Spending Our WayOut of the Global

Crisis:

Cielito F. HabitoAteneo Center for Economic Research & Development

Ateneo de Manila UniversityPhilippines

Making It Work for the Poor

and for Our Children

Overview The Backdrop

Persistent Philippine challenges Impacts of Financial Crisis, 1997-98 &

Now Human & environmental costs

Government ResponsesFiscal Stimulus PackageSocial Protection Measures

Looking AheadMeeting the MDGs and beyond

Persistent ChallengesNon-inclusive Growth Narrow: Growth propelled primarily

by a few leading sectors and geographic areas

Shallow: Weak linkages to rest of economy – e.g., low domestic value-added exports

Hollow: Jobless growth; poverty-increasing growth

Poverty incidence rose from 30% in 2003 to 33% in 2006

Real per capita income fell 10% nationally, and fell in 50 provinces between 2003 and 2006 (PHDR 2008/2009)

Basic education enrollment rates dropped in 75% of provinces between 2002 & 2004

Wide disparities in life expectancy across provinces: from low of 53.4 (Tawi-tawi) to high of 74.6 (La Union)

Top-Heavy Growth, Bottom-Heavy Needs

The Crisis Challenge:

• Measures forMeasures for short-run short-run stabilizationstabilization could take a toll on could take a toll on human welfarehuman welfare and and long-run long-run sustainabilitysustainability (financial stability (financial stability vs. sustainable human vs. sustainable human development: tradeoff or win-win?)development: tradeoff or win-win?)

• Financial markets: “Heads you Financial markets: “Heads you win, tails I lose” situation for win, tails I lose” situation for vulnerable sectorsvulnerable sectors

Asian Financial Crisis, 1997-98Human CostsAsian Financial Crisis, 1997-98Human Costs

Increased poverty Higher unemployment Increased school drop-outs Increased hunger, malnutrition and

sicknessReduced social investmentReduced social investment Budget cuts on social servicesBudget cuts on social services Public investments in HDPublic investments in HD Higher cost/reduced private provision of Higher cost/reduced private provision of

social servicessocial services

Damaged social capital• Rise in

Crime incidence Domestic violence Child abuse Street children

• Breakdown in community cohesion

Asian Financial Crisis, 1997-98Human CostsAsian Financial Crisis, 1997-98Human Costs

Reduced environmental investment• Low priority for environmental investments• Shelve planned investments in environmentally

sound technologies • Non-operation of existing environmental

equipment

Asian Financial Crisis, 1997-98Environmental CostsAsian Financial Crisis, 1997-98Environmental Costs

Easing of environmental Easing of environmental standardsstandards

• Relaxed policies & standardsRelaxed policies & standards• Non-enforcement of existing onesNon-enforcement of existing ones• Pressure on environmentally-sensitivePressure on environmentally-sensitive

exportsexports

Adverse migration impacts• Increased pressure on uplands &

coastal areas (“The environment is the social security system of the poor”)

Asian Financial Crisis, 1997-98Environmental CostsAsian Financial Crisis, 1997-98Environmental Costs

• Liquidity & budget support (for banks)• Support for social safety nets• Monetary easing• Fiscal stimulus• Stronger international (G-20) and

regional (ASEAN, ASEAN+3, EAS) cooperation

International Response to the Current Global Crisis

• Fiscal stimulus subject to fiscal sustainability (record fiscal deficit of PhP300bn in 2009; return of ‘debt penalty’?)

