20498 voi. 1 May 31, 2001 PHILIPPINES POVERTY ASSESSMIENT -.¥köw $ Volume I: Main Report T oJ The World Bank1 PHILIPPINES POVERTY ASSESSMENT Volume 1: Main Report May 31, 2001 Poverty Reduction and Economic Management Unit East Asia and Pacific Region The World Bank Currency Equivalents (As of May 31, 2001) Currency Unit Peso $1.00 = 50.58 Pesos 1.00 peso = $0.019 Fiscal Year January 1 - December 31 Jemal-ud-din Kassum Vice President, EAP Vinay Bhargava, EACPF Country Director Homi Kharas, EASPR Sector Director Tamar Manuelyan Atinc, EASPR Task Manager ii Abbreviations and Acronyms ADB Asian Development Bank APIS Annual Poverty Indicators Survey ASEM Asia-Europe Summit ARMM Autonomous Region of Muslim Mindanao CARL Comprehensive Agrarian Reform Law CARP Comprehensive Agrarian Reform Program CBPIMS Community-Based Poverty Indicators Monitoring System CDA Cooperative Development Authority CDF Cumulative Distribution Function CHED Commission on Higher Education CIOSS Comprehensive and Integrated Development of Social Services CMP Community Mortgage Program CPI Consumer Price Index DAR Department of Agrarian Reform DECS Department of Education, Culture and Sports DENR Department of Environment and Natural Resources DHS Demographic and Health Survey DILG Department of Interior and Local Government DOH Department of Health EGS Employment Guarantee Scheme ERAP Enhanced Retail Access for the Poor FGT Foster-Greer-Thorbecke FIES Family Income and Expenditure Survey GASTPE Government Assistance to Students for Private Education GDP Gross Domestic Product GNP Gross National Product HDI Human Development Index IMF International Monetary Fund IRA Internal Revenue Allotment LG Livelihood Groups LGC Local Government Code LFS Labor Force Survey LGU Local Government Unit MBN Minimum Basic Needs MBN-CBIS Minimum Basic Needs-Community-Based Indicator System MOOE Maintenance and Other Operating Expenditures MTPDP Medium-Term Philippine Development Plan iii ABBREVIA TIONSANOACRONYMS NA National Accounts NAPC National Anti-Poverty Commission NCR National Capital Region NEAT National Elementary Achievement Test NEDA National Economic and Development Authority NFA National Food Authority NGO Non-Government Organization NPR National Protection Rate NSAT National Secondary Achievement Test NSCB National Statistical Coordination Board NSO National Statistics Office OL Operation Leasehold OLS Ordinary Least Square OLT Operation Land Transfer PD Presidential Decree PO People's Organizations (1R Quantitative Restrictions SIR Slum Improvement and Resettlement SRA Social Reform Agenda SUC State Universities and Colleges SWS Social Weather Stations UNDP United Nations Development Programme US United States WTO World Trade Organization iv Table of Contents EXECUTIVE SUMMARY vii POVERTY IN THE PHILIPPINES 1 Profile of the Poor 2 Who are the Poor 3 Household Characteristics 3 Regional Dimension 4 What does It Mean to be Poor 4 Trends in Poverty5 The Philippines in Regional Perspective 5 Growth, Inequality and Trickle Down? 6 Rural-Urban and Regional Disparities 8 Sectoral Composition of Poverty 9 A Framework for Attacking Poverty 10 Growth with Equity: Creating Opportunities for the Poor 10 Policies for Pro-Poor Growth 13 Investing in People 18 Protecting the Poor 21 Macro-economic Crises and Natural Disasters 22 Micro Level Shocks 27 Facilitating Empowerment 30 Improving Governance and Combating Corruption 31 Decentralization 33 Civil Society Participation 37 Informing Pro-Poor Policies38 Information Needs 39 Evaluating the Information Base in the Philippines 39 Improving the information base for poverty reduction 42 The Remaining Agenda 43 Endnotes REFERENCES 48 Acknowledgements This report was prepared by a team of Bank staff comprising Gaurav Datt, Tamar Manuelyan Atinc and Norbert Schady. The team drew upon several background studies, including by Arsenio Balisacan (poverty profile), Michael Alba (access to public services), Gaurav Datt and Hans Hoogeveen (social impact of the crisis), Klaus Deininger (land reform), Norbert Schady (education), and Norbert Schady and Gaurav Dan (self-rated poverty). Martha Ainsworth, Benu Bidani, Joven Balbosa, Shaohua Chen, Hans Hoogeveen and William Rex made valuable contributions to specific sections of the report while Deon Filmer and Emanuela Galasso were generous in sharing their work and responding to queries. David Bisbee provided able assistance with data and Taranaki Mailei and CheloyTria with the production of the report. The team gratefullyacknowledges the manyuseful comments received, especiallyfrom Emmanuel Jimenez and Jesko Hentschel (peer reviewers). Others who were generous with their comments and time included Vinay Bhargava, Masahiro Kawai, Sanjay Dhar, Bernard Funck, Heidi Hennrich-Hanson, Gurushri Swamy, Vijay Jagannathan, AniruddhaDasgupta, Rahul Raturi, SyedHusain, Richard Anson, Nor Gonzales, BhuvanBhatnagar, Jayshree Balachander and Teresa Ho. The team valued enormouslythe overall strategic guidance and intellectual support received from Homi Kharas. The study team would like to express its appreciation for the collaboration received from the National Economic Development Authority in carrying out its work. Ms. Ofelia Templo ably led the Philippine counterpart team, providing valuable input on content and fit with the Government's agenda. The team benefited from many useful insights offered during a video conference with members of the Philippines NGO community to discuss the concept of the study (December 1999) and during several workshops held in Manila (February, June and September 2000) and in Cebu (September 2000) to discuss findings with government officials, academe and civil society. Representatives of the donor community, in particular, of the Asian Development Bank and the United Nations Development Programme, were also generous with their time. The report could not have been prepared without the good quality data collected by the Philippines National Statistics Office (NSO). The team would like to note the important contribution made to the quality of poverty monitoring in the Philippines by the government's policy of putting survey data in the public domain. The team is grateful to Mr. Tomas Africa and Ms. Josie Perez of NSO for their valuable support and would like to thank Ms. Sotera de Guzman and Mr. Gene Lorica who responded to many data queries. The team would also like to acknowledge the excellent collaboration received from Mr. Mahar Mangahas who has been a leader in the region in the collection and analysis of data on self-reported poverty. Finally, the study team would be remiss if it did not acknowledge the major contribution made by donors to the Asia Europe Meeting (ASEM) trust fund. By supporting the collection of very useful informa- tion at the time of the crisis in the Philippines (the first Annual Poverty Indicators Survey), ASEM donors contributed to a better appreciation of the social impact of the crisis and helped shape policies. Executive Summary "The night is dark: the neighbors sleep in silence; the * Poverty declined when thePhilippine economy families, after remembering their dead, surrender grew. The incidence of poverty has come down themselves to peaceful and contented slumber. They significantly from 41 percent in 1985, but much of have recited three rosaries