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Vol. XVI No. 2

March - April 1998

T

he first quarter national income accounts for 1998 show what almost everyone was expecting—a slow down in the Philippine economy. From a growth of 5.0 percent in the first quarter of 1997, gross domestic product (GDP) increased by only 1.7 percent. Gross national product (GNP) growth, following the trend in the past decade, was higher, though, at 2.5 percent for the same period. The economy is expected to experience a consolidation for the entire year, the more obvious reason being the reaction to the financial crisis that was triggered in July 1997. The data,

EDITOR'S NOTES The headline says it all: what is in store for the Philippine economy this year? Will we still be reeling from the effects of the financial crisis and the El Niño phenomenon which hit the country last year? What prescriptions can be given to soften the blows on our impoverished nation? Notwithstanding these, a lot of Filipinos remain positive amidst the crisis and still look forward to a brighter 1998. In this issue, an economic forecast for the rest of the year written by PIDS Research Fellow, Dr. Josef Yap, is featured as our lead story. According to Dr. Yap, the fiscal sector is one pressure point which must be regularly monitored since it is highly sensitive to the financial crisis. As to foreign exchange, improvement in the Philippine peso will largely depend on the improvements in the valuation of the other currencies in the East Asian region. Meanwhile, Dr. Yap notes a decline in the condition of various sectors espe-

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however, also show that the El Niño phenomenon had a large adverse impact such that the combined agriculture, fishery and forestry sector contracted by 3.6 percent in the first quar-

ISSN 0115-9097

of GNP. Such area of concern is unlike that of our East Asian neighbors whose primary worry is their financial sector and the restoration of the investor confidence that would match their rela-

What's in for the Economy in 1998? An Outlook for the Philippines Josef T. Yap ter of 1998. Manufacturing, meanwhile, continued its deceleration, growing only by 1.3 percent compared to 2.3 percent in the first quarter of 1997. This marked the tenth consecutive quarter that this sector recorded a lower year-on-year growth rate. The manufacturing sector was buffeted by high interest rates and a sharp peso depreciation which increased the cost of production inputs, specifically working capital and imported raw material and intermediate goods.

Monitoring the Pressure Points Several pressure points must be monitored in order to contain the damage wrought by the financial crisis and weather disturbance. The most critical area at this juncture is the fiscal deficit. From a surplus equal to 0.3 percent of GNP in 1996—the first surplus recorded in two decades—the consolidated public accounts reverted anew to a deficit in 1997 equal to 0.9 percent

tively sound macroeconomic balances. It would seem that macroeconomic stability remains a crucial goal for the Philippine economy. The effects of a tighter fiscal policy in the country are already being

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WHAT'S INSIDE 2 4 7

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Catching Up in a Liberalized Trade Environment Philippine Science and Industrial Policies: A Leap into the Next Millennium Comments and Observations

Local Government Administration in Light of the Decentralization Thrust The Case of Quezon City and other Metro Manila LGUs

Staff Outreach Activities


DEVELOPMENT RESEARCH NEWS

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Catching Up in a Liberalized Trade Environment1 The Backdrop In this day and age, it is a common desire among nations to be strong, prosperous and secure. The advent, however, of new challenges related to competition within a liberalized trade environment has given rise to new stresses in national life. Thus, initiatives must now pass a series of complex new tests as one strives to understand the relationship between productivity and competitiveness in order to avoid misguided government interventions. Admittedly, in the Philippines, we still have to reach a level of excellence in terms of scientific discoveries, innovation, and wealth creation. Our national system for innovation is weak and puny. Most of our export products are of low value-added and our manufacturing technology is dated and inefficient. In fact, our local food industry is finding it difficult to gain more entry even into the global ethnic food market that caters to the needs of about 4 million Filipinos abroad. While there are examples of world-class companies in the Philippines, there has also been a long trail of mediocrity in industries, inevitably resulting to a terminal de———————— 1 Talk delivered during the roundtable discussion organized by the Philippine Institute for Development Studies (PIDS) entitled “The Philippines’ Science and Industrial Policy: A Leap into the Next Millennium?”, Carlos P. Romulo Hall, NEDA sa Makati Building, Makati City, 16 December 1997. Secretary, Department of Science and Technology (DOST). 2

William G. Padolina 2 cline for the latter. There is also a growing perception that the quality of trained manpower is on the decline and that educational institutions at all levels are not performing as expected. Situating these conditions against a liberalized trade environment where we sell what we make best and we buy what others make best at a cheaper price, and where 99 percent of consumers live outside our borders, then we can assume that we cannot prosper if we stay behind barriers. Under these circumstances, it should thus be apparent that technology management skills, access to capital, and cost effectiveness are factors that make us globally competitive. It has been noted that competitiveness resides in a nation’s capacity to attract mobile factors. Jones and Neary (1984) also observed that ... “[However] ... once factors of production are mobile internationally, such inter-country differences can assume major importance in determining where factors of production choose to be employed. The doctrine of comparative advantage then yields in some respects to the doctrine of relative attractiveness, the relative capacity of countries to attract internationally footloose productive factors.”

March - April 1998

In the same light, economists believe that capital is a scarce resource and will quickly redirect itself to opportunities where lesser restrictions exist. The role of science and technology in the service of national development, national security, and global stability is well recognized. Economic strength is influenced significantly by science and technology and the realities of global competitiveness make it imperative for us to understand, as fully as we can, the impact of science and technology in productivity and competitiveness. And because we acknowledge the fact that “technological backwardness is not usually a mere accident” (Abramovitz 1986), the Philippines should formulate a strategy that will achieve an adequate level of scientific and technological competence, enabling it to absorb advanced technologies to sustain its competitiveness in the global market. While there are, of course, other factors that will influence our competitiveness both at the firm and the national level, it is about time that we synchronize the science and technology components and the economic elements of our policy for global competitiveness in order to avoid wasteful investments of both public and private funds.

The Economic Agenda In the first of a two-volume series of the 1995 book entitled Catching Up with Asia’s Tigers published by the Philippine Institute for Development Studies (PIDS) which focused on the analysis of trade and investment policy in the Philippines, the authors noted that two principal conclusions have emerged from past studies: k That the more than three decades of protection had been very costly in terms of its inherent penalty to exports, with serious adverse impact


DEVELOPMENT RESEARCH NEWS

on resource allocation, and dynamic efficiency losses arising from the lack of competition; and k That a reform toward a more liberal and neutral trade policy is necessary to propel the economy to a higher level of industrialization. As such, the recommendations of this study were: k Continue policy thrust towards greater trade liberalization, k The export sector should be the key and major target for selective intervention, and k The exchange rate should be allowed to adjust to a more realistic level.

