exports since prices

of nontradables become more expensive than tradab le items,

July-Au_ ust 1992 outputs to increase. Consequently, employment is also increased but the real wage rate decreases because of a faster general level asincrease comparedin the to the increasepricein

nominal high thewages. informalBecause resourceof users will putmorewhich pressure the natural resources will on cause faster prices,

resource depletion. However, a lower rate of depletion from the formal sector is expected because of higher cost of production. Macroeconomic adjustment policies that adversely or favorably affect the incomes of low income groups are likely to result in significant adverse or favorable effects on the health status of the population (through reductions in health care expenditures) than if effects of policies favor only income changes among higher income groups. Given that low income groups tend to use public health facilities while higher income groups tend to use private health facilities, a decrease in real incomes due to the short term effects of adjustment policies could lead to greater use of public health facilities, There is a concern that setvice use experiences robust estimates of price elasticities, While poverty or low income is often considered as the major "root cause" of malnutrition, increases in income among the malnourished groups alone to close the nutrition gap is not feasible nor acceptable, Studies show that there is evidence of positive income-compensated food price effects on nutrient intake, reflecting a strong substitution among foods with different nutrient contents, Enrollment rates are among poorer households higher incomehouseholds,

lower than

There is the interest on whether, and to what extent, macroeconomic adjustment policies can ad-

versely or favorably affect economic activities and incomes of some regions more than others, and whether such differential impact widens or narrows regional mortality differentials as well as those of the different subgroups of the population. The indicators for analyzing the impact of macroeconomic adjustment policies on social sector outcomes can be grouped into three: (1) economic outcomes facing each household, (2) household choices, and (3) human capital outcomes. Many of these indicators are already available. The problem lies on the fact that since these require different data gathering methodologies, they are gathered in different household surveys; hence, in different time periods, Natural Resources rnent Sector



The MIMAP analysis focused on the impact of adjustment policies on the natural resources and environment sector at the household and firm level. At this level, two groups of resource users, namely the formal or commercial group and the informal or subsistence group, will be affected by macroeconomic adjustment policies in different degrees and direction, Policies with inflationary irapacts, such as increases in money supply and government expenditures and decreases in general taxes, cause the aggregate demand and the prices of non-tradable inputs and

These policies, i.e., change in money supply and government expenditures, can also alter the nominal rate of interest which in turn affects the cost of production, especially those of the capital-intensive industries. An increase in money supply is expected to reduce the nominal interest rate but in the long run, the inflationary effects may cause the rate of interest to increase. A higher rate of interest is translated into higher cost of production which hinders resource extraction activities. Other macroeconomic policy instruments used by the government to correct economic imbalances indude the use of exchange rate controls and certain foreign trade policies. Exchange rate controls produce an overvalued currency and reduces exports since prices of nontradables become more expensive than tradable items. Also, the relatively cheaper foreign currency encourages greater consumption of iraported items. Thus, an overvalued exchange rate reduces depletion since the bulk of natural resource products


In the case of trade taxes, the rate of depletion will be affected only if outputs and/or inputs are traded in the foreign market. Eventually, these taxes would decrease the rate of depletion since they worsen the terms of trade. Another set of policy instruments is investment incentives in the form of reduced tariffs on imported inputs, exemption from income taxes

and related privileges subsidized interest

and reduced or rates. These

relationship between the informal and formal credit markets. The im-

policies working through the various transmission mechanisms in the

policies tend to lower the cost of production which induces faster resource depletion,

pact of adjustment policies on this sector through the various transmission channels and mechanisms has not been closely examined. The following issues are worth looking into: 1) whether reforms designed to iraprove the efficiency of the formal capital and money markets and the stabilization measures adopted that produced a temporary credit crunch have affected the supply of credit to the informal sector, 2) extent of the industry concentration of the infermal sector and how adjustment policies affect the industry; and 3) whether changes in regulatory environment would improve the incenrive structure of informal enterprises to go formal,

labor market, the goods market and public goods market arise from several factors that are not generated by the adjustment policies themselyes but are products of culture manifested in preferences or age-old practices.