with requiems, the novena the progress during 1985-97 was confined to the for the souls, and burnt many wax candles before the first and last three years when growth was robust. sacred images. The rich and the affluent have fulfilled Between 1988 and 1994, the headcount index barely their duties to the benefactors who bequeathed them moved - from 34 percent in 1988 to 32 percent by their fortunes ... but the poor man, the indigent who 1994 - reflecting the country's anemic growth hardly earns enough to keep himself alive, and has to during those years. bribe the petty directors, clerks and soldiers to let him live in peace - he does not sleep with the Social indicators also improved. The Philippines tranquility described by the courtly poets, who . themselves, perhaps, have not suffered the same has achieved steady improvement in social pangs of misery." -- Jose Rizal, Noli Me Tangere indicators over the 1980s and 1990s, including life expectancy, literacy for both males and females, immunization and access to safe drinking water This report aims to provide an updated picture of in both rural and urban areas, and a decline in poverty in the Philippines and a framework for child malnutrition and infant mortality rates. identifying priorities in designing a strategy to attack These improvements are also reflected in the poverty. It is intended as an input into the Philippine Human Development Index for the Philippines, Government's poverty eradication strategy. It is not a which rose from 0.683 in 1985 to 0.740 in 1997 blue print for action. The next step should be a detailed (UNDP, 1999). examination of policies and programs in each area of public intervention, including needed legislative * Growth - while limited - appears to have changes, and issues of institutional design, and finance. been broadly shared across income groups. The decline in poverty was not confined to those in the The report is presented in two volumes. The main neighborhood of the poverty line, but was shared volume contains a summary of the profile of the poor more widely among those below the poverty line, and trends in poverty, proposes a framework for as evident in the evolution of the depth and severity attacking poverty, and examines the information base of poverty, which declined even more rapidly than for pro-poor policies. The second volume provides the the proportion of the poor. detailed analytical basis for many of the findings presented in the main report. * Inequality fluctuated during the period without a significant trend. There has been some concern WHAT DO WE KNOW ABOUT THE POOR AND that inequalities have been widening in the RECENT POVERTY TRENDS? Philippines in recent years, but data on consumption and income distribution do not * Poverty in the Philippines remains relatively validate this concern. Nonetheless, inequality in high: in 1997, 25 percent of the population had the Philippines is relatively high, especially for consumption levels below the poverty threshold income (Gini coefficient of 0.51 in the mid-1990s) Estimates, based on sectoral GDP growth rates, - at par with levels in Thailand and Malaysia, suggest thatpovertymayhave increasedto 27.8 percent and significantly above levels in Indonesia, Korea in 1998 when per capita GDP fell by2.6 percent. The and China. Inequality is also much higher in urban subsequent recovery in 1999 is estimated to have than in rural areas but again there is no evidence brought down the incidence of povertyto 26.3 percent. of a trend over the period. 'fi EXCUT/VESU1AYMRY There were significant regional disparities in This report proposes a framework for attacking poverty growth andpoverty reduction. Five regions appear built on three pillars: opportunity, security and to have lagged in terms of poverty reduction. In the empowerment. Opportunity refers to improving the access case of four of these (ARMM, CARAGA, Central of the poor to human and physical assets and increasing Mindanao and Central Luzon), this is driven by the the return on these assets both in absolute terms and lack of significant growth in mean consumption; for relative to the rest of society Security refers to protecting Eastern Visayas, there was some growth but the poor the assets of the poor and reducing the volatility in their failed to share adequately in its benefits due to an returns. Empowerment is about making public increase in inequalities. institutions work for the poor. Poverty is highest in the agriculture sector and GROWTH WITH EQUITY: CREATING the sector also experienced the slowestpoverty OPPORTUNITIES FOR THE POOR reduction. Agriculture- dependent households account for over two-thirds of the poor even though Providing opportunities for the poor is primarily about they represent only40 percent of the population. Within creating the conditions for economic growth and enhancing the sector, the self-employed are just as likelyto be poor the ability of the poor to participate in that growth by as the wage earners. The incidence of poverty declined building up their assets through investments in their human twice as rapidly among households dependent on capital and their physical environment. industry and services than on agriculture, but the sectoral composition of poverty remained stable, reflecting the Growth is the engine of poverty reduction... shift of the population out of agriculture. The outlook for poverty reduction in the Philippines * Educational attainment is a key determinant would be bleak if in the next ten years per capita of household welfare. In 1997, 75 percent of the consumption increases at no more than the national poor lived in households where the head had no more accounts growth rates of the previous decade (0.9% per than an elementary education. capita GDP growth during 1988-1997). This would mean that 16 - 27 percent of the population would remain * Self-ratedpoverty levels are much bigher, and poor even in 2010, depending on distributional unlike absolute poverty, do not display a trend assumptions. The Philippines will have to grow more decline. The threshold level which households regard rapidly if poverty is to be reduced perceptibly. If it grows as "minimum acceptable income" in surveys of at the historical rates implied bythe surveys, there would perceptions of poverty is much higher, yielding self- be a far greater reduction in the incidence of poverty- to rated poverty estimates of about 60 percent in the last 20.6 percent by2004 and 14.8 percent by2010 under the three years. And this threshold level has risen dramatically distribution-neutral growth scenario. The poor would fare during the period, confirming that self-rated poverty is even better with the more robust growth assumptions not about absolute poverty Instead, it appears to reflect of the Medium-Term Philippine Development Plan 1999- rising household expectations in response to either 2004 - GDP growth is expected to average 5.3 percent in rising incomes or greater exposure to how the rest of the high case - as the national poverty incidence would the country and, indeed, the world lives. This is also fall to 18.8 percent by 2004 and 11.6 percent by 2010, apparent inthe much higher self-rated povertythreshold assuming a neutral distribution of the gains from growth for urban areas over the rural areas, which are higher