Managing Science and Technology Development to Meet Economic Goals While initiatives towards greater trade liberalization and the adjustment of the exchange rate are now progressing, the move for selective intervention, even only in the export sector, has been slow and erratic. National resolve to encourage the operations of strategic industries such as steel and petrochemicals has been weak. The importance of selective intervention may perhaps be viewed against the inherent nature of science and

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technology. In view of the broad-based and usually long-term concerns in science and technology development, i.e., training, research and development, and technology transfer and commercialization, it is desirable to have a clear and coherent strategy involving the areas for selective intervention. This strategic guidance seems necessary in view of the inability of the science and technology sector to discern the direction and understand the dynamics of market forces. There seems to be disagreement among economists on what policies to pursue to achieve technological and economic development. Some groups, including the World Bank, do not think that industrial targeting has been effective. On the other hand, there are groups who defend the appropriateness of industrial targeting to achieve development. The need to focus is especially underscored by the limitation of our resources. While we allow free market forces to operate, our resources are inadequate to fully support efforts that can help us cope with a complex and rapidly-changing situation in all fronts of the global market. Furthermore, there exist differences among nations in the level of development of factors that influence competitiveness like science and technology. There is no doubt that, the World Trade Organization (WTO) notwithstanding, these differences are now being used and sometimes protected to maintain the lead especially of the developed countries, thereby making it difficult for developing countries to catch up. Of course, it has been noted that in a way, industrial targeting is being practiced in many government programs. For instance, it is being done in the formulation of the Investment Priorities Plan (IPP) and recently, in the drawing up of the 1997 Industrial De-

March - April 1998

velopment Plan (IDP). There are mixed feelings, though, about the success of the IPP under the aegis of the Board of Investments and it is perhaps too early to make any judgements on the success of the IDP. Nonetheless, an assessment may be in order on the government’s selection of export winners. Industrial targeting is also a feature in the Science and Technology Master Plan (STMP) for 1990-2000 and in the Science and Technology Agenda for National Development (STAND). Implementation, however, has been difficult due to the absence of a comprehensive National Agroindustrial Development Plan which is expected to serve as the framework for mediumand long-term interventions in the STMP and STAND. Clearly, then, it is of utmost importance that we formulate a clear and coherent agroindustrial development strategy which will provide the directions for convergence to maximize the impact of initiatives from all sectors. I admit that I have just touched the tip of the iceberg. There is still a lot of complex issues. My interest is to have an informed and educated discussion on this so that it can be inputted in the political leadership. I have always expressed the opinion privately with colleagues that if we can only apply all existing public resources—even just 70 to 80 percent—efficiently, then we can go much, much farther in terms of development.

Issues and Concerns I will not go any further since it is perhaps better to simply list down the issues and concerns that we should focus on. Two key questions should underscore our continuing search for a program and strategy that will help in

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DEVELOPMENT RESEARCH NEWS

A clear agroindustrial policy One of the fundamental issues raised by Secretary Padolina is the need for our science policy to have a clear agroindustrial policy as a framework. A clear agroindustrial policy calls for an open liberalized trade regime context with a selective targeting of industries. Through science and technology (S&T) intervention, such selective targeting can become the basis for efficiency and competitiveness. Dr. Ponciano S. Intal, PIDS

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March - April 1998

Philippine Science and Industrial Policies: A Leap into the Next Millennium (Comments and Observations)

—k —k —k —k—

More private sector participation I would like to share my own thoughts and view about the issues that Secretary Padolina raised. First, there should be greater private sector participation in the drawing up of industrial policies. The reason why the Philippine Export Zone Authority (PEZA) has been successful in developing for the past two and a half years—from the original 16 to 77 economic zones—is because we have allowed the private sector to develop the private industrial estates in contrast to the government-owned export zones before when the government took the initiative of setting up the export processing zones. The rationale here for allowing the private sector to do it is that the private sector does it better and that we have limited government resources. Because of this changed policy thrust, we now have 61 private industrial estates, 15 of which are operational. Looking back, if the PEZA had probably handled the development of economic zones itself, I doubt if we would have been able to finish one economic zone and make it operational in two-and-a-half years’ time. That is why I am quite concerned that in Congress, there are at present about 20 bills in the lower house and some 10 bills in the Senate which propose to create different authorities that would develop economic zones. In effect, these are simply a duplication of what we are already doing. Meanwhile, with regard to education and training, in a recent meeting with the Committee on Higher Education (CHED), I brought with me a thick folio of issues of

The Manila Bulletin containing 54 pages of wanted ads published by employers looking for applicants for various jobs. We are, of course, aware that we have millions of unemployed and underemployed persons in our midst. Moreover, we have another 800,000 who join the workforce annually. Yet, how come these companies have to file so many wanted ads? How come they still have to advertise to get the right people? I think this speaks of the setup and contents of our educational system. If people still have to advertise, then, it only means that they are not getting the right people from among the products of the educational system. From where I sit now, I can see the great demand for higher technology especially for engineers. Because of the dramatic increase in investments in the electronics area, there is a great demand for people in this field. But the kind of people needed is not the ordinary assembly-type. In the pentium-based electronics field, the highest technology is wafer fabrication. People are now looking at the Philippines for this type of technology. But we have to be prepared for this high-level technology which requires qualified engineers. Atty. Lydia de Lima, PEZA —k —k —k —k—

Directions for the 21st century At the National Economic and Development Authority (NEDA), we are currently preparing the Philippine National Development Plan Directions for the 21st Century. This is a long-term and mediumterm plan combined in one document which looks at the country’s goals in the next 25 years and at the same time provides

a more detailed discussion of policies that need to be undertaken in the next 6 years. The intention is to provide the next administration with a framework of policies to implement in the coming years. There are a few things about this document which are related to Secretary Padolina’s talk. First is that the document looks at a more long-term view of the country beyond the present currency turmoil, and what would propel the Philippines into a more sustained growth. During a seminar a month ago in Tokyo where the initial conditions characteristic of the early industrializers were discussed and whether these conditions can be replicated by the next tier of countries trying to achieve industrialization, one condition that was said to have pushed and sustained the expansion of the mature economies is the appearance of macro inventions, followed by a long series of micro inventions whose effects reverberate in the economy for decades. Examples of these macro inventions are the steam engines, microchip and electricity. These inventions then actually brought about a series of micro inventions which resulted from a combination of productivity and other factors. As to what could sustain the growth of the next tier of countries like the Southeast Asian countries, the seminar discussions noted that what they need to do is to innovate on the inventions of the industrializers and link these innovations with marketing ventures. And this is where Secretary Padolina’s call for a clear agroindustrial strategy that should form the framework of our S&T policy comes in. In drafting the Plan at NEDA, we were faced


DEVELOPMENT RESEARCH NEWS

with the dilemma of whether to pick out winners or just provide the environment for growth. The general thinking of economists is simply to provide the right ingredients for the private sector to flourish. In effect, then, we are not really picking out winners. However, looking at the examples of Malaysia, and the other newly-industrialized economies (NIEs) like Korea, we note their examples of actually picking out winners through the identification of clusters of industries. What they did was to go around the world, shopping for the kind of technology that they think they would need to be ahead of all the others in the world. Thus, the second thing about the Plan is that if you look at the chapter on agroindustrial development, it is a mixture of trying to identify the kind of environment that would encourage the private sector to go into certain activities and to identify the polevaulting areas like the food basket and the knowledge center which could propel the country into the next millenium. In doing the latter, you would then have to link up with biotechnology and information technology as important components. In short, the kind of policies that we will implement on the industry and agricultural sides would actually dictate the kind of science and technology policies that we will implement. In the initial discussions with the Harvard group which did a study on the Philippines, it was noted that at this point in time, we are not yet technology innovators. So the best thing to do is to provide the enabling environment for the private sector to purchase the kind of technology that they need and at the same time prepare our manpower for the second tier, the technology innovation type, through human resource development. As such, the linkage between agroindustry policies, education policies and the S&T policies is very important. Dir. Ofelia Templo, NEDA —k —k —k —k—

The link between research and development (R&D) and income My comments will be limited to the human resource development portion of the paper of Dr. Padolina. Let me, however, first share with you some statistics regarding the

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relationship between R&D work and per capita income. The data are drawn primarily from the World Science Report of 1996, the Statistical Report of 1995, and from the per capita income figures of countries reported in the World Development Report of 1996 which looked at 91 countries all over the world. The report notes that in these 91 countries, the equivalent contribution of every one scientist and engineer per one million population is US$8.44 in per capita income. In terms of R&D expenditure, every one percent of gross national product (GNP) spent in R&D contributes about US$10,000 per capita income.

