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Regional CrossBorder Cooperation II

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ANICETO M.SOBREPE A .......

May-June1994

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n innovative

ISSN 0115-9097

approach

to regional development

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planning is

called regional cross-border cooperation, adopts outward-lookbehlg pioneered in this of theconcerns globe. The approach, big, transnational solutions to part domestic like depressed ripheryrelationshipproblems. It wasbrought to forewhen China, regions, inequitable distribution of growth, and urban core-pethrough economic relations with neighboring countries, attained when Sh_gapore h_itiated cooperative ties with Johore, a southern state of Malaysia, and the islands of Riau h_ Indonesia to form the high econon_ic growfl_ ra tes. I ts underlyb_g con cep ts crystallized Shlgapore-Johore-Riau (SIJORI) Growth Trimlgle. Since then,Asian countries have increasingly tried to replicate regional cross-border cooperation, also known as the growth area or growth triangle approach. Regional cross-border cooperation hasspread throughout Asia. Economic cooperation between Hong Kong, Taipei and Southern China has intensified h_ what is known as the Soutl_ern China Growth Triangle. Eco1_omic cooperation h_ the Democratic People's Republic of Korea, Jilhl in China and Siberia i.n Russia is known as the Tureen Delta growth area. There is the Yellow Sea Economic Zone (the coast of Bohai in China, and western and north-eastern Kyushu and Yamaguichi in Japan), and the North ASEAN Growth Triangle (northern Malaysia, northern Sumatra in Indonesia, and southern Thailand). In the mainstream ofgrowth area developments, the Philippi.nes isnow activelyinvolvedh_ thepromotion of the BruneiDaruss_mn•h_donesia-Malaysia-Philippin es East ASEANGrowth Area (BIMPEAGA). 2

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Building supportive _uctures and maximizing financial, Institutional, dataandhumanamtherecurring themes ofthis DRN issue, resources, "Noqo_Cyisanisland" istie message re_c.d irlour, sped.teatime 'Regior_al Cross-Border Cooperation: ANew,_i_eneion in Regional Planning." Written byDeputy Director-General Aniceto M,Sobrepeha ofthe National E_nornic,and Development Authority (NEDA), thearticleshows howcounthes inAsiaexplore ways andrne_l!ofresolving domestic development problems viamutually agreed-upon andbeneficial schemes of crossing_6d linking boundaries. Ingeneral, Soloreper_a writes abouttherationale, framework andstrategies of thenewE6ncept and.inparticular, presents thePhilippines' involvement Inbuilding supportive structures forsaid corcept_'v_ugh theBIMP-EAGA.

Give¢l government's limited resources, whatprojects should thePolicy, Training andTechnical Assistance Facility (PTTAF) support, through funding, inordertostrengthen thecapabilities ofvarious government agencies Inman_llng thedevelopment process? $otheparttdpants Ina recent prioritizat_on workshop mulled...see page 11. 'Raising Funds forBasic Human Needs" echoes theneedforgovernment tosetpriorities andmaximize its rescurces tobeabletoserve thebasic human needs ofit_population muchbetter. Ina related vein,thearticle on'Government Information Oflicers aSPartners inDevelopment" points outtheneedtomaximize therolethat thiskey_lFnentofgovernment human resource should playintheprocess ofdevelopment, 'Meadwl_lle, IOoldng athowa shiftinthe!reports valuation system would affect public revenues istackled on ,< roo_ a closer andaninternational level,a network nowprovides easya_.sess todataresources _d throughout other countries aswell,,Linking upresources, countries andinstitutions, .... Networks Within Reach."

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"=_91 But are whatitsishallmarks? the Growth Area or Growth Trianglt_ Approach? What The Rationale: Alternative to Trading Blocs Recent transformations in the foreign trade policies of European and Western countries as manifested in the recent emergence of trading blocs such as the European Community (EC) and the North American FreeTrade Agreement (NAFrA) have freed these countries from restrictions that isolated them from one another for years. In the process, developing Asian countries have increasingly become concerned about the impacts these changes would have on Asian exports and capital inflows. The formation of the EC and NAF'I'A therefore created a need for counterpart Asia-Pacific groupings in a form that had to be different to trading blocs because of fundamental problems(seeboxatright).Whathasresultedarevariousproposals for alternative

ways

to group Asian countries,

Growth Areas: A Conceptual Framework A growth area or growth triangle is a transnational economic zone spread over large yet defined neighboring areas covering three ormore countries. In thezone, theresource endowments of each member country are tapped based on comparative advantage to spur overall external trade and investment.In recentyears, President FidelV. Ramoshad expanded thegrowth triangle concept to include economic cooperation not only by geographically proximate areas but more so, by areas which have"linkages of opportunity, transportation and communication, tourism, and cultural and ethnic commonality." The development activities in the growth triangle are primarily implemented by sub-national government units. In terms of utilization of foreign capital, the participants of the growth triangle are classified either as recipient or investing groups. Recipient groups are countries or regions of countries which complementtheinflowofforeigninvestmentsbyofferingland, labor, and other natural resources while investing groups are those which provide capital, technology, management skills, and at times, access to foreign markets. The areas covered in a growth triangle need not be major urban centers. In fact, the approach provides underdeveloped regionswithinacountryanopportunitytobenefitfromstronger linkages with a nearby developed urban center of another country.