in each sector. than would be justified by rural-urban cost of living differentials. but the nature of thatgrowth matters... Rice Policy. Quantitative restrictions on the import of rice result in domestic prices that are significantly Faster agricultural growth and a swifter structural shift higher than world market equivalents. This hurts net out of agriculture are key for poverty reduction. The consumers of rice and benefits net producers. Analysis reason that poverty incidence projections are more based on 1997 survey data suggests that the poor in the favorable under the Plan targets than with historical Philippines are net consumers of rice while the net survey growth rates is that the Plan scenario assumes producers are spread over the middle and higher faster agricultural growth (3.4 percent planned against deciles. Overall, therefore, a reduction of implicit historical of 2.8 percent) and faster movement out of tariffs on rice is likely to have a progressive welfare agriculture (0.6 percent planned agricultural effect, and in particular, is likely to be beneficial to the population growth as against historical 1.2 percent). poor, both in the short term through lower food prices, and in the longer term through encouraging a swifter Higher productivity in agriculture is important in shift out of production of rice (and corn and sugar) improving incomes of the poor. Particularly important into other more competitive or off-farm products. are policies and investments to improve infrastructure and support services. Expanding irrigation will help While liberalizing trade in food staples will improve boost grain yields; strengthening the research and the welfare of the poor, there will be short-run costs extension system will enhance agricultural productivity that need to be managed. Phasing in the liberalization and facilitate on-farm diversification; improved rural of rice imports, in line with the country's commitment infrastructure will reduce transport costs, and increase to the World Trade Organization (WTO) and more accessibility to markets and public services. But there recently in the context of the Grain Sector are limits to improving productivity in agriculture and Development Program supported by the ADB, seems accelerating the shift out of agriculture - including appropriate. On the consumption side, there is a case through off-farm employment in rural areas - and this for a targeted program that subsidizes low quality rice is arguably even more important for the poor. Labor to be sold in stores placed in poor communities, productivity is lowest by far in agriculture - output per particularly during and beyond the transition period worker is one-half of that in services and less than one- when prices will remain high. fourth of that in industry - so expanding opportunities in higher productivity sectors is an important part of Land Policy. Progress under the government's land the poverty agenda. redistribution program has been slow due to inadequate funding, administrative problems of ...andsome policies are good for growth and even better surveying and land valuation, and opposition of for the poor. landlords. The adverse incentive effects associated with the slow implementation of the Comprehensive The projections of future poverty incidence also Agrarian Reform Program (CARP) include lower highlight the importance of distributional shifts. For private investments and lower collateral value of example, the distribution-neutral scenario with Plan agricultural land associated with increased tenurial growth targets yields a headcount of 11.6 percent by uncertainty. But evidence is overwhelmingly favorable 2010, while a 10 percent improvement (deterioration) on gains from land redistribution for beneficiaries: in the Gini-coefficient with the same growth rate, would these include gains in productivity and incomes, and a bring poverty incidence down (up) to 6.6 (17.0) percent. higher propensity to invest in both physical and human What kinds of policies are likely to yield distributional capital (of the children) among beneficiaries of CARP changes in favor of the poor in the Philippines? The compared to a group of non-beneficiaries. Yet there report discusses three: these are rice policy, land are reasons to be concerned about the unintended reform and regional policies. impact of the program on non-beneficiaries. Based on FXECZ/T/VESt/1MA'RY a small survey of five villages, the ability of the poor wages. It is also important because better educated and and the landless to gain access to land through healthier people are more likely to make more informed established markets appears to have declined over the decisions, feel more empowered, and lead fuller lives. course of the program period. There is a need to confirm these findings with analysis of a larger and Education. Given its per capita income, the Philippines more representative sample of CARP beneficiaries. It has a good track record in providing education to its is encouraging that the government is placing a high citizens. Enrollment rates are high both for primary priority on undertaking an assessment of CARP. and secondary education - higher than would be predicted by the country's per capita income level - While there is a clear economic rationale for asset and the incidence of public spending on education is redistribution in the Philippines, the key is choosing progressive, overall. Still, there are some areas for the appropriate mechanisms for effecting this transfer concern, including: (i) large discrepancies in to the poorest segments of society without generating educational attainment between rural and urban costly distortions to incentives. The combination of residents; (ii) fewer years of schooling among the non- decentralized modernization of land administration; poor (4 years fewer by age 21); (iii) lower quality in the collection of a progressive land tax that generates education received by the poor, both because of revenues and introduces incentives to increase the differences in private expenditures for public schools supply of land on the market; and a program of grants (the richest households spend 12 times as much as the to facilitate acquisition of land ownership may offer poorest households for every child enrolled in public scope for improvement. A progressive land tax that primary school, and more than 9 times as much for would obviate the need for compulsory sale of large every child enrolled in public tertiary schools), as well holdings as currently mandated under CARP has far- as because of the smaller fraction of poor children who reaching implications and requires detailed scrutiny attend private institutions where quality appears to be of legislative, institutional and political constraints to higher; (iv) important differences in the degree to which implementation, the labor market rewards different kinds of education: the returns to university education are twice as high as Regional Policy. A map of poverty incidence in 1997 returns to secondary school (19.3 percent versus 10.4 shows a clustering of poor provinces in the middle percent increase in wages for every year of schooling). part of the country, around the Eastern Visayas and in This is a concern because very few poor households the Muslim Mindanao region, reflecting