March - April 1998

lion population of Japan fell to an annual increase of only 2.5 percent and its R&D expenditure as a percentage of GNP also fell, Japan’s per capita GNP growth rate likewise fell to about half, from 13.57 percent to 6.78 percent. Its GNP rate also fell from 14.85 to 7.5 percent. The same story goes for South Korea and Taiwan. The worldwide data thus tell us that more than 90 percent of the variance in per capita income is explained by the increases in the number of scientists and engineers per million population doing R&D work. In East Asia, therefore, it is the investment in people who are doing R&D work to produce new products to compete

Dr. Ponciano Intal, Jr. stresses a point during the discussions on S&T while Dr. Edita Tan listens.

Citing Japan’s case, we can see that its gross per capita income was only 81,157 yen in 1953. However, this rose to 3,831,640 yen in 1994. During the same period, Japan’s scientists and engineers per million population rose from 437 to about 5,505. Doing some calculations, we found that during the first 20-year period (19541973) when the scientists and engineers in Japan were increasing by an average of 10.92 percent every year and its gross expenditure in R&D as a percentage of GNP was increasing annually by an average of 2.5 percent, the per capita GNP of Japan (based on current figures) was growing at an average of 13.57 percent and the GNP was increasing at an average of 14.85 percent. In the next 20-year period (1974-1993) when the scientists and engineers per mil-

in the world market which largely explains the economic miracle. Unfortunately, for the Philippines, we were ranked only 68 out of the 91 countries in the study. We had 90 scientists and engineers per million population in 1984. The latest count is 155. If we calculate again, we will note that for us to obtain a per capita income of US$10,000.00, we need to have 1,125 scientists and engineers per million population. It will perhaps take us 15 to 20 years to reach this level. Dr. Camar A. Umpa Mindanao State UniversityIligan Institute of Technology —k —k —k —k—

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DEVELOPMENT RESEARCH NEWS

Science and Industrial Policies... From page 5

Focus on the foundation: delineating the basic from the very specialized fields Let me point out one specific aspect that we have overlooked in tackling the issue on hand. I think what we need to do is to delineate the very specialized technology from the basic. For the basic, we have those who would be doing the skilled manual work and the undergraduate work. For this, it is the general quality as well as the basics such as English, Science and Mathematics that should be emphasized. How do we address the quality problem at the very basic? This is something that neither the Department of Education, Culture and Sports (DECS) nor the Department of Science and Technology (DOST) nor NEDA has really defined. Whatever programs there are only address a small proportion of high schools. For the 36,000 elementary schools, I do not think there is a specific program which addresses this issue. Now, what are the basic things that we can do for the elementary and high schools since their products will be the members of the workforce? In a changing technological world, I think they have to be fairly good in English, knowledgeable in the basic sciences and mathematics. Meanwhile, at the college level, we have again to delineate the various specialized fields where the concern of the Secretary is warranted and where we really have to target. But to be able to target in the manpower sense, you have to have a very good foundation in the sciences and English so that if the technology changes and we would be needing more electronics engineers, we can easily put or shift these students into electronics. Unfortunately, we do not have this since funds are not focused. Instead, they are dissipated in so many schools like the numerous state universities and colleges (SUCs). So what are the practical things that can be done? We really need to have good institutions that will do high-level research. We have to do a lot of consultations with the scientists and businessmen to identify

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which fields have to be emphasized. However, identifying exactly which one(s) to target is very difficult. Even if, say, we can identify high-tech fields like material sciences, fiber optics, etc., we still have to identify which specific area in each of these will need to be focused. Thus, a lot of consultations need to be done. If we have the foundation for these, though, then we can be flexible. For instance, if we are to borrow technology from abroad, we have to have very literate scientists and engineers to be able to understand what are available. In this case, how many engineers do we have who can do that and help business identify—just by reading brochures and browsing through the internet—which ones should be adopted here? We need technically literate engineers. And yet we only have a very small number. Thus, we should recognize that the urgent problem is that of quality. How to address that is something we have to discuss. For the higher level of education, we have to be very focused on the institutions, fields and laboratories. Dr. Edita Tan University of the Philippines School of Economics —k —k —k —k—

Clarifying the concept of industrial targeting Let me just offer a slight clarification on the question of industrial targeting which is essentially the heart of Sec. Padolina’s paper. Picking winners, in principle, is when you are talking about something that you do not know or where the technology is not known. Meanwhile, another means of targeting is when one is moving along a given technology line where one knows the technology, the factor proportions and the current resources. In this sense, one has an idea where there could be competitive advantages and how these could possibly be optimized. This means moving along a production/technology line as against purely picking winners which is really something new. Dr. Ponciano Intal, PIDS —k —k —k —k—

March - April 1998

Addressing the gaps in quality and relevant education There are a number of ideas and statements in the Plan for the 21st century that show the efforts being exerted to address the gaps in the quality of our education so that it becomes more relevant in our current drive for global competitiveness. On basic education, the Plan says that we need to sustain the vigorous priority attention currently given to basic education in order to close the quality gap between the private and public schools, on the one hand, and across urban and rural areas, on the other hand. It also recognizes the need for science and mathematics. We have to adopt and implement an attainable rescue plan for science and math education that will drastically improve our position in international benchmarking. Included here is the use of the appropriate language of instruction that leads to an efficacy in learning. This portion on language was added because there are studies showing that teaching mathematics in the Filipino language is more effective than teaching it in English. Besides language, the Plan also mentions the role of the parents, the need to hasten the devolution of the delivery and management of basic education, and other aspects that contribute to the improvement of basic education. On manpower development, there are recommendations like the need to review the system of channeling and managing funding assistance to students and the need to link it to the policy of mandatory national service for all recipients of statefunded tertiary level programs. The acceleration of the delivery and implementation of flexible, market-oriented, user-led and private sector-managed tertiary education and training systems and programs is also emphasized. This, in effect, highlights the fact that basic education is the main responsibility of the government while the tertiary level can be left to the private sector. Adopting an integrated program for world-class engineering and the breeder sciences linked with firm-based research and technology geared towards the buildup of technological capacity and greater

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DEVELOPMENT RESEARCH NEWS

T

he Local Government Code (LGC) or RA 7160, which was enacted in August 1991 but made effective in January 1992, is a landmark legislation that built high expectations of a new era in local government administration and development. The resultant high expectations seemed to be a logical consequence, considering the fact that the country has had a long history of central government direction including those of local government affairs.