• Need for emphasis on social & environmental expenditures in light of “past sins”

The Philippine Balancing Act:

Domestic Production (GDP): Government spends

its way out of recession

Domestic Production (GDP): Government spends

its way out of recession

•Government consumption & cons-truction up 8.5% & 15.7% respectively

•Consumption growth moderates as consumers pull back

but…•Total investment spending dropped 10% even with brisk government construction

•Exports fell dramatically (-15%)

Q4 FY Q1 Q2 Q3 Q3 Q4 FY

Personal Consn Exp 5.0 4.5 1.3 5.4 4.0 3.2 5.1 3.8

Govt Consumption 2.6 4.3 4.5 9.7 7.9 8.1 12.1 8.5

Capital Formation -13.1 4.2 -15.1 -10.3 -11.3 -12.1 -0.8 -9.9 Of which: Construction 8.2 6.3 6.7 8.9 1.7 1.7 -2.9 5.8 Public 3.2 -0.7 11.5 27.7 22.2 21.8 -7.2 15.7 Private 17.8 11.4 4.3 -10.1 -9.7 -9.4 -0.1 -4.2 Durable Eqpt -7.9 1.7 -18.5 -19.7 -5.7 -4.2 -0.1 -11.4 Br Stck & Orch Dev 1.2 -1.6 1.0 -5.6 1.4 1.5 -2.0 -1.4

Exports -11.5 0.0 -14.7 -18.1 -13.6 -13.0 -10.0 -14.2Imports 5.0 -1.1 -20.6 -2.2 0.2 0.1 -2.5 -5.8

Indicator2008 2009

Govt Spending Dominates Growth

Amid Declining Investment

Govt Spending Dominates Growth

Amid Declining Investment

Round Spending IncomesSavings (20%)

1 1,000,000 1,000,000 200,0002 800,000 800,000 160,0003 640,000 640,000 128,0004 512,000 512,000 102,4005 409,600 409,600 81,9206 327,680 327,680 65,5367 262,144 262,144 52,429

etc

TOTAL 5,000,000 5,000,000 1,000,000

Digression: The Multiplier Process

Multiplier = 1/saving

rate = 1/.2 = 5

The Multiplier Effect is stronger when:

Marginal saving rate is lower Import content of the

stimulated economic activities is lower (= domestic content higher)

• Labor intensive generates more jobs (broader benefits) money circulates more among lower-

income, lower-saving individuals

• Lower import content than most other government projects money stays in domestic economy generates more tax revenues

• Uplifts people’s lives

Social Sector Spending:The Best Stimulus

Philippine Govt Responses for Social Protection: Four Components

• Fiscal Stimulus: Economic Resiliency Fiscal Stimulus: Economic Resiliency Plan Plan (ERP)(ERP)

• Conditional Cash Transfers: Conditional Cash Transfers: Pantawid Pantawid Pamilyang Pilipino Program Pamilyang Pilipino Program (CCT/4Ps)(CCT/4Ps)

• Comprehensive Livelihood and Comprehensive Livelihood and Emergency Employment Program Emergency Employment Program (CLEEP)(CLEEP)

• National Household Targeting System for National Household Targeting System for Poverty Reduction Poverty Reduction (NHTS-PR)(NHTS-PR)

RP Fiscal Stimulus PackageEconomic Resiliency Plan (P330bn)

• P160B for hiring more teachers, police-P160B for hiring more teachers, police-men, soldiers & doctors; repair/ rehab men, soldiers & doctors; repair/ rehab govt buildings; supplies and equipment govt buildings; supplies and equipment e.g. patrol cars, ambulances; agri e.g. patrol cars, ambulances; agri supportsupport

• P100B for infra investments by SSS, P100B for infra investments by SSS, GSISGSIS

• P30B additional SSS, GSIS & PH P30B additional SSS, GSIS & PH benefitsbenefits

• P40B in income tax cutsP40B in income tax cuts

CCT/4PsFeatures

• Beneficiary household receives Beneficiary household receives PhP500PhP500(USD11)(USD11)/mo. for health & nutrition + /mo. for health & nutrition + PhP300PhP300(USD6.50)(USD6.50)/mo. for education expenses /mo. for education expenses for a maximum of 3 childrenfor a maximum of 3 children

• Eligible household with 3 children receives up Eligible household with 3 children receives up to PhP1400to PhP1400(USD30)(USD30)/mo. or /mo. or PhP15,000PhP15,000(USD326)/year(USD326)/year