Advantages Economic cooperation in the form of the growth area appreach can thereupon overcome the fundamental problems associated with the formation of a trading bloc in Asia and, at the same time, offer the following advantages: Lesser economic and political risk. Trading blocs require nationwide institutional arrangements; growth triangles usually involve only contiguous parts of a country, confining economic and political risk to those areas. But the benefits of a successful growth area can easily be replicated in othor parts of a coun try. Lower organization cost. Because growth triangles may encompass only some parts of a country, it can be established at relatively lower costs and within a shorter period of time as compared to a formal trading bloc which usually involves

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Terminga [racing otoc inAsia: Insufficient volume of trade among Asian coun. tries. For a trading bloc to succeed, there has to exist a large volume of trade. However. trading among Asian countries, despite a rapid increase in recent years, remains limited. Their major markets for exports and sources of imports remain to be the United States and Europe. Differencesin trade policies. DevelopingAsian countrieshavediverse economicsystemsmakingthe coordination of trade practices and regulations difficult. Similar factor endowments. The lack of complementarityamong the commoditiesproduced by Asian nationsbroughtabout by similaritiesintheir factor endowments explain,to a certain extent, the limited volume of trade among them and the constraints in trade relations. Geographical features. Most EC and NAFTAmember nations have landlocked borders while Asian countries are separated by natural sea borders, thereby increasing the cost of transportation and communicationand magnifyingthe problemsof inadequate infrastructure. Political considerations. Asian developing countries havediversepolitical interests,historicalbackgroundsand socio-economicsystems,raisinga possible difficulty in getting political commitment and policy coordination. IIm II

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allows a country to form several growth triangles and tes_( various kinds of regional cooperation. China, Malaysia, and Indonesia have triangles established almost simultaneously. Wider scope of trade. Trading blocs focus on internal markets of countries within blocs while growth areas are exportoriented and may consider even markets external to the area. This allows member countries to expand trade further. Attractiveness to foreign investment. The non-exclusivist arrangements of growth areas allow them to derive economic benefits from non-member countries. Possible benefits include greater tradeand attractiveness to foreign investments. Countries outside of a growth area can participate and benefit from such area's increased trade by investing there. The BIMP-EAGA The BIMP-EAGA's groundwork was laid when in October 1992, President Ramos raised the concept to the heads of government of the East ASEAN nations in Brunei Darussalam, and durh_ghis state visits to Malaysia and Indonesia. Malaysian Prime Minister Mahathir, Indonesian President Soeharto and theSultan of Brunei endorsed the proposed economic cooperation and together with President Ramos launched the BIMP* EAGA last 26 March 1994 during the Inaugural Ministerial Meeting of participating countries in Davao City.


Operationalizing one of the key strategies of the 1994-1998 Mindanao DevelopmentFramework, the BIMP_EAGA strengthens the direct global trade and economic links of Mindanao with, primarily, East ASEAN.

Coverage. The BIMP-EAGAcoversBrunei Darussalam;the provinceso1_ NorthSulawesi,Eastand WestKalimantanin Indonesia; and.S_abah, Sarawak, and Labuan in Malaysia; and Mindanaoin the Philippines. Coveragemay be modified. For instance,SOuthernPalawanshowedstronginterestinthe BIMPEAGAbecauseit compliments Palawan'sexistinggeographicand culturalties. _ institutionalmechanism,Eachmembercountryshallestablish a HighLevel Council under the chairmanship of a Minister. The mec'ha.nismtf0r consultations betweer_theparticipatingcountries in the BIMF_-EAGAshallbe the meetingof Ministersand Senior Officialstobe set onagreeddatesandvenues.There shall beno overallsectetarlat and instead,each countryshall designatea Ministry or._gencywhichshall serveas the focal pointfor Information exchangeand coordinationof programsrelatedto the BIMPEAGA. In thePhilippines,MemorandumCircular(MC) No.83 provides, the actionagenda for the operationalizationof the BIMP-EAGA. While the member.agenciesof the Philippine High Level Council have yet to be identified, MC No. 83 already specified which agenciesal'e responsiblein facilitatingthe developmentof the BIMP-EAGA. The MIndanao Economic Development Council (MEDCo)is beingeyed as the institution that will serve as the country's focal point for the coordinationof BIMP-EAGA'simplementation, P_tentialfields of cooperation. The BIMP..EAGApromotes closecooperation the tollowmgareas: (a) tr,ansportation,and shippingservices;in (b)fisheries;(c) jointtourisnl development; (d) iagriculture landhorticulture;(e) energyexplorationand develop, ment;(f) edvironmentalprotectionand management;(g) forestry andtimberproducts;(h) humanresourcesdevelopment;(i) indus-