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Three basic concepts relating to local governance must, however, be clearly defined and understood in order that expectations about the Code are placed in the proper perspective. Local autonomy is to be understood in terms of freedom for LGUs to decide on local matters and govern within the bounds of the constitution and laws, and the constraints of their own resources even when the standards of performance are to be set by the

Local Government Administration in Light of the Decentralization Thrust The case of Quezon City

and other Metro Manila LGUs* The expectations included: k the enhancement of autonomy in many areas and in the functions of local government units (LGUs), particularly due to the devolution of functions, and k a wider range of strategic options for local government executives (LGEs) such as greater development roles, power and leverage. In fact, many LGEs exploited the issue of greater local autonomy in their electoral platforms. —————————— *Presented during the Symposium in Honor of Dr. Gerardo Sicat and Dr. José Encarnación, Jr. as part of the 20th Founding Anniversary of PIDS, September 23-25, 1997. **City Administrator, City of Quezon and former member, PIDS Board of Trustees.

Manuel S. Alba** national government. Under the law, LGUs are corporate entities with defined powers that are not much different from those of private enterprise corporations. Thus, in this respect, they are not supervised by a higher authority. They can enact legislations that are applicable to their jurisdictions. LGEs can hire and fire personnel and determine compensations subject to the guidelines of national laws and the civil service. Devolution involves the transfer of responsibilities of functions and duties previously carried out by the national government to LGUs, said functions being better implemented at lo-

March - April 1998

cal levels with local constituents as clients or beneficiaries. Local executives decide without directives from the national government and are clearly accountable for the results of their actions. In a sense, devolution, as provided in the Code, clearly enhances the traditional or conventional local government functions. Decentralization, on the other hand, is delegating operating functions to lower level functionaries of the administrative organization. The higher authority who directly supervises the functionaries or units is still responsible for the results or performances. The implementing rules of the Code make some distinctions—as scholars likewise do—between decentralization and devolution. There is no question that both devolution and decentralization provide opportunities for improving the effectiveness and efficiency of local operations for the direct benefit of the local constituents. Both should—and could—enhance the leverage and effectiveness of LGEs. Still, a distinction is clear as shown in the case of the authority responsible for the delivery of health and education services in the local units. Under the Code’s provisions, for example, health services have been devolved, but not education. LGUs have set up fullyoperational local departments of health and related services. The local school superintendent, however, remains directly responsible to the Secretary of Education, Culture and Sports through the regional director. As the years since the passing of the Code proceeded, however, frustrations slowly crept in since the pace of implementation remained slow, with the rules and new supportive legislations still being worked out by the new Congress. The high level of unmet ex-

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DEVELOPMENT RESEARCH NEWS

What's in for the Economy... From page 1

felt. Value-added in the construction sector, for instance, contracted by 4.4 percent in the first quarter of 1998 and for the whole year, the sector is expected to remain flat. It is to be noted that, in contrast, the construction sector was the one responsible for pushing the industry sector upward in 1997, with government construction spending leading the way by nearly 20 percent growth.

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March - April 1998

are eliminated or reduced, East Asia is still in for a bumpy ride in terms of exchange rate movements. Higher interest rates which reflect these uncertainties, including higher inflationary expectations, will likewise remain. Any wage increase to be implemented must not be excessive. Maintaining real wages based on the projected rate of change of the consumer price index (CPI) should be the benchmark of any adjustments. Labor productivity has been stagnant over the past 10 years. Thus, a sharp rise in real wages will be extremely counterproductive.

Table 1: Selected Economic Indicators (In percent) 1995

1996

1997

1997Q1

1998Q1

GNP GDP

5.0 4.8

6.9 5.7

5.8 5.1

5.8 5.0

2.5 1.7

2.7 2.0

Agriculture Industry Manufacturing Construction Services Real estate

0.9 7.0 6.8 6.5 5.0 5.9

3.1 6.3 5.6 10.9 6.5 10.7

2.8 5.7 4.0 16.3 5.6 6.8

3.7 4.0 2.3 16.4 6.4 9.5

-3.6 1.3 1.3 -4.4 4.9 0.4

-2.0 2.0 1.8 0.0 3.9 2.5

Private consumption Investment in durable equipment

3.8

4.6

5.0

5.0

4.5

2.5

4.0

9.6

9.4

8.6

-1.5

4.0

8.1 11.3 25.7 -8944 -3297

8.4 12.4 26.2 -11342 -3914

5.1 13.1 29.5 -11127 -4303

4.7 10.6 26.3 -2893 -508

7.1 17.8 40.0 -1085 n/a

Inflation 91TBill Nominal exchange rate Trade balance* Current account*

1998 Projections

7.5 - 8.0 14.5 - 16.0 38.0 - 39.0 -10000 -2500

*In million dollars

The Bangko Sentral ng Pilipinas (BSP) must successfully bring down interest rates. Simultaneously, too, the exchange rate must stabilize. Unfortunately, improvements in these areas depend a great deal on developments in the East Asian region. Unless the economic and political uncertainties

On a more positive note, should the forthcoming presidential elections prove to be relatively peaceful and credible, bringing about a smooth transition of political power, this will provide a tremendous boost to investor confidence and to the economy.

The precautionary arrangement with the International Monetary Fund (IMF) recognizes the above risks and has been designed accordingly. Notwithstanding this, the program for 1998-1999, must nevertheless emphasize the government revenue part—especially the need to improve tax administration—and relax the conditions on the expenditure side, particularly the social sector. It must also ascertain whether or not macroeconomic aggregates are consistent with policy measures. A case in point is the target for net international reserves (NIR), which may be superfluous given the more flexible exchange rate regime. An NIR target that is too high would encourage the BSP to borrow in order to shore up its foreign exchange reserves, which will in turn cause distortions in the value of the peso thereby making the adjustment process more difficult.

The Prognosis At present, there are indicators that the economy is stabilizing and will experience an upturn in the latter part of the year. No major bank or corporate failures have been reported. Inflation has not reached double digit levels. Interest rates have been on a decline. And overseas contract workers’ (OCWs) remittances seem to have picked up again after slowing down in 1997. The prognosis for the entire year is a 2.0 percent growth in GDP and a 2.7 percent growth in GNP. The latter is close to the IMF target of 3.0 percent. Inflation should average between 7.5 and 8 percent while the exchange rate should average between 38 and 39 for the entire year. Finally, the slower economic growth will restrain the demand for imports leading to a decline in the trade and current account deficits as shown in Table 1. DRN


DEVELOPMENT RESEARCH NEWS

Local Government Administration... From page 7

pectations due to a number of constraints and limitations that LGEs faced likewise contributed to the sense of frustration. Moreover, the specific areas of responsibilities of national and local governments are still unclear. A number of national offices, for instance, still require LGUs to apply their rules and regulations on the latter’s operations. Among these are the reformed Department of Interior and Local Government (DILG) on operation matters, the Department of Finance (DOF) on fiscal matters, the Department of Budget and Management (DBM) with respect to budget operations, personnel and compensation, and the Civil Service Commission (CSC) on the standards and behavior of public servants. The role of the Philippine National Police (PNP), in relation to LGUs, however, is debatable since the present PNP is civilian in character, national in scope and local in application. Which arrangement can make the police effectively fight crime, manage traffic, and maintain peace and civic order? What should be the relationship between the police and the local executive under the Local Government Code? At this point, it is perhaps time to assess the impact or achievements of the Code in terms of the supposed increased role of LGUs in accelerating development and in improving the effectivity and efficiency in the delivery of traditional services to the public. The perspectives to be presented in this paper, however, are limited to the experiences of Quezon City and other LGUs within the Metro Manila area.