The net effect of an increased aggregate demand and money supply on resource depletion is ambiguous. In the case of aggregate demand, prices of natural resource products are not expected to increase with expansionary policies of the government because most of them are tradables and increasing money supply on the other hand, may reduce resource depletion since a lower rate of interest makes capital inexpensive, Industrial Informal Sector

policiesliberalizaon the informal Adjustment sector involving



tion of interest rates and restraint on demand for credit depends upon the

The gender differentiated effects of macroeconomic adjustment

Structural adjustments affect women through different ways. First, policies favoring industries which are women-dominated will generally favor women more than men since women are concentrated in few economic activities which are traditionaily identified with women. Second, when households cope with declining incomes, due to either lay offs or rising prices, this usually means women doing productive activities beyond their normal roles. Finally, reductions in government expenditures that reduce the share of social services will affect women

MIMAP III in the Offing raised by the Local Government Code (LGC) will be taken into consideration.

The MIMAP Advisory Council convened on 24 July 1992 at the Hotel Nikko, Manila Gar-

both Congress and affected sectors of society. In this regard, the non-government organizations (NGOs) will be tapped to inform all sectors of the effects of macro policies. On the other hand, regular communication with Congress regarding the results of the project may be set up through dialogues and fora as well as

den, to discuss, among other things, the propriety of having a Phase III. Looking back at the lessons learned from the past two phases, the Advisory Council, composed of representatives from the government, Congress, academe, private sector and

through executive memoranda. To maximize its effectiveness, executive memoranda will include summaries and recommendations of the project in layman's terms, The importance of linking the macro and the micro needs to be highlighted in the executive memoranda,

Moreover, involving people from other disciplines will ensure participation and diversity of views. The Advisory Council saw the need to scout for other funding institutions to facilitate the work outside Manila especially in disseminating the results of the study.

¢_th Phases I and II of the Micro Impacts of Macroeconomic Adjustment Policies (MIMAP) project already over, planners rush down to the drawing board to chart the best agenda for Phase III.

NGOs, proposed and issue-focused Phase III. A

a more concrete agenda


for corn-

ponent plays a key role in Phase III as policy advocacy will be included to efficaciously communicate the results of the project to








of in-

dicators that will take into account qualitative measures as well as the long-term nature of the effects of policies was likewise suggested in the meeting.


The results of the MIMAP

dressed by Phase IiI will be clearly identified as well as the policies

project are very interesting and the extent of their effects and im-

to be tackled. Direct consultations


with the government, Congress and NGOs will be done to make sure that all sectors are represented. Relatedly, the issues

half-guessed -- if they properly communicated.

in our lives can only be are







area is

There is a need to have a more liberal


of Government

Impacton Households and Firms tions RegulaThe government is not only meant to pursue political or social agenda but also to correct economic distortions and market failure through



regulatory smaller

environmer, tt but this equires

role for govermnent e(_on_






regulations. These regulations are strongly influenced by the form and nature of the legal system,


by regulations.

This nega-






The interaction between adjustment policies and government intervention may result in the change in the composition of the economy's output. Regulations impose costs of compliance and transaction on households and firms. In the face of all these, there is a need to have a

tively affects the effidency of the power sector and also households and firms. Thus, the government must give the private sector a greater role in the economy by reviewing regulations which create disincentires to private enterprises. Heavy market regulations must be relaxed so government can concentrate on nonmarketrelated regulations, e.g.

design of the monitoring system involves many issues. It includes the extent of participation of local level data producers and the coverage of the monitoring system. With regards to the coverage, investigators believe that a statistically adequate number of randomly selected, economically depressed municipalities can serve as index areas for MIMAP monitoring

more liberal regulatory environment but this would entail a smaller role

improving compliance

to provide a quicker mechanism to policymakers.

for government in the market economy so that both adjustment policies and regulations may be con-

ards where monopoly privileges to operate are conferred, and to protect the environment,



economic growth. The Philippines

has deregu-

lated to some extent a number of sectors, including agriculture, the financial sector, transportation, telecommunications and the power sector, The MIMAP project focuses on the power sector to illustrate the impacts of regulations on households and firms, Essentially, there have been attempts to deregulate entry, ownership and operations in the power sector but the pricing is still heavily in-

The monitoring

public safety, ensuring with performance stand-



the household


issue is the detailed household surveys accompanying the monitoring of impacts on individuals within households as well as those in the resource and environment studies.