both initially have access to tertiary education. Indeed, both overall high levels of poverty in these regions and stagnation public spending on tertiary education and spending in poverty reduction over the past decade. Poor area on scholarships is highly regressive. development programs have been successful in some countries and merit consideration in the Philippines. Reducing school drop-outs from poorer households, Successful programs typically include interventions especially boys in rural areas; improving the quality that augment income generation capacity both through of primary and secondary education; and increasing improved techniques in agriculture and through off- access of poor but able children to universities are farm employment; investing in human capital; and important priorities that require public action. improving infrastructure. Specifically, it would be useful to examine the feasibility of programs which transfer income Investing in people is good policy overaland particularly conditional on school attendance in rural areas as well for the poor as scholarships for tertiary education that are targeted to the poor. Analysis of the determinants of the gender Building up the human capital of the poor is important gap in labor market outcomes found in this report is for enhancing productivity and capacity to earn higher also important. X EXECUT/ES.Z/MA4RY Health. With the devolution of health services that Soundmacroeconomicpolicies help reduce vulnerability... began in 1991, the composition of health spending appears to have become more pro-poor, as preventive There is potential in reducing the magnitude of health care spending has rapidly expanded at the local economic crises through sound macro-economic level. Nonetheless, more than 70 percent of total public policies - though the extent of the contagion seen health expenditures are still devoted to personal health during the Asian crisis suggests limits to the ability of care (or largely curative) services and the geographic governments to inoculate their economies. distribution of Department of Health (DOH) spending is regressive. Also, there is some concern about the ... and private transfers are important for the poor ... deterioration in health services since the devolution because of insufficient funding, inadequate local Private transfers in the Philippines are large (13 percent capacity, and deficiencies in the referral and of pre-transfer incomes on average), have been procurement systems. There are also large variations in increasing over time, and are progressive: for the health status by income level, though not by location. poorest quintile, transfers represent almost 60 percent All these suggest that there is a large agenda for future of pre-transfer income. In addition, there is clear work in the health sector that includes: analysis of the evidence that having an unemployed, elderly or female- determinants of health outcomes (disaggregated for rural head has a large and significant impact on transfers and urban areas), the most important of which may lie received by the household. For a large number of outside the sector (e.g., water, education); review of the households, private transfers are the tickets out of experience with decentralization to determine impact poverty. Income poverty would have been much higher on the quality of services provided and success in in the Philippines in the absence of transfers: the reaching the poor; review of the geographic distribution headcount index in 1997 would have been 32 percent of spending by the Department of Health; and review of rather 25 percent. the program of health insurance. ... but there is still an important role for public safety PROTECTING THE POOR nets... Protecting the poor is about policies that serve to reduce Informal safety nets have their limitations when the the probability of shocks, mitigate their impact and shock is covariate in nature so that there is a role for improve the ability of the poor to cope with them. In government in helping households cope with systemic the Philippines, the main sources of vulnerability are shocks. It is also not clear as to what extent private likely to be related to climate and economic instability, transfers fulfill an insurance function; future analysis certain parts of the country are also affected by political based on the 1998 and 1999 APIS panel would help unrest. At the household level, the impact of these answer this question. But the case for public safety events is felt through lower real incomes due to loss of nets also needs to be balanced against concerns about crops, reduced employment, lower pay or higher potential displacement of private safety nets. Earlier prices, especially for food. In addition poor households work on the Philippines suggests large displacement face idiosyncratic risks that make them vulnerable to effects both for unemployment insurance and old age illness, spells of unemployment that are not derived pensions. from systemic events, and old age. ,rCUT/VESUMM)vr The impact of the El Nifio drought in 1998 was heavier There is also a role for government in bringing into on the relatively poorer agriculture-based households the economic mainstream, groups that suffer from whereas the financial crisis affected the relatively discrimination or may be left behind by the growth better-off wage earners more severely. Households process. Ethnic minorities, the disabled, domestic were able to smooth consumption to some degree but violence victims, and children come to mind, in the poor were least able to do so. Despite the feared particular. Fortunately, the Comprehensive and increase in school drop-outs, administrative data Integrated Delivery of Social Services (CIDSS) program suggest that enrollment rates continued to increase, of the Department of Social Welfare and Development, both for elementary and secondary schools (from 64.0 which targets these groups, appears to be among the in 1997 to 65.2 percent in 1998), with no perceptible most effective of targeted programs. But there is a change even in the rate of increase compared to need to examine the effectiveness of the multitude of previous years. other targeted programs currently under implementation. Starting with an inventory of In response to shocks such as the recent El Nifio programs, it would be useful to map spending levels, drought, government policy should focus, as a matter by province, to determine effectiveness in targeting of priority, on helping farmers and rural workers poorer provinces. Selecting a few of the more restore their income generation capacity. Public important programs for detailed impact assessment workfare programs can provide an effective safety net should also be considered; the 100 Poorest Families for the able-bodied poor, both during systemic program should be among those selected (see Box 5 in downturns and also in the event of idiosyncratic main report). shocks. Their benefits to the poor are maximized if the projects create assets that the poor value (schools, At the Philippines current level of economic and rural roads, etc.) in addition to transferring income to institutional development, the case for the introduction maintain current consumption. Creating these assets of an unemployment insurance system appears