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The Imperatives of Devolution: Structural and Cultural Reforms The implementation of local autonomy as enhanced by devolution calls for both structural and administrative reforms as well as cultural reforms. It calls for a reformed local bureaucratic organization, an expanded administrative operation with new systems and procedures, new set of relationships with the central government, and improved institutional, professional and technical capabilities of the organization, administrators, and staff.

Structural reforms Clearly, there is an immediate need for capability-building programs and initiatives to prepare the LGUs which include 78 cities, 1,600 municipalities, and more than 45,000 barangays. This is an imperative in a country with a history of central national administration. After years of being supervised by the central government, LGUs are clearly not prepared for new responsibilities or the challenges and opportunities that go with autonomy or decentralization. These capability-building programs will address, among others, the need for workable organizations and administrative systems, enhanced skills in management and operations, and improved resources. The latter not only includes fiscal resources but also institutional resources such as nongovernment organizations (NGOs) which may cooperate with LGUs in undertaking beneficial activities. Building fiscal resources, however, is a critical priority although it was not very clear in the provisions of the Code what fiscal resources can be developed under devolved functions or what alternatives in revenue-sourcing are open to LGUs. There is also a need to establish a new set of relationships between LGUs and the national government in

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terms of supervisory, directive, and coordinative relationships. The example that may be cited here is the role of the DILG in monitoring the performance and activities of the LGUs through the Oversight Committee as stated in the Code.

Cultural reforms The exercise of local autonomy, particularly with regards to its more innovative features, calls for some changes in the cultural norms—essentially the values and attitudes—of local government executives and the employees. Dependence should be replaced by self-reliance and independence, and the use of institutional and personal resourcefulness should be exercised in dealing with problems and challenges. The moral and ethical values of local government executives need to be firm as they contend with temptations in varying forms like the practice of nepotism rather than professionalism in the workplace. Perhaps placed at even greater challenge are their management skills in dealing with their constituencies and their ability to use available strategic options to exercise greater power and leverage, all of which will have some impact on day-to-day operations and the development directions of the local government. Clearly, cultural reforms go handin-hand with structural reforms in being critical parts of capability-building programs.

Challenge to LGUs: Contending with Problems In the succeeding discussions, focus is on the Metropolitan Manila area, in particular, Quezon City. It is hoped that much of the experiences of Quezon City can provide insights and lessons to other LGUs.

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Local Government Administration... From page 9

To be able to assess the increased role of these LGUs, especially Quezon City, under the Code, it is important to understand at the outset the nature of the functions and authority of the Metro Manila Development Authority (MMDA) relative to the functions and authority of the LGUs. The MMDA, an intermediate authority between the national government and the 8 cities and 9 municipalities in Metropolitan Manila, has coordinative and directive authority over its member LGUs. The organization is one of the series of quasi-government or quasi-national entities that had “governed” or administered the functions and operations of Metropolitan Manila. The MMDA was established under Republic Act No. 7924 as a “reformed” successor of the Metro Manila Commission in the Marcos period and the Metro Manila Authority in the Aquino administration. Its primary responsibilities include traffic management, waste management, flood control and metropolitan planning—services that are considered “metropolitan” in character. It is not a local, regional or metropolitan government. It is, in fact, a national government agency and an administrative authority whose chairman is appointed by the President. In the meantime, the Local Government Code has established mandates for local government units of frontline nature—environmental sanitation, maintenance of infrastructures, health and social services, and other public service facilities, in addition to the traditional powers of local taxation and zoning regulations.

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In terms of basic services, education has always had a high political impact. Thus, it is of priority interest to LGUs. Fortunately, there is an instrumentality provided to LGUs for leverage intervention in the delivery of educational services and that is the Special Education Fund created by RA 5447. It provides a funding source as taken from 1 percent of the real property tax. The amount, particularly for cities, is significant enough to pursue initiatives and programs in education. Of late, new legislations and national directives have added new responsibilities to LGUs in the areas of squatting control, traffic management, crime control, and even housing. The fiscal authority of local government units necessitate that local revenue

March - April 1998

employment opportunities to raise household incomes, to improve education, and to deal with increased incidence of crimes as development proceeds. Relatedly, housing and shelter can not be divorced from livelihood and employment unless this is provided free. Increasingly, too, as population expands and development itself proceeds, another major concern crops up—that of waste accumulation. For Metro Manila in particular and for the cities within the area, waste disposal and management is becoming a critical problem, together with power and water shortage. Yet over the last 25 years as waste accumulation had increased five-fold, we are still using obsolete systems of waste disposal. The two current

Quezon City Administrator's (Dr. Manuel Alba) anecdote on some of the city's attempts to resolve its problems elicits an amused smile from moderator Dr. Celia Reyes, PIDS Research Fellow.

codes be adopted specifying various local taxations and the implementation of such. At the same time, new directives provide encouragement for LGUs to explore new options of revenue base to support local government services. In addition, LGUs have to think of strategic ways to provide for the growth and development of the urban community as population swells. This means concerns for livelihood and

landfills are already filled up. Thus, new facilities need to be established and recycling and waste reduction projects need to be implemented soon. With regard to this, a Presidential Task Force on Solid Waste Management has given LGUs the authority to initiate the installation of their own waste management systems under a build-operateand-transfer scheme. This was amended recently to suit the requirements of LGUs. At the same time, the


DEVELOPMENT RESEARCH NEWS

MMDA is also mandated to take care of waste management disposal in Metro Manila.

Squatter problem Squatting, particularly in urban communities, has become endemic and presents urban local government units with a nightmare not only in the financing and delivery of public services but also in dealing with other problems generated by massive squatting. In Quezon City, massive squatting translates into a figure of 167,000 squatter families. The critical problem that this presents is that squatting in this magnitude means enormous expenditures for basic services like education, social welfare services, and housing and livelihood, mostly provided for free. And since squatters do not contribute to the revenues of the City as they do not pay taxes, the situation can not be tenable for long. Hope is pinned on increased investments for business and infrastructures to generate more revenues. Yet investments are discouraged when land property for such purposes cannot be used to back up loans because they are being squatted on. Increasingly, even official development assistance and infrastructure investments must consider the cost of squatter clearance and relocation as part of the cost of investments. In Quezon City, this is particularly true for the construction of the Light Rail Transit (LRT) III mass transit line since the resettlement of some 3,000 squatter families from the site of the main station, the North Triangle, costs an enormous amount. And further delays in their relocation clearly means added costs! The solution points to massive resettlement outside the city given that land outside the city is relatively cheaper. Yet, even out-city relocation

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March - April 1998

Squatting...means enormous expenditures for basic services like education, social welfare services, and housing and livelihood, mostly provided for free.

is difficult to avail of and strongly being resisted by the politically- and socially-organized squatter groups. Still, a solution must be found, with the collaboration between the national and local governments.