• Allotted PhP5 bnAllotted PhP5 bn(USD109m)(USD109m) in 2008 (350,000 in 2008 (350,000 beneficiaries); PhP10 bn beneficiaries); PhP10 bn (USD218m) (USD218m) in 2009 in 2009 (targeted beneficiaries doubled to 700,000)(targeted beneficiaries doubled to 700,000)

CCT/4PsFeatures

Conditions for GrantsConditions for Grants• Pregnant women must get pre/post-natal care; must Pregnant women must get pre/post-natal care; must

be attended by trained professional at childbirthbe attended by trained professional at childbirth• Parents/guardians attend parenting sessions/classesParents/guardians attend parenting sessions/classes• Children 0-5 yrs must receive regular preventive Children 0-5 yrs must receive regular preventive

health checkups & vaccinationshealth checkups & vaccinations• Children 3-5 yrs must attend preschool at least 85% Children 3-5 yrs must attend preschool at least 85%

of the timeof the time• Children 6 -14 yrs must enroll in elementary/HS and Children 6 -14 yrs must enroll in elementary/HS and

attend at least 85% of the timeattend at least 85% of the time• Children 6 -14 must avail of deworming pills every 5 Children 6 -14 must avail of deworming pills every 5

monthsmonths• Compliance monitored by the DSWD; noncompliance Compliance monitored by the DSWD; noncompliance

leads to suspension/cessation of grants leads to suspension/cessation of grants

CLEEPFeatures

• Targets the poor, returning expatriates, Targets the poor, returning expatriates, export industry workers, & out-of-school youth export industry workers, & out-of-school youth by providing emergency employment and by providing emergency employment and funding/supervising livelihood projectsfunding/supervising livelihood projects

• Allotted PhP10bnAllotted PhP10bn(USD218m) (USD218m) in 2009in 2009

• Administered by National Anti-Poverty Administered by National Anti-Poverty Commission (NAPC)Commission (NAPC)

• Participating Agencies: Participating Agencies: DA, DepEd, DENR, DA, DepEd, DENR, DFA, DOHDFA, DOH

CLEEPContributed Programs

• DA:DA: Gulayan ng MasaGulayan ng Masa, ISLA for Fisherfolks, ISLA for Fisherfolks• DepEd:DepEd: 1,500 OSYs as school utility workers; 1,500 OSYs as school utility workers;

12,300 OSYs trained for livelihood; 12,300 OSYs trained for livelihood; Negosyong Negosyong Pang-Eskuwela Pang-Eskuwela (school co-op enterprises)(school co-op enterprises)

• DENR:DENR: 111,536 “green collar” workers for 111,536 “green collar” workers for Upland Devt Pgm, Upland Devt Pgm, Bantay Gubat; Bantay Gubat; Jatropha Jatropha planting, tricycle LPG retrofitting, etc.planting, tricycle LPG retrofitting, etc.

• DFA:DFA: FAME (Financial Assistance & FAME (Financial Assistance & Microfinance for Expatriates) – for laid-off Microfinance for Expatriates) – for laid-off OFWsOFWs

• DOH: DOH: Botika ng BayanBotika ng Bayan, Nurses Assigned in , Nurses Assigned in Rural Service (NARS)Rural Service (NARS)

Agriculture 61 408 -177 -196 24 Agri, Hunting & For 38 385 -214 -271 -16 Fishery 23 28 38 75 41Industry -122 86 136 68 42 Manufacturing -122 -16 -28 44 -30 Mining 2 7 39 5 13 Utilities 2 6 4 39 13 Construction -39 80 120 15 44Services 626 964 921 1,142 913

Total New Jobs 565 1,457 880 1,014 979

New Jobs by Sector Jan 2009

April 2009

July 2009

Oct 2009

Ave 2009(Thousands)

Where Are The New Jobs Where Are The New Jobs Coming From?Coming From?

Where Are The New Jobs Where Are The New Jobs Coming From?Coming From?

Where Are The Services SectorWhere Are The Services SectorJobs Coming From?Jobs Coming From?

Where Are The Services SectorWhere Are The Services SectorJobs Coming From?Jobs Coming From?