weak as part of reconstruction efforts in the aftermath of Even a non-contributory assistance scheme is not a natural disasters is particularly useful. In addition, priority given the low level of poverty incidence among workfare programs have a built-in automatic households with an unemployed head. The same stabilization function that is helpful during periods of reservations apply for the introduction of a national economic downturns. Finally, because workfare pension scheme. Finally, one of the government's more programs rely on self-selection, they are important "targeted" programs - public housing - administratively less cumbersome and do a better job turned out to be highly regressive, benefiting mainly of reaching the poor if properly designed. The key non-poor households in urban areas. There is a need to here is setting the wage level low enough so that only evaluate if, among the many housing programs the poor will choose to take advantage of the program. currently under implementation, some are better able The design of an effective workfare program in the to reach the poor than the others. Philippines as part of a permanent safety net would need to build upon lessons from the country's past experience with public works and recent efforts in other countries. rXCUT/ESUMARY ... and a need to protect public spending in the social serve the poor, an anti-corruption strategy is an sectors. essential complement to Government's pro-poor and pro-growth stance. This report urges actions designed In addition to helping maintain consumption levels, to reduce opportunities and motivation for corruption government policy should protect public spending in (e.g., policy reforms and deregulation to reduce the social sectors during periods of crisis. The economic rents, campaign finance reform, budget Philippines Government was reasonably successful in reform, and improving meritocracy in the civil service) this regard during the recent crisis. Education spending and make corruption a high-risk, low-return activity increased in real terms between 1997 and 1998 (by 2.6 (by increasing public oversight, enhancing sanctions percent) while health spending remained constant. In against corruption, and supporting judicial reform). addition to protecting overall social spending levels, it is also important to make sure that children from ... and increased civil society participation can help foster poorer households do not drop out of school. Special public accountability dispensation from school fees for the poor, especially for primary and secondary schools, can help but there Civil society participation is about translating the may be a need to provide scholarships to poor families. needs and aspirations of the poor into demands for School feeding programs can also help reduce the public action and creating the means for effective incidence of absenteeism among poor children in monitoring. Along with a vibrant press and a vocal, if general and particularly during crises. narrow, labor union movement, the participation of non-government organizations (NGOs) in public FACILITATING EMPOWERMENT affairs has been one of the greatest developments of the decade in the Philippines. The passage of the Anti- Empowerment of the people requires the fair and Poverty Bill in December 1997 and the subsequent predictable application of the rule of law so that public creation of a National Anti-Poverty Commission officials are held accountable for their actions. But (NAPQ to monitor and coordinate the country's fight creating public institutions that are responsive to the against poverty served to embed the objectives and needs of the poor is ultimately about the ability of the voice of people's empowerment in a national poor themselves to influence policy and hold public institutional structure. There is a clear momentum to institutions accountable. Improving public governance, civil society engagement in influencing policies and decentralization and greater civil society participation helping deliver services and the instruments and can help enhance government's accountability to the institutional frameworks have been put in place to poor. build on this momentum. Improving governance and reducing corruption are It is time to assess if devolution has been pro-poor... important for the poor ... Decentralization is about bringing government closer Improving governance requires a range of measures to the people so as to improve responsiveness to local designed to create a motivated and meritocratic civil needs. Devolution in the Philippines started in 1991, service and to enhance expenditure management but no systematic evaluation has yet been made of how through greater attention to performance, local governments have actually performed in predictability and accountability. Better governance delivering the functions devolved to them or in is also about combating corruption and delivering alleviating poverty. The evidence so far is anectodal justice. Because corruption reduces resources available but mixed. It is now time for stock taking to take place. for poor communities and undermines public One option is to commission an independent confidence in the government's will and capacity to evaluation of the experience with the Local nii EXECI/T/VFSUIMARY Government Code, leading up to recommendations INFORMING PRO-POOR POLICIES for possible legislative or administrative action. Agenda items might include: (i) reassessing the scope of To improve the effectiveness of poverty reduction devolved services against the actual performance of programs, local and national policy makers need local governments; (ii) re-evaluating the information that allow them to monitor poverty levels, appropriateness of the existing arrangements for understand the causes of chronic and transient poverty, administrative, financial, and human resource and measure the impact of poverty reduction policies management at the local government levels, as well as and programs. Making this information available to the effectiveness of existing accountability (to local researchers, and more generally to the public, helps constituencies and oversight agencies), and audit improve the quality of the diagnosis and build consensus mechanisms; and, (iii) reviewing the internal revenue around objectives and policies to attain them. allocation (IRA) formula with a view to improving its equity, incentives for local revenue mobilization, as The information base in the Philippines is strongest in well as its overall fiscal sustainability. monitoring levels and trends in quantitative and subjective measures of poverty. It is weaker in the ability ... and to consider using intergovernmental transfers to to distinguish between chronic and transient poverty equalize regional welfare disparities, and to analyze poverty determinants. Also, few anti- poverty programs in the Philippines have been How devolution affects regional welfare disparities subjected to rigorous impact evaluation. The depends in part on how resources are transferred information base for poverty reduction can be from the national to local government units (LGUs). strengthened through improving the compatibility of Public policies can influence the extent of the FIES and APIS household surveys; increasing the geographic differences in economic