Land use planning and zoning A crucial problem, of course, is physical planning and zoning. Local government communities, by virtue of the mandate of the Local Government Code and of their own development and administrative requirements, are tasked to undertake comprehensive land use. It is not, of course, efficient to undertake comprehensive land use independently, without regard to a total metropolitan or national land use plan which indicates priority uses for land. As such, under the current set-up and sphere of responsibilities, it is the Housing and Land Use Regulatory Board (HLURB) that is responsible for coming up with a comprehensive land use and physical plan for the country and cities, with the National Economic and Development Authority (NEDA) taking charge of the overall coordinative work. However, in the final analysis, it is the local government unit which ultimately makes the decision on the matter of land classification and zoning regulations. Needless to say, a harmonization between the national, metropolitan and local government units must be achieved on the matter of land use and zoning regulations if we are to achieve efficiencies in the use of land and in

physical development relating to transport and traffic services, business development, and industrial development, among others. As such, a clearer designation of authorities and responsibilities for these functions must be established so that the implementation of land use and zoning regulations could be strengthened.

The role of the barangays The Constitution and the Local Government Code formally established the barangay community government as the basic government unit responsible for frontline functions like health services, sanitation and hygiene, crime control, and, increasingly, squatting control and curbing illegal sidewalk vending. However, in many communities, the barangay government seems hopeless in dealing with such problem on its own. The problem lies more often on the matter of coordination of functions. Too often, the barangays pursue initiatives not in coordination or in consonance with the approved plans of the primary local government units, that is, the city, the province or the municipality. Compounding the situation is the fact that the barangay officials are independently elected by their own electorates and campaign platforms are not in harmony with those of the primary units. Legally, too, the mayors and governors have no direct supervisory authority over them.

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DEVELOPMENT RESEARCH NEWS

Local Government Administration... From page 11

What is therefore needed is to strengthen the hand of the main local government executives over the barangay executives, if not comprehensively, perhaps in some critical functions or services.

Legislative districts vis-à-vis local government units There is likewise another situation which easily becomes a source of both challenge and problem for LGUs. This refers to the relationship between the congressional representatives and the executives of the LGUs. And while it may not be a generalized situation, the fact is that legislative representatives often pursue programs not in accordance with approved local government development plans. Given that legislative representatives have significant budgetary allocations at their discretions for local projects through countrywide development projects or congressional initiatives, more can be accomplished if wellplanned and coordinated projects are done jointly by the city government and congressional representatives.

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Fiscal Autonomy and Financial Management for Local Governments One of the most favorably considered provisions of the Local Government Code is the granting of fiscal autonomy to LGUs. Basically, this grants LGUs the authority to impose local taxes, to share the internal revenue tax proceeds, and to pursue alternatives to source funds as well as development options that would expand the revenue base of LGUs. The experiences of LGUs in this aspect vary. Metropolitan city governments like Quezon City share significantly in the internal revenue allotment (IRA). In fact, almost one-fourth of Quezon City's receipts, for instance, are from the IRA, significantly influencing the direction of the city’s general budget. However, there are also cases of too much dependence on the IRA. For one, most impoverished municipal and provincial governments rely heavily on internal revenue allotment, limiting and constricting their flexibility to pursue their operations and implement development objectives. Part of the difficulty is in the local code provision itself which exempts from property taxes property values of P175,000 or less. In provinces or municipalities, not many property items have values higher than that amount.

Dr. Manuel Alba (right) engages in a light conversation with the honorees of the September 1997 symposium, Dr. Gerardo Sicat (left) and Dr. José Encarnación (middle).

March - April 1998

Almost one-fourth of Quezon City's receipts are from the internal revenue allotment

Likewise, business taxes are hard to come by. Hence, in a sense, many LGUs are trapped by their own low-income character. It is thus important for the national government to implement programs which will allow LGUs additional sharing in the IRA or to put up a fund to assist poor LGUs in pursuing development programs. For LGUs in the Metro Manila area and other urbanizing LGUs, a strategic approach is the promotion of investments and entrepreneurial activities. Hence, there is a competitive thrust among Metro Manila cities as embodied in their respective local revenue code or in their policies on land use and zoning, investments and business development in preferred areas. The Code authorizes local government units to borrow for their operations and development programs. Yet, not many LGUs have taken this opportunity, perhaps because the implementing rules are nonexistent or not yet clear, or because the risks appear enormous. Many LGUs have received proposals for loans from banks or from financing groups for underwriting bond issues. Others propose projects fundable through the buildoperate-transfer (BOT) scheme or official development assistance (ODA) arrangements. Yet, current arrangements do not provide for LGUs directly receiving remittances from these sources. Some financing intermediation still needs to be done through government financial institutions such as the Development Bank of the Philip-


DEVELOPMENT RESEARCH NEWS

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March - April 1998

pines (DBP) or Land Bank of the Philippines (LBP).

Some unconventional options need to be pursued.

to local government units in pursuing development ends.

There is yet no guarantee arrangement, for one, for local government loans. Such arrangement would indeed assist LGUs in expanding their opportunities for resource build-up for local development purposes.

Borrowing, therefore, clearly became an option. With the autonomy allowing local executives to pursue alternative revenue sourcing, including borrowing from private or public financial institutions, Quezon City pursued this route. Hopefully, the payment of amortization could be covered from the proceeds of the Special Education Fund over the long term.

In terms of fighting poverty, the local government unit can be tasked to have a greater role if given enough resources through local sourcing of funds, with incentives to local revenue base development. How their role can be further enhanced in this regard through greater autonomy and resources will be a big challenge. DRN

Initiatives by Local Government Units There are local governments which consider the autonomy mandated in the Code as an opportunity to pursue initiatives on their own. One such avenue of service is education. Enrolment in most of Metro Manila urban communities is rapidly increasing as population is increasing. For instance, while population in Quezon City is estimated to increase by some 3.2 percent per year, enrolment in public schools is increasing even more— by more than 4 percent or about 20,000 new students every year, requiring some 250 new classrooms every year.

LGUs can be tasked to have a greater role in fighting poverty.

With so much backlog in the school building program of the national government, big cities like Quezon City have to pursue their own schoolbuilding programs. Quezon City, for one, built 65 school buildings with 650 classrooms, reducing the class size to a somewhat manageable 55 – 65 students. Still, the huge investments required for these schools cannot be met by current regular revenue sources.

Many other cities have taken initiatives in establishing city colleges (like Manila or Bacolod), or polytechnic and technical schools (like Quezon City or Pasay). The payoff is the reduction in the ranks of the unemployed youth whose potential contributions to future development cannot be overemphasized.