MIMAP monitoring

macroeconomic adjustment policies deal with: (1) the object and (2) the design of the monitoring system, The object of a monitoring should be the groups vul-

feedback Another

the final issue

is whether

requires an inde-

pendent manage data flow organization or should itto be merely thea rider to an existing monitoring systern. Proposed Monitoring System

nerable to adjustment programs. It is necessary that the intermediate processes and outcomes also be monitored aside from the final im-

The proposed monitoring system will consist of three major groups of activities: First, the gathering of secondary indicators on macro


policies, mission

of the program



macro variables and transmechanisms at the market

level. Second, the generation of primary data at the household and firm level not available in the In-

DEVELOPMENTIN THE 1970SAND1980S by Mario B. Lamberte, Joseph Y. Lira, Rob Vos, Josef T. Yap, Elizabeth S. Tan, and }Via. Socorro V. Zingapan

tegrated Survey of Households (ISH) but needed by the MIMAP. Third, the generation of primary data on intrahousehold allocations and for

NATURAL RESOURCE-BASEDINDUSTRIESIN THE PHILIPPINES:Issues In Growth and Development Strategies by Marian S. delos Angeles, Emmanuel F. Esguerra and Associates


Contact the Research Information

Staff at 88-40-59 for more details

and environment



First The individual


the heart of every development

Development H U m an

c/fie family used to be the biggest safety net in Philippine society. In times of sickness, the family provides the needed health care. In old age, it is the couch of social and economic needs, not to mention the emotional bondage that is so typical of a Filipino family,

due at topresent massive poverty, However, most families are incapable of providing these safety nets. An official count in 1988 shows that 5.8 million families live below poverty line. Assuming there's an average of 5 persons per family, half of the poor.





The Fourth Asian and Pacific Ministerial Conference on Social Welfare and Social Development held in Manila in October 1991


ith a


adopted the Manila Declaration on Social Development Strategy, calling for the eradication of absolute poverty, realization of distributive justice and enhancement of popular participation. To implement these objectives, the Department of Social Welfare and Development (DSWD), in

international it must be doneis toinpursue the context If the country the goal of ofcompetiti

powerment. The and challenge to human development people emdevelopment planners, according to Sen. Leticia Ramos-Shahani who delivered the keynote address during the workshop, is how to transform social concerns into political agenda. The glaring sight, for example, of malnourished children begging in the streets of Metro Manila must be viewed as an urgent issue that needs the attention of those who wield influence on public policy. The politicians, in turn, must bear a social conscience. After all, good and effecfive politics means being responsive to social development issues. Moral recovery fundamental cornerstone

The workshop attempted to review and assess the existing policies and programs on social development, formulate new ones to respond to emerging problems and develop an integrated social action plan.

guided fancy for grandstanding among politicians are clouding the more important issues of development. If there is one thing that must be recovered, Sen. Shahani said, it is the sense of nationalism which can hold the nation and guarantee continuity of good policies and programs despite changes in leadership.

ncy fo r grandstan din s among potlrwmns""" are ctouamg''" the more fa

Illlllllllllll Ill


cooperation with the National Economic and Development Authority (NEDA), the Caucus for Development NGO NetworKs and PIDS, convened a workshop on 31 August 1992 at the De La Salle University in Manila.

The lack of respect for truth within the government and the mzsgumea


be at

issues of development.

is another of develop-

ment. The cumulative consequence of greed and corruption and outright foreign interference are at the roots of poverty. The lack of respect for truth within the government and the mis-

Helping the Poor Help Themselves Poverty counw


incidence declined





70s and theof 90s. _ibutio, wealth The inequitable across regions disand classes remained and has, in fact, worsened of the

during the first few years previous administration.