and social links between poverty indicators and determinants; development. There is essentially no relationship incorporation of panel designs into data collection; between poverty and IRA allocations in the and expanding and deepening the information on Philippines, suggesting that the main block grant public services and poverty alleviation programs at from the central government to local governments the household level. Equally important, the does not help to reduce regional inequalities. In the government can improve the cost-effectiveness of the context of ongoing discussions on reforming the key anti-poverty programs by launching external, in- system of intergovernmental transfers, it would be depth impact evaluations of select programs and important to propose various formula-based options interventions on a regular basis, beginning with the to make IRAs more responsive to poverty status largest and most established programs. Periodic in- without undermining incentives for revenue depth impact evaluation should become an integral collection. The economic classification of LGUs element in pilot-testing all public anti-poverty programs does not correlate well with poverty incidence; its that are proposed for large-scale implementation. They use for purposes of targeting anti-poverty spending can also form the basis for establishing expenditure should therefore be reconsidered as there is scope priorities, which is particularly useful during times of for better poverty targeting, at least at the provincial fiscal austerity. level. POVERTY IN THE PHILIPPI "Poverty is dehumanizing, breeds discontent, social injustice and conflicts. Now, more than ever, there is an urgency to eradicate poverty. Poverty is not insurmountable; it can - be overcome. - excerpt from the National Anti-Poverty Action Agenda 1. This report is intended as an input into the Phil- ippine Government's poverty eradication strategy The report aims to update our understanding of the nature of poverty and the recent progress in poverty reduction in the Philippines. It examines the extent to which growth in the nineties has translated into poverty reduction and analyzes how well pub- -- licly - provided social services reach the poor and - 4 whether redistributive policies attain their objectives. The report also focuses on the social impact of the recent financial/El NiAo crises and explores policies to reduce vulnerability in the Philippines. 2. The report is presented in two volumes. The main volume starts with a summary of the profile of the poor and trends in poverty It then proposes a framework for attacking poverty built on three pillars: (i) promoting opportunity for poor people through generating broad - based growth and build- ing up the assets of the poor; (ii) enhancing security of poor people through reducing vulnerability and helping the poor manage risks; and, (iii) facilitating empowerment of poor people to ensure account- able institutions. Finally the main report examines the information base for pro-poor policies and of- fers suggestions for future work. The second vol- ume provides the detailed analytical basis for many of the findings presented in the main report. The PHILIPPINES POVERTY ASSESSMENT report aims to identify overall priorities rather than due to the higher poverty lines used in the official es- craft a blueprint for action for each sector. A con- timates. The official poverty lines are 15-68 percent current Bank report on Philippinef: Growvth with higher than the basic needs poverty lines used in this Equity, the Remaining Agenda (World Bank, 2000b) Report (see Annex A in Volume II for methodol- covers some of the same issues but focuses more ogy). The higher official poverty lines reflect the use on the structural reforms needed to sustain growth of a relatively more expensive food bundle, and since with equityin the Philippines. This still leaves a large the allowance for basic non-food expenditure (i.e., agenda for future work, both to fill remaining gaps the non-food poverty line) is tied to the food thresh- in knowledge and to operationalize this report's old itself, this translates into a higher overall poverty findings. threshold.2 PROFILE OF THE POOR 5. Both estimates inturn are substantiallybelowthe estimates of self-rated poverty based on surveys 3. About a quarter of the Philippine population, conducted bythe Social Weather Stations (SWS). Self- or about 18.2 million Filipinos, were poor in 1997 rated poverty has been estimated at around 60 per- - that is, their consumption was below the level cent for the last three years. This is not a measure of required to sustain a minimum standard of living absolute poverty, the poverty threshold varies from (Table 1). The rural poverty incidence was about 37 household to household based on their own per- percent while the urban incidence was about 12 per- ception of their poverty status and what it means to cent. The national poverty gap index is estimated at be non-poor. As a result, the self-rated poverty 6.4 percent which implies that on average, the con- thresholds are considerably higher than the thresh- sumption of the poor was about three-quarters of olds used for estimating income/consumption pov- the poverty line.' erty (for example, for the National Capital Region, the median self-rated poverty threshold was 4. These estimates are substantially lower than offi- PhP10,000 per month in the third quarter of 1997 cial ones: the official estimate of poverty for 1997 is compared to the basic needs and the official 1997 36.8 percent (NSCB, 1999a). The difference is mostly povertylines of PhP4,495 and PhP6,077 per month, respectively). Table 1: Poverty in the Philippines 6. 1997 is the most recent year for which the Fam- Headcount Poverty Squared poverty index gap index gap index ily Income and Expenditure (FIES) data are avail- (incidence) (depth) (severity) able. Projections can be made, however, using the sectoral growth rates available from the national ac- 1997 25.1 6.4 2.3 counts. These indicate that the incidence of poverty Rural 36.9 10.0 3.6 increased to 27.8 percent in 1998,1 with the economic Urban 11.9 2.6 0.9 contraction due to the crisis (a 2.7 percent decline in 1998 (projection)* 27.8 7.6 2.9 per capita GDP in 1998, while subsequent recovery 1999 (projection)* 26.3 6.9 2.5 (a 1.1 percent increase in per capita GDP during 1999) Note: The headcount index measures the share of population with consumption (income) helped bring the povertyincidence down though still levels below thepoverty threshold. This measure gives the prevalence of poverty, but is somewhat higher than its pre-crisis level (Table 1). silent on how poor the poor are. The poverty-gap index is defined as the mean distance below thepovertylineas a proportion of that line (where the non-poorarecounted as having The agricultural sector played an important role in zero povertygaps), andgives a measure of the "depth'ofpoverty. Thesquaredpovertygap both the contraction and the subsequent recovery; index is defined as the mean of the squared proportionate poverty gaps, is sensitive to distribution below the poverty line, andreflectsthe"severity"ofpoverty.Allpovertymea- with value added in the sector declining by 6.8 per- sures are expressed as percentages. Projections based on 1997 FIES data and