recommendations of the ADB study and the tourism develop _ ment plans of each country. This activity will be spearheaded by the Malaysian government. Expansion of fisheries cooperation. With the Philippines taking the lead in this activity, a meeting of public and private sector representatives of the fisheries sector from the BIMPEAGA has been scheduled on 23-24 Jm_e 1994 to assess the status of the industry and discuss possible joint ventures. Sea linkages, transport, and shipping. Indonesia, being the lead country for this activity, shall organize a meeting between port and shipping authorities and the priva te sector par ticipathag countries to discuss possibilities under this activity. Success Factors Initial assessment of the economic structure and resource endowmentsamongparticipath_gcountriesin theBIMP-EAGA indicate great potentials for success. The presence of economic compleinentarities, strong cultural affinities, parallel development policies, and vigilant private sector participation are factors that can contribute to the success of the BIMP-EAGA. Economic com p] eme n tari ties. l_e member nations canbenefit from one another's strengths and potentials. Brunei can offer investible capital and petroleum resources which Mindanao ancl East Indonesia lack. East Malaysia can provide forest-based products and extensive land areas needed by Brunei. Mhldanao's organized university and hospital systems and food processing products can benefit Brunei, East Indonesia, and East Malaysia, while East Indonesia's more ac]vanced communication satellites may be useful for East Malaysia, Brunei, andMindanao. Strong cultural affinities. Similarities in language and cultural backgrounds can foster mutual understanding and close business relationships among the growth area's population. The regions within the BIMP-EAGA have a long tradition of trade and family links. Thus, even before its establishment, economicinteractions among theregions cover,_d in the BIMPEAGA have already been taking place. Parallel Development Policies. The member nations have

trY;natural (j) institution-building;resources development;(k) joint(m) servlces;InfrastructUreand (n)netw°rkS;trade and (]) congruent policies that can further strengthen their solidarity. investment. The governments of the nations involved have adopted liberDetails of these joint undertakingswill be laid down in an alization policies which provide a conducive trade environInvestigativeStudysponsoredbythe Asian OevelbpmentBank, ment. Such cooperation is also fully supported by Indonesia, Thestudywill specifyareas for publicand,private sectoreconomic cooperationwhichwill mutuallybenefitBIMP-EAGAmember;courtMalaysia, and the Philippines which have been pursuh_g protries, and identifyprogramsand projectsto enhancesynergistic grams to spread development aw_iy from their respective urgrowth in t_e,.area's economy, ban cores, such as the island of Java, Semenanjung, and Metro Manila, respectively. Vigilant private sector participation. This is the most vital factor that can lead to the success of the BIMP-EAGA. Greater details are discussed in the next section. Priority Activities Even before the results of the ADB study are completed,.four Private Sector Initiatives critical activities have been identified under the BIMP-EAGA: Long before the establishment of the BIMP-EAGA, the prb Expansion of air linkages. An air service system will be vale sector of the participating regions in Indonesia and the established to promote, develop and enhance trade in the Philipphles have been engaging in collaborative activities. growth area with Brunei Darussalam as the center of air linkFrom 1977 to 1990, the Chamber of Commerce of Davao City ages and as the lead country for this activity, has entered in to sisterhood pacts with its counterparts in North Joint tourism development. The conduct of a separate study and South Sulawesi in Indonesia. In 1:)86, the I_hilippines and leading to a Joint Tourism Master Plan for the EAGA will be Indonesiasigned aMemqrandum of Understandingfocused on implemented. This Master Plan shall be consistent with the trading activities between Davao and Manado. 4 i

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Business encounters between Malaysian and Filipino businessmen were held during Prime Minister Mahathir's visit to Davao City to discuss possible investment opportunities in hldustry, agri-business, and tourism. The discussionsled to the signing ofaMemorandum ofAgreementbetweem Ekran Bershad of Malaysia and the Department of Tourism (DOT) for the development of the Samal island Tourism Estate. In October 1993, Over a hundred East ASEAN businessmen participated in the Mindanao Business Conference in Davao City. In anticipation of the formal establishment of the BIMP_ EAGA, the East ASEAN Business Council (EABC)Preparatory Committee has also been organized, So significant was the private sector participation in the BIMP-EAGA that it was agreed during the Davao Ministerial Meeting that the development of the BIMP-EAGA should be primarily market-driven and private sectorqed. The government's role would only be to facilitate the involvement of private sectors to implement joint projects and programs nurturing an environment conducive to investments,

by

Potential Constraints In Spite of its bright prospects, the planners of the BIMPEAGA should continually be aware of the following problems whid_ may hinder the growth area's development, With the exception of Brunet, the three other regions are almost at a similar phase of development, with each region having no dear lead in capital endowment, the main source of development funding, It can be argued, however, that sources of capital need not come from parties geographically located within the growth area since what matters is BIMP-EAGA's capability to attract the necessary foreign investments from different sources to support its economic endeavors. Institutional problems. The multiplicity of government actots involved in the BIMP-EAGA (four national governments and more than ten pr0vincial/state governments) may lead to