These phenomena were pointed in the paper presented by PIDS.


Dr. Ponciano Intal, Jr., PIDS President, said that the paper ties together the three objectives of the





and Subsistence

1985 URBAN




1985 and 1988 (In Percent)


1986 URBAN



Philippines N C R Oulslde N C R

24.4 6,0 27.2

58,9 43.9 61,3

15.2 6,0 20.2

52.0 43.9 56,5



55,2 40.9 57.5

12.1 5.9 16.1

48.2 40,9 52.3



20.3 5,0 22.7





Region 1 Region 2

15.5 19,1

51.8 55.7

16,2 16,5

55A 49,7

15.4 19.5

5G,6 56.7

19.6 18.4

60,2 54.6

16.2 23.6

61,1 63.6

20.0 17.5

60.0 53,1

Region Region Region Region Region Reglon Region Region Region Region C AR

11,6 29.3 37,4 33.6 39.8 42.4 34.6 33.4 23.3 29.6

a3.5 55.2 73.5 73.4 69.9 70.2 63.0 65.6 60.2 63,6

10.3 13.6 23,6 31.0 27.5 34,7 30,0 28.6 17.1 25.0

4a.5 50.0 62,6 66.0 60,9 69.6 60.1 67,a 60.4 55,0

12.6 24,4 41.0 34.5 45.1 44.4 35.5 35,1 26.7 " 31.0

42.8 58,4 76.4 76,3 74.1 70,4 63,6 65.0 60,2 65.5

10,2 21.7 31,5 25.9 27.9 31,2 22,8 27.2 24,0 16.8 16.4

44.6 57.6 65.9 65,1 57.ÂŁ 62,9 51,3 60.8 59,6 48.1 57,5

9.8 14,0 26.6 16,2 13.2 22,0 17,5 18.9 14.6 19.8 18,1

43.4 49,7 60.7 59.2 48.8 54,2 45,0 58.0 52,0 56.7 53,1

10.6 25.7 32,8 28.8 34.4 33,9 23.9 30.1 29,4 16.2 15.9

45,6 61.7 67,6 67.4 82,l 65.4 52.6 61,5 63,9 46.3 58.9

3 4 5 6 7 8 9 10 11 12


.................................................................................................................................................................................................................................... Source


papers el NSC8 a,r_d NEOA

Manila Declaration poverty eradication, distributive justice and popular participation. However, he admitted that the framework may have to be recast to incorporate the human aspect of development and the political dimension of nationbuilding and nationalism as

develop his full potential, he needs at least the basics of nutrition, housing, health care and education. In the final analysis, social development is, first and foremost, investment in people,

espoused by Sen. Shahani in her keynote address, The framework, according to Dr. Gonzalo Jurado, PIDS Senior Visiting Research Fellow, shows that the interaction of industry and population produces employment which, in turn, provides income that permits access to the various services of government - health, education, shelter, social welfare and social security,

Targetting the poor as recipients of social welfare benefits repeatedly emerged during the discussion by the panelists. DSWD Undersecretary Lina Laigo and Mr. Roberto Calingo of the Philippine Business for Social Progress, for instance, urged that those who plan and implement programs for the poor must be guided by accurate information on the causes and extent of poverty, specific location of the poor beneficiaries and their actual, self-as-

Social welfare approximates the concept of social development when it focuses on measures to ira-

sessed needs,

prove the capabilities of communities to help themselves. Social security, on the other hand, caters only to the employed sector of the society through the provision of limited benefits. At any rate, both are con-

poverty cannot be generalized, so that there is no single solution to the problem of poverty. Besides, with the limited resources of the government, it is good wisdom to direct assistance to where it is needed most.

cerned with the material aspects of development,




and human

Employment creation, according to the PIDS paper, is the key to poverty alleviation. Using the maxim of social development, only the person himself can ensure his own economic emancipation, but not without the necessary support. To

by the Poor




this case, employment lated to access.

is inversely


The distributive justice objective of the Manila Declaration is inextricably linked to the plight of the poor and their participation in the developmental process, Dean Angelito Manalili of the UP College of Social Welfare and Community Development said. At the very least, if the needs of the poor are properly addressed, i.e., they are involved in assessing their problems and in identifying the solutions, then distributire justice is somehow achieved.