growth rates for agriculture, industry and services sectors for 1998 and 1999 taken from the cent in 1998 and growing by6.7 percent during 1999. national accounts. The projections assume no change in relative inequalities within sec- Source: Staff estimates based on 1997 FIES data and national accounts data from NSCB. 2 POVERTY IN THE PHILIPPINES Who are the poor dents considered themselves to be poor in 1999 com- pared to 55 percent in urban areas ) but the differ- 7. Poverty in the Philippines is still a largely rural ences are much smaller than for the estimates shown phenomenon despite rapid urbanization in recent in Table 1, where the rural population is three times years. The rural poor account for about 77 percent more likely to be poor than the urban population. of the poor (Table 2). Other poverty measures show These differences may be reflecting a combination the same order of magnitude. Within rural areas, of factors. poverty is largely agriculture-driven. While agricul- ture-dependent households represent only 40 per- 9. First, since self-rated poverty reflects households' cent of the total population, the sector accounts for own perceptions of what it means to be poor, it is over two-thirds of the poor, simply because pov- likelythat urban residents in general have higher as- ertyincidence is higher in agriculture than in any other pirations for themselves than do rural residents be- sector of the economy Agriculture accounts for an cause they are more exposed to "how others live" even higher share of the depth and severity of pov- both in the Philippines and abroad. This is borne erty Within agriculture, the self-employed (poverty out byan analysis of rural-urban povertythresholds: incidence of 42.1 percent) are just as likely to be the urban-rural differential in self-rated poverty poor as wage earners (poverty incidence of 43.8 thresholds is very high and is clearly reflecting more percent): poor self-employed heads of households than rural-urban cost of living differentials. While include primarily lessees, tenants, and small owner- the median urban threshold for NCR (Metro Ma- cultivators and account for over 50 percent of the nila) was twice as high as the median threshold in country's poor population. Luzon, Visayas and Mindanao regions in the SWS surveys (1997, third quarter), the cost of living in the 8. The overwhelmingly rural nature of poverty in NCR region was found to be only 21, 42 and 42 the Philippines holds for the official estimates as well: percent higher than for the three regions respectively 72 percent of the poor were found to live in rural (Balisacan 1999a).4 Some of these higher aspirations households in 1997 (NSCB, 1999a). But estimates of may be fueled by the relatively higher levels of in- self-rated poverty portray a somewhat different pic- equality in urban areas: urban Gini indices of per ture. Poverty is still found to be more prevalent in capita consumption in 1997 were about 30 percent rural than urban areas (70 percent of rural respon- higher than the Ginis in rural areas (0.425 for urban versus 0.352 for rural). Second, the self-rated pov- Table 2: Who are the Poor? ertysurveys mayalso be reflecting well-being in some (Data from 1997) non-income dimensions as well, where the rural-ur- Share among Share in total ban gap may be somewhat smaller. There is a need the poor (%) population (%) Households living in: to examine this more systematically but information Rural areas 77.4 52.5 available for some health indicators, for example, Metro Manila 2.0 14.1 suggests that controlling for incomes, urban residents Central Luzon 5.4 10.3 Bicol 12.8 7.1 are experiencing higher rates of infant and under Eastern Visayas 10.3 5.1 five mortality Similarly, substandard housing maybe ARMM 6.0 3.1 more of an urban rather than a rural problem. Households whose head is., Employed in Agriculture 67.8Household characteristics Self-employed 62.6 46.7Hoshlcar teiis Elementary graduate or less 75.6 51.1 ae 30-50 62.7 10. Household welfare varies systematically with Age 60+ 10.5 15.5 certain demographics but the educational attainment Source: Based on data from 1997 FIES; Balisacan (1999a). of the household head is the single most important contributor to the observed variation in household 3 PHILIPPINES POVERTY ASSESSMENT welfare. Poverty incidence is lower than the national erty headcount ranges from 3.5 percent in Metro average for three categories of households that are Manila to 87.5 percent in Sulu province in the commonly targeted through public programs: ARMM. Among the regions, Bicol hosts the largest households headed by females, the elderly and the number of poor although povertyincidence is some- unemployed. Compared to a national poverty inci- what higher in Eastern Visayas and the ARMM. dence of 25 percent, the headcount index is only 12.1 percent for households where the head is not 13, The regional differences in poverty rates are employed; it is 17 percent for female headed house- mirrored in equally profound differences in other holds and 15.6 percent for households headed by social indicators. Functional literacy ranges from a the eldcrly (agcd 60 +). This reflects the importance low of 48 percent in the province of Basilan in of private transfers for these categories of house- Western Mindanao, to a high of almost 93 percent holds. Regression analysis of determinants of trans- in Cavite in Southern Luzon. Enrollment rates in fer using 1997 data finds that having an unemployed, primary and secondary school range from 43 per- elderly or female head of household has a large and cent in the province of Sulu in ARMM to 99 per- significant positive impact on transfers received by cent in the Mountain Province of the Cordillera the household, almost all of which are from private Administrative Region. And, life expectancy ranges sources. However, this should not be construed to from a low of 52 years in the province of Tawi- imply that poverty is not an issue for women and Tawi in ARMM to a high of 71 years in the prov- the elderlyin general, because both these groups often ince of Pampanga in Central Luzon (Annex B, Vol- belong to poor households (without heading them) ume II). Moreover, functional literacy, school en- and also because intra-household allocations could rollment rates, and life expectancy are all significantly be biased against them even within non-poor house- correlated with poverty poorer provinces in the holds. Philippines also have significantly lower educational attainment and worse health outcomes. This points 11. Poverty appears positively correlated with to the instrumental value of improving social indi- household size, such that it is highest among house- cators in combating income/consumption poverty holds with seven or more members, while families but an improvement in these indicators, especiallyin with five or more members account for over three- regions where they have lagged behind, is impor- fourths of total poverty But this result is driven by tant in and of itself. the use of per capita consumption as the welfare measure, which is increasingly questioned in the lit- What does it mean to be poor erature because it does not adjust for household size and composition. Sensitivity analysis using a plau- 14. Poverty is a way of life. It affects what people