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Socio-Political Sensitivities. The relationships among the nationalgovernments of some of the countries are rather volatile with issues, for instance, like.the unsettled claim on Sabah, illegal immigrants, piracies, claims on overlapping authority, and the Muslim autonomy, raising tensions among the BIMPEAGA countries. Conclusions The Philippines' involvement in trans-border cooperation through the BIMP-EAGA has a number of positive implications. For the country as a whole, it opens new markets and sources of raw materials that will accelerate the growth of the macroeconomy. For Mindanao, in particular, the BIMP-EAGA makes the island's potential tourist destinations more accessible to visitors from the ASEAN and makes it a more attractive site for investments in industry and tourism. Most of all, it has rapidly globalized the orientation of the Mindanao economy. Similar undertakings can likewise be forged in North Luzon( with Taipei, Hongkong, and China. The pre-conditions for lucrative and mutually beneficial economic interactions exist among these countries through complementarities in factor endowments and geographical proximity. Although the cul_ral linkages of the Filipinos with these regions are probably not as strong as that with the BIMP-EAGA, existing ties between the Chinese and Filipino-Chinese nonetheless can be regarded as an advantage. The Philippines should therefore seize the opportunities that the growth triangle approach offers if it is to prime itself toward and realize its vision of becoming a Newly-Industrializing Country by the year 2000. _

REFERENCES Hoey, Tan Stew. "Growth Triangles as a Regional _elopraent Strategy," Borneo Review. Sabah: Institute for l_velopment Studies, 1993.

delays in the decision-making process. Except at the ASEAN level, existing relations and contacts between countries are all bilateralones.Thus, theabsenceofexistinginstitutionalmechanisrns linking all the regions in the BIMP-EAGA between and

Regional Development Coordination Staff (RDCS)._.boking Beyond the Northern Borders: Luzon North East/_ian Growtl, " Area (A Concept Paper). Philippines: NEDA, 19_4_

among governments and the private sector can lead to a creation ofnewstructures, therebyaddinglayersin thegovernment bureaucracies of the participating countries, In the Philippines, this is not much of a problem because of the enactment of the 1991 Local Government Code which provides the local government units in Mindanao greater autonomy in their involvement in the BIMP-EAGA. Further, the establishment of MEDCo has installed the proper institutional mechanismforthePhilippinegovernment'sengagementinthe BIMP-EAGA. Accessibility and People Mobility. Since the regions of the BIMP-EAGA are not contiguous, movement of goods and services is not as fluid as desired. Differences in immigration

. Briefing Materials on the Brunei D&ussalamIndonesia-Malaysia-Philippines East ASEAN (_ owth Area, undated.

policies and the lack of transport procedures constrain the movements of labor and people across borders, However, the air transport problem has already been eased to a great extent - by th e opening of commercial flights between Davao and Manado and Zamboanga and Labuan.

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Salleh, ismael Muhd. East ASEAN Growth Area (EA_J.4)Concepts, Challenges and Opportunities. Malaysi_ !nstitute of Strategic and International Study, undated..i Sobrepefia, Aniceto M. Memorandum to National E_onomic and Development Authority (NEDA) Director-Genial Cielito F. Habito on the "Report on the inaugural Mlnist_ial Meeting for the East ASEAN Growth Area (EAGA),"D_vaoCity,2326 March 1994. Tang, Min and Myo Thant. Grozoth Triangles: Conceptual issues and Operatlo,al Problems. Asian Development B_nk, undated.

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GlOs T o0,o o=oo''o=o"ooo' as Partnersin DEVELOPMENT ricers who gathered in Pagsanjan, Laguna late last year, drove home one point: today, GIOs no longer view

fact, is the first of the communication planner's ten principles on media planning. The rest relate information

reactors of news about the bureau(:racy or their agencies. For sometime now, GIOs have emerged as change agents, too, and therefore partnets in development, The PIDS-Asia Foundation-sponsored workshop on "Enhancing GovernmentMedia Relations for Partnership in Development" was attended by GIOs from 13 agencies. It was, in part, an evaluation ofthestateofgovernmentinformationin the country and, as the workshop aimed, on GIO-media relations, Amidstcallsforchangein certainprac* tices of both the media and the govern-

cy's resources and goals, and the withthetargetaudience, theagenappropriate media. The list also underscores the crucial role of such communication keywords as feedback mechanisms and source credibility (see box below).

mentinformation system and an exchange of suggestions on how to effect such changes, the participants also raised crucial issues. Topics discussed ranged from theoreticalprinciples (such as thebasics in media planning) to some of the realitiesin the nineties (such as the problems on the flow of information), Adaptingto Changes • Today's fast-changing socio-economicpoliticalenvironmentdemandsthatgovernment information programs be proactive."Newdevelopmentthrustsand

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global trends require GIOs to re-examine their perspectives, attitudes, and skills," according to Dr. FlorangelRosario-Braid, President of the Asian Institute of Journalism and one of the workshop's guest speakers. One of the issues underscored is the advent of modern communication technologies. "Information managers must find ways to tap the new technologies as means to catalyze change in society," she suggested, While Dr. Braid outlined the traditional roles of GIOs, she also presented a bird's eye-view of the new fields and current issues in government information, Meanwhile, Dr. Cesar Mercado, Planner/Progrmnmer of the Development Training and Communication PlanningUnited Nations Development Programme, discussed the basic information principles and shared practical insights on modem information management. "Information is to humans as fertilizer is to plants. Information notonly develops aperson'sattitude, knowledge, andskills. It also reflects the attitude, knowledge ,