Services Sector Jobs 626 964 921 1,142 913

W&R Trade 312 346 104 356 279 Priv HH Emp 29 139 263 189 155 Real Est&Bus Act 118 76 132 98 106 Public Admin 27 108 46 82 66 Hotels & Rest 16 41 97 96 63 Other Services 14 71 57 57 50 Transp-Stor-Comm 10 42 173 142 92 Health & SW 41 51 46 11 37 Education 87 45 99 66 74 Finance -28 16 10 10 2 Intl Orgs 0 0 0 0 0

63.8% are male, 36.2% female63.8% are male, 36.2% female 50% are under 24 years old; 80% are 50% are under 24 years old; 80% are

under 34 years oldunder 34 years old 60 percent managed to make it only to 60 percent managed to make it only to

high school or lesshigh school or less―12.6% only made it to elementary 12.6% only made it to elementary

gradesgrades―47.2% went to high school; only 47.2% went to high school; only

34.7% finished34.7% finished―39.7% made it to college, but only 39.7% made it to college, but only

18% graduated18% graduated

Who need the jobs?Who need the jobs?Profile of the Profile of the UnemployedUnemployed

Why can’t we generate Why can’t we generate the needed jobs?the needed jobs?

2.8 million unemployed2.8 million unemployed Mostly male, young and undereducatedMostly male, young and undereducated

7 million underemployed7 million underemployed Mostly in agricultureMostly in agriculture

budget allocation for “Social Security, Welfare, and budget allocation for “Social Security, Welfare, and Employment” increased from 4.5 percent in 2007 to Employment” increased from 4.5 percent in 2007 to 5.7 percent in 2008 and to 6.1 percent in 2009.5.7 percent in 2008 and to 6.1 percent in 2009.

Habito 2009 (ADBI Study)*:

• For every one percent of GDP spent on For every one percent of GDP spent on education and health, poverty elasticity of education and health, poverty elasticity of growth improves by 0.2 percentgrowth improves by 0.2 percent

• RP social expenditures (as % of GDP) in 2000-RP social expenditures (as % of GDP) in 2000-2007 less than Malaysia, Singapore, Thailand, 2007 less than Malaysia, Singapore, Thailand, Sri Lanka & Nepal; higher than Bangladesh, Sri Lanka & Nepal; higher than Bangladesh, Cambodia & IndonesiaCambodia & Indonesia

• Philippines had perverse experience of Philippines had perverse experience of risingrising poverty (30% poverty (30% 33% from 2003-2006) at a 33% from 2003-2006) at a time GDP reportedly grew the fastest in time GDP reportedly grew the fastest in decades.decades.“Patterns of Inclusive Growth in Developing Asia: Insights from

an Enhanced Growth-Poverty Elasticity Analysis,” ADBI Working Paper.

What Needs To Be Done?What Needs To Be Done?

Boost multisectoral initiative for Boost multisectoral initiative for massive education reformmassive education reform― Open up Local School BoardsOpen up Local School Boards

Education for entrepreneurshipEducation for entrepreneurship― Entrepreneurship values from primary Entrepreneurship values from primary

schoolschool― Entrepreneurship skills from high school Entrepreneurship skills from high school

onwardonward Strategic education planningStrategic education planning

― Anticipate and respond to emerging Anticipate and respond to emerging requirementsrequirements

What Needs To Be Done?What Needs To Be Done? Triple government housing targets; Triple government housing targets;

quadruple budgetary allocation to quadruple budgetary allocation to public housing public housing (Karaos et al 2009)(Karaos et al 2009)― Strong multiplier effect to create massive Strong multiplier effect to create massive

jobs boostjobs boost Address governance impediments Address governance impediments

to investment growthto investment growth― Corruption, corruption, corruptionCorruption, corruption, corruption― Streamline business registration & start-upStreamline business registration & start-up― Business-friendly, not extortionary LGUsBusiness-friendly, not extortionary LGUs― Boost tax compliance & collection efficiencyBoost tax compliance & collection efficiency

Mabuhay!Mabuhay!