Conclusion This short paper is a broad-stroke profiling of the state of LGUs in the Metro Manila area with respect to the challenges of governance and administration under the regime of autonomy, devolution and decentralization as provided in the Code. The impact of such provisions, in terms of how local governments eventually perceive problems and challenges, varies from one LGU to another LGU. Some can be overwhelmed by the challenge and thereby constrict themselves to shortterm operating concerns. Others try the limits of the opportunities provided by the autonomy, even venturing into untested areas. Fortunately, many local government executives have pursued initiatives that complement or supplement national government efforts. To a large extent, they prove that development from the bottom can be a feasible option and that a local autonomy charter can, in the future, incorporate provisions that will give greater flexibilities

Bibliography Acosta, Rolando M. et al. Local Government Capability-Building Handbook. Manila: Local Administration and Development Program Administration of the Philippines, Inc., 1991. Balbin, Remedios, C. “The Law on Squatting and Demolition.” Annotated compilation, Quezon City, 1996. De Guzman, Raul P. and Mila A. Reforma. “Decentralization Toward Democratization and Development.” Eastern Regional Organization for Public Administration, 1993. Lamberte, Mario B. et al. Decentralization and Prospects for Regional Growth. Makati City: Philippine Institute for Development Studies, 1993. “Local Revenue Codes of Quezon City.” Quezon City, 1993. “Local Revenue Codes of the City of Manila.” Manila, 1993. “Metropolitan Manila Management Study.” Housing and Urban Development Coordinating Council and Local Government Development Foundation, Inc., 1995. Orendain, Antonio E. Local Government Units: Powers, Duties and Functions. Manila: Alpha Omega Publications, 1996. Ortiz, Juanito S. The Barangays of the Philippines. Manila: Hiyas Press, Inc., 1992. “Rules and Regulations Implementing the Local Government Code.” The Oversight Committee of the Local Government Code, 1991. Sosmeña, Gaudioso C. Jr. “Decentralization and Empowerment.” Local Government Development Foundation, 1993.


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Staff Outreach Activities

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July-December 1997 The Staff Outreach Activities features activities of the senior research and management staff of the Institute which are beyond their core tasks but which nevertheless contribute to the fulfillment of the PIDS' mission, vision and goal of helping in the overall development of the country's economy.

Dr. Gilberto M. Llanto

Dr. Ramonette B. Serafica k Wrote the following papers:

(Research Fellow) l

k Participated in the following seminars/ conferences/workshops as: l

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Attendee, Colloquium on Environment and Sustainable Development sponsored by the Institute of Education and Management for Environment Habitat, Philippine Women’s University (PWU), Manila, 31 July; Resource Person, Technical Workshop on the Handbook for the Informal Sector, Bishops-Businessmen Conference for Human Development, Ateneo de Manila University, Quezon City, 19 September; Lecturer, "Microfinance Issues and Prospects" before Miriam College Faculty, Miriam College, Quezon City, 13 October; Discussant, Asian Regional Conference on Sustainable Banking with the Poor, 4th Asia-Pacific Regional workshop, sponsored by the World Bank (WB) and the Foundation for Development Cooperation-Australia, Thailand, 3-7 November; Attendee, Symposium on Coping with Asian Market Instability, sponsored by the Asian Securities Industry Institute, University of the Philippines, Quezon City, 13 November.

k Briefed the following legislative bodies: l

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Technical staff of the Senate of the Philippines in the drafting of a legislation on poverty alleviation; Technical staff of the House of Representatives involved in the drafting of the legislation on the modernization of agriculture.

pleting Substances, Quezon City, 4 July; The EMB staff on Montreal Protocol, 29 July; Mr. Jan Butler and Mr. Owen Cylke from the USA Environmental Partnership in Washington and David Angel of Clark University to identify an Asian institute who might be interested in the greening of industry network, 5 August.

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“Fiscal Policy in the Emerging World Environment,” presented during the Second Conference on the Emerging World Environment, Quezon City, 2728 October; “The Impact of Financial Liberalization on Small Scale Enterprises,” (coauthored with Ma. Teresa Sanchez), MIMAP Workshop, 17 December.

(Research Fellow) k Wrote the following papers: l

l

l

Dr. Erlinda Medalla (Research Fellow) k Participated in the following fora/seminars/meetings: l

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Montreal Protocol Meeting, Environmental Management Bureau (EMB), Quezon City, 20 June and 1 August 1997; Technical Working Group Meeting with the Montreal Protocol Desk, Quezon City, 18 August; Task Force Meeting on the definition of nontraditional products which will be granted tax incentives under the Export Development Act, University of the Philippines-School of Economics (UPSE), 17 September; Second WB-Japan Research Fair, Tokyo, Japan, 10-12 December.

k Provided consultations/briefings to the following individuals/organizations: l

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k Provided consultations to the following individuals:

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Regional Directors and members of the Montreal Protocol Desk on the updating of the Philippine Country Program for the Phaseout of Ozone De-

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“Status of Philippine Telecommunications,” presented during the 4th National Convention of GO-IT, Tacloban City, 1-4 October; “Was PLDT a Natural Monopoly?” to be published in the Telecommunications Policy Journal. Comments on Shin-Horng Chen’s paper entitled “Telecommunications Liberalization: A Taiwanese Perspective” and Il-Chong Nam’s paper entitled “Competition Policies for the Telecommunications Industry in Korea” to be published in the Conference Proceedings of the 8th Annual South East Asian Seminar on Economics on Competition Policy in the Asia-Pacific Region, edited by Takatoshi Ito and Anne Krueger.

National Information Technology Council on the Update of the National Information Technology Plan 2000; Frances Perkins of East Asia Analytical Unit of the Australian Department of Foreign Affairs and Trade on Philippine infrastructure policies; Roger Cairns of Telstra, Australia on Philippine telecommunications policies; Sang-Duck, Chun and Bong-Hyun Choi from the Korean Institute for Industrial Economics and Trade on Philippine infrastructure situation. DRN


DEVELOPMENT RESEARCH NEWS

Science and Industrial Policies... From page 6

industrial productivity is likewise discussed in the Plan. This somewhat implies that for R&D institutes to be sustainable, they should be cofinanced by the private sector. It says here that R&D institutes should source a significant portion of their financing from projects with the private sector, leaving the government with the responsibility of funding the salaries of the regular plantilla and transforming all government R&D institutions—particularly those geared for industry—into joint private-government institutions with initial funding from the government. Dir. Ofelia Templo, NEDA —k —k —k —k—

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I wish to inform Secretary Padolina that we, in Congress, really want to pick winners. We want to niche ourselves. We want to aid or assist in making our country succeed in catching up, even if only marginally, with our neighbors. So I really hope that in the course of all of these talks today, we can really come up with a strategy that can help us do so. With respect to human resource, I agree with the views of Dr. Edita Tan that we need better basics. And in talking about the basics like proficiency in reading or writing, we should be conscious about the fact that it should not only mean being able to read. The important thing is—can you understand what you read? Is the literacy functional? Can you communicate what you read to other people? That is why whenever I hear it said that we have a high literacy rate, I tell myself, “Okay, we are so high up in the literacy thing but are we really there?” And we should not really be complacent if we are really there because the requirements of literacy are also changing and getting more exacting. In the past, it was enough to get by because you were only buying some things in the store. However, when you reach the point where you have to bargain, a certain level of literacy is already needed, more than what proved to be just enough for us to pass the test in our time.