ImprovingMedia Relations Dr. Fermin Adriano, aManila Chronicle columnist and the University of the Pliilippines-Los Bafios Vice-Chancellor, gave a state-of-the-art review of the Philipphle mass media. O_e of the current major concerns, he said, is its oligarchic nature. He also cited the use of newspapers by interest groups more as a power base than as a bushless venture. Such possibilities, heargues, mayhaveimplications on the messages brought to the public. For instance, one can question whether the interests of publishers may have an effect on reporters' orientations and/or loyalty. Nevertheless, media's role in the country's development, according toAdriano, is essential. GIOs, thus, need to know

p_ni_iples

InformatiOn.is to humans as fertlizeristoplants. Lnformation notonlydevelops but reflects as wellthe , ; • + , ,,

, attitudes,,knowledge, aridskillsof anagency. i|1'. ;Packageinformation wilh|i_..agency s resources in mind.The country's mostsucces_ul govemment ¢_aigqs didnot_qce_donmessage alonebuttoa largeextent,onthe resources thatwereavailable _ to_:the campai_ers_ III. Id_Bttf_,, yoMr t=geta_ce; throughresearch. IV. Relatetheinformatl_m intendedfordissemination tothe problems ofyourtargetaudience, V. 'Concretize messages; makethemspecific tOsustainaudienceinterest, VI, Knoww_helt to usemast,mediaandwhentoturntofolkmedia, VIi. Different typesof chamlels areeffectivetoi"differentpurposes. Massmediais effectivein creatingl awareness andknowedge;groupcommunk;=icn, in changing.attitudes and skills. Vl!!, T,hemoresensesaffected bya channel_e moreeffectivethechannel '_i'e_i '_I_, moreeffective thecommunicaion. )tl_e .moreeffective thecommunica;ion.

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innovations, Along this line, Dr. Adriano suggested three guidelines for GIOs: (1) advocate truth and transparency in dealing with the media; (2) ascertain that agencies' policy pronouncements are consistent with policy actions; mid (3) offer seminars for reporters on development issues and on the mandate and vision of respective agencies,

velopment Studies might, on a typical day, need to locate and copy data at several universities and government offices. He might need to obtain

nationwidenetworkof computersthatallows computeruserswithin the country to communicatewitheachother, thereby greatly facilitaring information ex-

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Reaffirming Common Goals Capping the workshop were two group discussions that produced the following outputs: (1) proposed communicationplansforthePHILIPPINES 2000program, (2) proposed actions to address the problems in governmentmedia relations, Earlier in the seminar, Dr. Serafin Talisayon of the National Security Council presented the PHILIPPINES 2000program, detailingtheconditions for its success, strategies, and specific targets by the year 2000. In his talk, Dr. Talisayoncalledtheprogram"awakeup call." He said: "The rationale for PHILIPPINES 2000is this: kulelatna tayo (we are already far behind). We should havest_ted [theprogram] along ago. This is our wake-up call. If intime the

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But what if on this typical day of typical tasks, this researcher remains at the office instead of going out to the field as, given the workload, he would typically do? Dreadof the smog and traffic at EDSA? This is unlikely, More plausibly, that day would exemplify the markedly facilitated and altered workstyle PIDS could have, ifitsubscribed to a new communication

globalnetworkofcomputers connecting the variouslocalnetworks of participating countries. Internet serves millions of users worldwide and interconnects close to two million computer networks, Fast Service PhilNet offers numerous services that can speed up the work of any office: []Remote Login. Users can loginto any of

search and retrieval softwares. [] ElectronicMail.Users can, through a mailbox system, privately exchange ruessages at no cost. Experts can correspond with their colleagues for updateson thedevelopments in their specific fields. []MailingLists. Users can, again through the mailbox system, exchange/testideaswith eachotherand keepin contact as a homog*

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I1-1_111_1_1111111

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I

'

n September 1990, the United Nations organized a gathering attended by 71 world leaders and over 100 government representatives. It'was the largest gather-, ing ever on a single subject: child developmerit. The world leaders set broad social

both government and. donorg was only P798 miflion or 65.4 percent of the total resource need. Given the government's weak fiscal position, there is an urgent need to look for innovative ways.to mobilize more resources for the social sector.

and human goals- something everyone at that time thought was "building a castle in