Equal Cause,

Equal Share

Popular participation is both a process and an outcome. It is a means to achieve goals and is also a goal in itself. Its components are needs assessment, leadership, orga_xizational structure, domestic resource mobilization the poor.




The World Health Organization measures popular participation by the level ofandinvolvement decisionmaking the develop-in

It is also wrong to, assume with taxes from employment,

merit of effective mechanisms for the expression of people's needs and

the government can sufficiently provide the needs of the poor. Economics-wise, resources are first channelled to productive endeavors, Moreover, while employment is posiz tively related to access to social goods, the same cannot be said of social welfare benefits for the poor. In .

demands. Dr. Trinidad Osteria of the De La Salle University, who was a member of the panel, proposed a general model for popular participation involving three different dimensions: (1) procedural dimension which assures continuity and sequence of events; (2) content dimen-



sion which allows people to assess, measure and evaluate inputs for a change; and (3) human dimension which recognizes the effective interaction of people for a planned change, Decentralization is closely related to qualified participation, but does not necessarily guarantee it. It usually gives the illusion that the disadvantaged groups are managing their social affairs when, in reality, they do not. Mr. Julio Macuja of the Ateneo Center for Social Policy and


Public Affairs shared this idea. He observed that there have been many consultations with the people through the non-governmental organizations and people's organizations, yet there is little guarantee that their recommendations are implemented. Dominant interests, particularly by those who have political and economic clout ultimately prevail, When all has been said and done, Dr. Intal juxtaposed the importance of employment generation and



economic openness which he described as the most feasible means of distributing wealth. The task is formidable but not impossible, the participants agreed. To put it lightly, DSWD Secretary Corazon Alma de Leon said that we cannot go very far if we don't do our part well, learn from the dynamics of life, serve the people beyond what is being done at the present and, finally, unify the divergent issues toward a common goal. @

NEDAsa MakatiBuilding,106AmorsoloStreet LegaspiVillage,1229Makati,MetroManila Philippines






The DEVELOPMENT RESEARCH NEWS (DRlS0 is published bi-monthly by the PHILIPPINE INSTITUTE FOR DEVELOP째 MENT STUDIES (PIDS), a nonstock_ nonprofit government research institution engaged in long-term policy-oriented research. The DRN highlights findings and recommendations of PIDS research studies and important policy issues discussed during .PIDS seminars. This publication is part of the Institute's thrust in promoting the use of research findings through information dissemination. Annual subscription rates: P90 for private firms and individuals, P80 for students, libraries, academic and research institutions, and $16 for all foreign subscribers. All rates are inclusive of mailing and handling costs. 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 any suggestions or comments on the publication are welcome. A catalogue of PIDS publications is available upon request. Please address all correspondence and inquiries to: Research Information Staff Philippine Institute for Development Studies Room 306, NEDA sa Makati Building 106 Amorsolo Street, Legaspi Village 1229 Makati, Metro Manila Telephone Numbers: 88-40-59 and 86-57-05. Fax No. (632) 8161091 Editorial Board Dr. PoncianaIntal Jr., President; Dr. Mario Lamberte,Vice-President; Ms. Jennifer P.T. Liguton, Director for Research Information; Mr. IsaacPuno III, Director for Operations and Finance Staff Editor-in-Chief: Jennifer P.T. Liguton Issue Editor: Francis Egenias Editorial: Corazon Desuasido, Odette Salcedo, Suzy Ann Taparan, Annie Llamoso Circulation: Jane Alcantara, Delia Rome,to, GalicanoGodes, Valentina Tolentino, Anne Cleofas Re-entered as second class mail at the Makati Central Post Office on April 27,1987

The 1992 World Development Report: Growth in the Midst of a Health Environment