From the legislative perspective In one of his previous presentations before the House Budget Committee, Secretary Padolina made an observation to the effect that in planning the economy, we have been going helter-skelter into the free market mode and that, perhaps, we are forgetting that we should “edit” along in certain directions. During today’s discussions, this “editing” has been invariably referred to as selective targeting or picking winners. For me, it means going along certain directions which, I think, should always be a given—something basic and logical. To hear it even mentioned therefore made me think that indeed, we need to sit down and discuss this more lengthily and in detail. Thus, this roundtable discussion.

Our system of government has a lot of give-and-take aspects. I think your experience at DOST itself shows that we, in Congress, want to be helpful. Like, for instance, when we put in all that money in your budget a couple of years ago without your asking, it shows that we want to help the executive succeed in its programs. The question, however, is “Can the Department spend it?” In many instances, only a fraction of the budget we put in a certain program gets actually spent. Let me just state that a lot of us in Congress are 100 percent behind the thinking that we should not just leave our industrialization program alone. Any businessman knows that you have to start looking around at the playing field and see where you have a niche, where you can make a small advantage here and there. You can-

March - April 1998

Vol. XVI No. 2

March - April 1998

Editorial Board Dr. Ponciano S. Intal, Jr. President Dr. Mario B. Lamberte Vice-President (on leave) Mr. Mario C. Feranil Acting Vice-President and Director for Project Services and Development Ms. Jennifer P.T. Liguton Director for Research Information Ms. Andrea S. Agcaoili Director for Operations and Finance Atty. Roque A. Sorioso Legal Consultant

Staff Jennifer P.T. Liguton Editor-in-Chief Genna J. Estrabon Issue Editor Corazon P. Desuasido, Barbara B. Fabian, Edwin S. Martin and Liza P. Sonico Contributing Editors Valentina V. Tolentino and Rossana P. Cleofas Exchange Delia S. Romero, Galicano A. Godes, Necita Z. Aquino, Lilet L. Lamayo and Federico D. Ulzame Circulation and Subscription Jane C. Alcantara Lay-out and Design

not just leave it alone. And we cannot just leave it to the private sector alone either. Government still has a place here where it should try to indicate directions for a longer time frame.

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DEVELOPMENT RESEARCH NEWS

Liberalized Trade Environment... From page 3

enhancing our bid for global competitiveness, namely: k How advisable is it to continue the strategy of industrial targeting? k What kind of public investments and interventions are needed to upgrade national technological competence within the purview of a free market economy? Are there models for such “catch-up” interventions? DRN DEVELOPMENT RESEARCH NEWS is a bi-monthly publication of the PHILIPPINE INSTITUTE FOR DEVELOPMENT STUDIES (PIDS). It highlights the findings and recommendations of PIDS research projects and important policy issues discussed during PIDS seminars. PIDS is a nonstock, nonprofit government research institution engaged in long-term, policyoriented research. This publication is part of the Institute's program to disseminate information to promote the use of research findings. The views and opinions expressed here are those of the authors and do not necessarily reflect those of the Institute. Inquiries regarding any of the studies contained in this publication, or any of the PIDS papers, as well as suggestions or comments are welcome. Please address all correspondence and inquiries to: Research Information Staff Philippine Institute for Development Studies Room 304, NEDA sa Makati Building, 106 Amorsolo Street, Legaspi Village, 1229 Makati City, Philippines Telephone numbers 892-4059 and 893-5705 Telefax numbers (632) 893-9589 and 816-1091 E-mail address: publications@pidsnet.pids.gov.ph Re-entered as second class mail at the Makati Central Post Office on April 27, 1987. Annual subscription rates are: P150.00 for local subscribers; and US$20.00 for foreign subscribers. All rates are inclusive of mailing and handling costs. Prices may change without prior notice.

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References Abramovitz, M. “Catching Up, Forging Ahead, and Falling Behind.” Journal of Economic History 46, pp. 385-406, as cited by E. Patalinghug, 1996; “Competitiveness, Productivity and Technology.” In C. W. Paderanga (ed.) The Philippines in the Emerging World Environment. Quezon City: U.P. Press, pp. 235-66, 1986. Jones, R. and J. P. Neary. “The Positive Theory of International Trade.” In R. Jones and P. Kenen Handbook of International Economics. Amsterdam: North Holland, as cited by R. Fabella, 1996. “Features of the Emerging World Economic Order: Implications on Growth Policy.” In C. W. Paderanga (ed.) The Philippines in the Emerging World Environment, 1996. Quezon City: U.P. Press, pp. 423-84, 1984. Medalla, E. M. et al. Catching Up with Asia’s Tigers, Vol. I. Makati City: Philippine Institute for Development Studies, 1995.

Science and Industrial Policies... From page 15 In today’s discussions, we heard from a majority that it is the educational system where we have to start from. Thus, we need to concentrate on that. On the other hand, when we talk about niching, we should perhaps look at the experience of India. As early as 10 years ago, we were already talking about India insofar as the field of software is concerned. They got their act together. It is a fine example of what niching can do. It pulls everybody up. It pulled up India and the estimation of a lot of people about it because they have niched that one single but significant thing. Thus, if we can only niche in one or two key areas alone, we are going to get a lot more than we have invested. Finally, I hope that after our discussions this morning, we can be more and more focused. And while we can all agree on the big picture, let us not forget to also agree on the small picture. Cong. Feliciano Belmonte House of Representatives Congress of the Republic of the Philippines DRN

March - April 1998

Editor's Notes... From page 1

cially those of agriculture, fishery and forestry due to the adverse effects of the El Niño weather disturbance, resulting in a contraction in the gross domestic product in the first quarter of the year. This notwithstanding, Dr. Yap foresees stability and growth in the coming months. The role of science and technology in a country’s economic development has always been emphasized. But how to chart the role and direction for S&T in a more globalized economic setting would require a more focused agroindustrial strategy for our economy. This, in essence, was the revolving theme of the roundtable discussion organized late last year by the Institute jointly with the office of one of the country’s leading legislators, Congressman Feliciano Belmonte. With Secretary William Padolina of the Department of Science and Technology as the main presentor, the discussion as shown on pages 2 to 6 of this issue dealt with the state of S&T in our country, the significance of human resource development in our quest for global competitiveness, and the role of our educational system in such quest. With local government and metropolitan issues like traffic management and waste disposal occupying more and more print space in our daily newspapers, this DRN issue decided to feature the Quezon City Administrator’s (Dr. Manuel Alba) paper presented last year during the 20th anniversary of the Institute’s founding which outlines the problems and challenges for local governments under a decentralized system in meeting the service delivery demands of their constituents. Dr. Alba concludes on a positive note that local government executives have pursued their own initiatives which are complimentary to the efforts of the national government in order to meet said demands. Finally, capping this issue is a continuation of the listing of the outreach activities of some of the PIDS Research Fellows for the period July to December 1997.


Catching Up in a Liberalised Trade Environment