Traditional Souices of Financing

Statistics Tell All While most of the cotmtry's human development indicators registered significant improvements in the 1970s and the 1980s, these have been slow to come by since then. Infant mortality rate hovered between 59 to 57 per 1,000 live births in 1980 and 1990, respectively, due to the prevalence of diseases caused by the slow decline in the fertility rate, poor environmental sanitation, and infant/child malnutrition, Current population growth rate at 2.4 percent is one of the highest in Asia. As of 1990, only 80 percent of the population had ak:cess to safe water and 0nly 70 percent had access to sanitary toilets, From 1989-1990, 14 percent of pre-school children were underweight, 11_6 percent stunted, and ._ine percent wasted. Dropout rate in the prin'lary grades is high and approximately 1.5 million children are notin school. There are no eleme_/tary schools in about one-fourth of all barangays in the country and most of the existing ones are inadequate. Although the 1990 tens'us reported a 93.5 percent literacy rate, a survey found more than a quarter of the_ poF, ulation to be functional illiterates. On the policy level, the government committed to prioritize social and human development goals as seen in its adoption of in the Medium-Term Deveh)pment Plan, 1993-1998. But the most evident constraint is financing. For instance, in 1993 the estimated amount of funding available the PPAC 2OOOand the thrusts spelled from out

Setting Priorities Right The government could raise additional resources for the s6cial sector if it sets its

the air." Government revenues may come from, Today, according to Mr. Keshab tax and non-tax sources. Taxes are the prinMathema, Representative. of the United cipal source of government income. NonNations Children's Fund (UNICEb-'3-Phil- " tax revenues come as grants, user charges, ippines, during a jointly-sponsored PIDSincome from public sector enterprises and UNICEF forum, those goals have been" proceeds from privatization, adopted by over 150 countries around the Reforms in the tax system during the last world, including the Philippines. half of the 1980s led to a significant iraIn the Philippines, President Ramos reitprovement in the country's tax effort. Decrates the commitment of former President spite this, the country continues to lag beAquino to achieve these goals through the hind th e performance of many Asian counPhilippines Plan of Action for Children (PPAC) for the year 2000. The PPAC has seven major goals and 20 supplemental goals all related to children's health, education, water and sanitation, and nutrition.

â&#x20AC;˘ of. oi_ly 11.4 percent of total official developmentdisl_ursen_ents. On a global basis, donors are being asked toallot 20 percent of their ODA to the social sector.

prioritiesright, ManasanandLlanto'sstudy challenged. The rapid expansion.ofaggregate govermnentexpenditurein 1986-1993 is a misleading indicator of the growth of government during the period. Net of debt service, total government expenditure actually remained fairly stable at 13.5 percent of GNP in 1975-1993. Per capita government expenditure net of debt service in real terms was lower in 1992 (P1,733) than in 1981 (P2,031). In effect, debt service

tries, hampered the government's capacity tc_ There are, however, ways to collect more provide services to the people. funds, without raising the rates of existing Next to debt service, general public adtaxes or imposing new taxes, so finds a ministration (GPA) is the second fastest UNICEF-commissioned study led by PIDS growing major item in the government Researc[_ Fellows, Dr.Rosario Manasan and budget. In 1986-1993, expenditure on genDr. Gilbert Llanto. eral public administration was equal to First, assuming that the margin of error in two percent of GNP. If the budget of GPA theestimated evasion level is 50 percent and .was pegged at its 1975-1985 level, (1.4 perthat the government is able to collect 5(i) â&#x20AC;˘ cent Of GNP) or set at a level similar to percent of the amount of taxes evaded, PI 7.6 Tha i]and (1.2 percent of GNP), the governbillion can be raised, yearly from the indiment cou.ld have saved an annual amount vidual income tax and VAT alone. ranging from PZ5 billion to P10.2 billion. Second, the revenue potential of user Government expenditure on national charges or the fees that the government defense and peace and order combined exacts from pt'ivate sector beneficiaries of ' declined from 3.5 percent of GNP in 1975 publicly-provided goods and services has to 1.9 percent of GNP in 1993. Relative to yet to be fu.lly explored. The share of user other Asian countries, this budget allocacharges to total national ,government revtion is the lowest, yet, it is still threetime,_ enues has continuously declined from 15.3 larger than the national budget for health.1 percent in 1976 to 5.8 percent in 1992, largely Likewise, someP4 billion could be saved due to tl'le government's failure to adjust yearly if the fiscal incentive package of the user charges to reflect cllanges in the cost of Board of Investments (BOI) were limited producing goods and services.. "toexports. Net Ol__erating loss carryover Third, the potential income from the govand accelerated, deprcx:iation should be ernment's privatization program is expected prov.ided to all firms to allow the Philipto generate some P3.2 billion yearly in the pines.to remain competitive with other next five years if the government's divestcountries in the region in drawing foreign ment program is accelerated. " direct investment_ Similarly, the P0.8 bilAnd fourth, the allocation ratio for health, lion spent yearly in explicit and implicit education, and other social development subsidy to the National Food" Authority projects cou Id be raised from its 1991 level 12 c_ ....................................................................................................................................... ._ii:::.i_i_i.;_iii_i_!ii:._:.ili_;a_06p__:_/in_ii:_ox:_:r_:_ii_ _'0_::!_e::_i_;_;i_(_i_!_i_9_iiii!!::::..: i;?_ifiiii_i:Rl_ii_#_i_e_i::i I_bli_:l_61_C_:!-afi_l_::8_ge*::::fl_*_{t_jYi_2':_ __ ::DJ_i:.::i R_#_.ri01M_#_i_in:i _ntl:.iiOi_:_::iii::::::ii

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for BasicHumanNe.eds


hat W

happens

country's

if the

valuation

procedure from (HCV) the Home ConsumptionshiftsValue to a "transaction-based" system? In .the PIDS Pulong-Salfxsikan on May 27, 1994, PIDS Researcher s Loreli deDios, tackledthisquesDr. Erlinda Medalla and givMs. tion on customs and trade, ing proofs that a shift in the system will incur the government revenue losses that are lower than what is feared, The presentors revealed findings from a paper on the HCV

valuation (should pre-inspectionmethod process

.

OPTIONS to II

II

H

the be

phased out) and red uced transaction cost of importing are three of these reasons.

he

_

'qlk

_

V

Non-price factors and results of the estimations made by Dr.

iF"

tion Value system's superiority Medalla the Transacover the establish HCV method. Their estimates also showed that the

The HCV is defined as the "domesticwholesalepriceofthe

studied the weighted BOC/IV ratiosofcommoditiesandfound

revenue losses the government would incur with a shift from the HCV to the Transaction Value system in the forth of either the invoice value, or the ex-

method they co-wrote with PIDS Research Associate Rafaelita Aldaba.

same goods that are being iraported into the Philippines as well as sold in the domestic market in the country of ori-

that ratios vary widely among groups. Some goods, such as food items, have low ratios that is, BOC assessed values are

port price, will not be as large'as what was previously feared. The invoice value (W)is th 4 amount derived from the ira-

The ValuationIssue

gin." In using the HCV method, Bureau of Customs valuators determine the duties charged to imported goods based on the sum of what is called the "fair market value" (an HCV concept), plus (1) freight and other charges and fees, and (2) insurance.

lower than what the importers claim to have paid. Otheritelns, such as manufactured goods classified by materials, have high discrepancies between the HCVs and the invoice values, Estimates showed that HCV's higher valuation base for some goods can impose additional

port declarations of the buyer. The export price (EP) is "the anaount the exporter charges regardless of the buyer." Revenue losses that come with a shift frorntheHCVtotheIVortlaeEP are summarized in Table 1. The table shows the low and high elasticities to differentiate the immediate itnpact from the longer term.

Many importers have cornplained about the nuisance effeet of the HCV, the valuation system currently in use in the country. The pre-inspection phase that goods have to go through (which costs time), and the uncertainty as to how much government-appointed valuators .will price goods (which might even be higher than the amount declared on the invoice), are a hassle to any business. The number of appeal and protest cases filed with the Bureau of Customs_SGS Import Valuation Classification Committee attests to this. Another inconvenience of the HCV is experienced by foreigners investing in the Philippines for the first time. Foreigners have to acquaint themselves with the HCV system since the Philippines is the only nation that still adopts it.

III Table 1. Summary of the Change

I

III1_

of the Revenue Impact in Valuation Method

e)

-6.2% '

-215"_,t0'' '

5.2%

*simple average, weightecl by the number of months. e = elasticity, referring to a measure of a percentage change in imports with respect to a percentage change in pr.ces, III I

The Nuances Import duties should, ideally, be based on the market value of the goods paid by the importer - i.e., the Transaction Value. The Transaction Value, however, cannot guarantee the govern-

From the importers' point of view, theHCVsystemcanmean higher assessed values for their imports - higher than the Transaction Value - since, as mandated in an Executive Order, valuators always choose the highest estimate available. Dr. Medalla looked at effects

taxes .,mevenh/, thereby bringing a distortive effect on the country's protection stru.cture, This may either discourage further importation or protect certain import-substitutes,

ment that importers do not falsely declare their goods' values in an attempt tO incur lower taxes. The HCV supposedly counteracts this.

of the HCV. Assuming that the true Transaction Value is approximated by the invoice value (i.e., the value declared in importers' invoices), Dr. Medalla

hnporterscite several reasons why they opt for the Transaction Value system. Increased trade facilitation, less uncertainty and arbitrariness in the

Effect on Government's Revenues

Losses due to a shift are estimated to hover between 2.1 and 4.7 percent for the first year, and then decreases through time. This, however, does not mean actual revenue losses wil be incurred after the first year. The change merely compares revenue with HCV and revenue with a shift to IV or EP. For the first two months, the zero elasticity assumption is applkx], yielding an estimate of around 2.6 percent to 6.5 percent revenue loss. For the next two months, the revenue losses will be from around 2.5 to 6.2 percent. The figures will be lower for the rest of the year. (It is still possible that these values are still overestimated since there are non-price factors associated with the shift in the system that can lead to more positive revenue

figt, res). SAT.tI_J


•. } ••:......:...:: .

arious project proposals were presented for possible f_nding under the Policy, Training and Technical Assistance Facility (PTrAF) Project during the Project's Prioritization Workshop held early this year. PTTAF is a six-year project implemented by the National Economic and Development Authority (NEDA) through the Philippine Institute for Development Studies (PIDS) as local executing agency. It is funded by the Canadian International Development Agency (CIDA). Its objective is to strengthen selected Government of the Philippines (GOP) institutions' capabilities in the management of self-sustaining socio-economic and administrative policies and reform programs for development. As such, the PTTAF Project considers and evaluates GOP project proposals based on whether the project creates a broad impact throughout the government and forms sustainable linkages between Canadian and Philippine regional organizations. Projects eligible for support include: a) conduct of research studies on development policies and institutional reform; b)development or maintenance of economic models; c) skill-training supportive of improved governance; and d)seminars, study tours, technical assistance and university based training of GOP personnel. Key government agencies which presented proposals included the: Tariff Commission, the NEDA, the Department of Budget and Management (DBM), the Civil Service Commission (CSC), the Commission on Audit (COA), the PIDS and the V

Department

of Finance

(DOF). The Senate also submitted

proposals.

,6 _ mr, 2 J .J J _ A A __J _ .J .J J _ _ A _ _ To r4ntstm its o_jEClXW_s,trl'TAF EW,LU.2 ates GOP project proposals for funding based on four priority areas: J_ _ _ * Expansion of research and information base for development policy ford_ _ mulation and institutional reform. J J • Increased capacity to formulate devel_ opment policies and to undertake instiJl tutional reform. _ _ * Improvement of institutional strut"J tures, systems and coordinating mocha. nisms, _ J/ * Establishment of a core of effective W development-oriented managers. { "ql

/

/

/

d

/

_

/

/

/

/.J

.J /

_

/

/

/

_

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GEM. (_

PTTAF Prioritization Workshop NEDA * Development of Short-Term Forecasting Models * Preparatory Activities for the Operationalization of the Synchronized Planning, ProgrammJng and Budgetting System * Review of Linkages Between Regional Pin nning and Investment Programming * National Urban Policy Formulation * Framework Development for Integration of Physical

Planning with Secio-Economic Planning DBM * SPPBS, Budgetting Area * Bureaucracy Streamlining * Government Manpower Information System * Integrated Government Retirement System * Establishment of a DataBase on Budget Rules and Regulation Senate * Budget Reforms and Capacity Build ing for Fiscal

Policy Analysis * Deregulation of Industries * Streamlining of Bureaucracy

l"aritf Commission * Framing Responses Reform Programs

COA * Policy Review and Professionalization of Audit Services through Research and Training

DOF * Reform of Income Taxation in the Philippines

CS C * Graduate Scholarship Program in Public Management for Government Middle Managers and Top Executives (GSSPM)

for Tariff

PIDS * Philippine Environmenta 1 Economics Research


Phlllppin Institute f r Developm nt 8tudl NEDA sa Makati Building 106 Am rs Io Street, Legaspl Villag

s /'i

_,

/

1229 Makati, M tro Manila, Philippines

L

Vol,

X_I

No.

STAMP

3

May-June i

i

EDITORIAL

Lml'

ii

1994 i

BOARD

Dr. Ponciano S. Intal, Jr. President Dr. Marie B, Lamberte Vice-President Ms. Jennifer P.T, Liguton Director for Research Information Mr. Marie .C.Feranil Dire_or for Project Services and Development Ms, Andrea S, Agcaoili Director for Opera tions and Finance Arty, Roque A. Sorioso LegaiCounsel ill •

ill

IL

RAISINGFUNDS...

i

8

_

(NFA) may be reallocated to other uses considering that the. NFA has not been very effective in stabilizingthepriceofpalay and rice, and in reaching a substantial number of farmers and consumers, Manasan and Llanto believe "there are •ways of increasing financial .resources to meet the requirements of the social sector." Besides the traditional sources, there are also possibilities in.intersectoral and intrasectoral budgeting reallocation.These also include cost •saving, cost shifting, and quality enhancement measures to ensure that existing resources are used pr0ductively.in terms of beneficiary coverage cost-efficient operations. MLS. _

..

,

,,

gi

|l I II

I

I

ISSUES...

and

9

'i;'Lf_'_,,',r and Sanitation Water supply coverage improved from 59 to 80 percent of the population from 1980 to 1990 except in 1986-1987 due to underinvestment by the Department of Public Works and Highways. In 1991, the MWSS serviced a population of 938 million but only 42 percent of the MWSS daily water supply generated revenue. A five percent reduction in water losses alone would translate to P388 million additional revenues for MWSS. Meanwhile, the Local Water Utilities Authority (LWUA) finances water districts (WDs) which are exempted from the payment of income and franchise taxes, duties and real property taxes, However, LWUA's collection rate of loan repayment from WDs was only 40 percent in 1992, indicating that a lot needs to be done in improving its financial performance. MLS. ql_

STAFF Jennifer P.T. Liguton Editor-in-CiTief Lezyt B. Ponce issue Editor CorazonP, Desuasid0, Odette M. Salc:edo, Suzy D, Taparan, Jane C. Alcantara . and Genna _. Manaog Contributing Editor$ ValentinaV. Tolentinoartd Anne P. Cleofas Exchange Necita Z. Aquino, Delia S, Romero, Galicano A. Godes and Fedefico [3. Ulzame Circulation and Subscription LBPonce Lay-outandDesign L;7 ,

'_


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