sible range of parameters (for adult equivalence and do with their time and money, how they live, their scale economies) shows that the link between house- command over resources, their status in the com- hold size and poverty is tenuous (Chapter 1, Vol- munity their relations with the government and their ume II). sense of self-worth (Table 3). Typicallythe poor save less of their income and spend more on food. In Regional dimension the Philippines, theyalso rely more on private trans- fers. The poor would also be expected to have lim- 12. There are pronounced regional differences in ited access to credit and live in low-quality housing. poverty rates reflecting only in part differential lev- Survey data (APIS 98) from the Philippines appear els of urbanization and reliance on agriculture for to suggest that the poor are only marginally (though income. Location appears to be an important de- statistically significantly) less likely to obtain credit terminant of poverty even after controlling for sec- than the average population. Not surprisingly, hous- tor of employment and education level. The pov- ing is a problem for the poor as 11 percent of the 4 POVERTY IN THE PHILIPPINES population in the bottom three expenditure deciles ent segments of the Filipino population are dwarfed are either squatters or live in poor quality housing. bythe large differences between the Philippines and What is surprising is the extent to which housing is a Vietnam, for example, where almost 60 percent of problem for the population as a whole: the preva- married women in rural areas use modem contra- lence of illegally occupied housing is highest for those ceptives. There are clearly deep cultural and religious in the middle of the distribution and remains high forces at work, which overwhelm income effects. even among the wealthiest (2.5 percent for the 9"I decile). It is quite likely that housing, especiallyinse- curity of tenure, is a problem particularly in urban arasanmrespciicll inMnia 16. Consumption poverty declined significantly since areas and more specificallym Manila. the mid-1980s up to the onset of the economic cri- have come don sis in late 1997. The incidence of absolute povertyis 15 .etltyae nh Piipnsestimated to have declined from about 41 percent but remain high by regional standards - 3.7 births e . . of the Filipino population m 1985 to 25 percent in per woman in 1995 down from 6.4 in 1970.' Within i the East Asia region, comparable rates are 3.4 i 1997 (Table 4). Moreover, the decline in povertywas . . . .not confined to those in the neighborhood of the Malaysia, 2.7 in Indonesia and 1.8 in Thailand. An poverty line, but was shared more widely among important correlate of high fertility rates is the low . poverty line. Thi iepparen use f mder cotraeptie mthos. lthugh those below the poverty line. This is apparent from use omen oreptive me.s altough the evolution of the depth and severity of poverty mame woen f rprouctie aes aveconid- which declined even more rapidly than the propor- erable awareness of contraceptive methods (90 per- .on of th e poor. cent report awareness, APIS 98) and almost all who are aware know where to avail of services (97 per- The Philippines in regional perspective cent) contraceptive use is low There is negligible dif- ference between rural and urban areas; the poor are 17. While this is impressive, certainlybythe country's somewhat less likely to use contraception but more. . w own track record, rates of poverty reduction in the educated women are significantly more likely to do P .iipin have been slower du.g this period than so.6 Differences in the pattern of use among differ- in several other countries in the region and in the region as a whole. The question is whether slower poverty reduction in the Philippines is on account of Table 3: Pattern of Spending and Behavior for the Poor slower growth or due to growth being less pro-poor. (Data from 1997 and 1998) Growth was certainly slower in the Philippines, The Total whether measured in per capita private consumption Poor Population terms from national accounts or per capita house- Save (% of income) -5.6 18.9 hold consumption terms from the household sur- Rely on transfers (% of pre-transfer income)" 43.0 12.9 Spend on food (% of consumption)" 64.4 44.7 veys (Figure 1). But how the Philippines fared as far Live in sub-standard housing " 11.0 8.8 as the responsiveness of its growth to poverty (its Obtain credit 4' 22.5 24.3 Belong to cooperatives 7.7 12.9 elasticity) depends on whether the elasticities are cal- Use modern contraceptives ' culated with respect to GDP (private consumption) Urban 21.4 29.5 Rural 19.3 27.1 or survey-based consumption growth rates. Note: 1/ The poor are ranked by income. When ranked by consumption the savings rate is 11.8 percent. 2/ Transfer includes public and private transfers from both domestic 18. Based on national accounts data, the Philippines sources and abroad but not pensions. The poor are defined as the bottom 30 percent of the population andrankedbypre-transferincome 3/ The figure for thepooris thatforthebottom appears to have had the most pro-poor growth in 30 percent otpopulation. 4/As share of population in families with entrepreneurial activi- the region because relatively small rates of GDP per ties. 5/Share of married persons using modem contraceptive methods. Poor defined as bottom 20percent of the populationandtheaverage forthe totalpopulation is assumed to capita (and per capita consumption) growth over the be represented by the middle quintile. . Source: Basedon 1997FIES; 1998APIS; i998 oHS; Baisacan (1999a); Alba (2000). period (1.2 percent per annum) appear to be generat- 5 PHILIPPINES POVERTY ASSESSMENT Table 4: Average Living Standards, Poverty and rapidly than the enterprise or government sectors Inequality, 1985-1997 during this period, household income (consumption) 1985 1988 1991 1994 1997 would be expected to grow more rapidly than GDP, Mean living standard 17,197 18,926 20,049 19,600 23,694 but it is difficult to find evidence for this in the na- (per person per year at 1997 prices) (9.9) (5.5) (-2.4) (14.3) tional accounts. It is more likelythat measurement er- Poverty ror is accounting for this discrepancy In that case, it Incidence (percent) 40.9 34.4 34.3 32.1 25.0 (-11.2) (-0.1) (-4.5) (-15.6) maybe more "correct" to relate trends in povertyto Depth (percent) 13.2 10.1 10.6 8.7 6.4 changes in survey-based mean consumption because (-12.8) (2.5) (-9.9) (14.6) the povertyrates are necessarilyderived fromthe sur- Severity (percent) 5.8 4.2 4.5 3.4 2.3 vey data. In either case, it is clear that growth is an (-12.1) (3.3) (-11.3) (-12.8) inequality undeniable part of the story; but how a given growth Gini 0.412 0.400 0.428 0.397 0.427 is distributed also matters greatly for the poor. Theil T 0.330 0.298 0.363 0.302 0.376 Theil L 0.282 0.264 0.306 0.260 0.303 Notes Living standards are definedas household consumption expenditures adjusted for Growth, inequality and trickle down? family size and provincial cost-of-living differences. Poverty estimates are based on spa- tially fixed poverty norm and on per capita consumption expenditures adjusted for provincial cost-ofiving differences (seeBalisacan, 1999afordetails) Figures in parenthesesaret- 19. Figure 2 summianzes the main findings from an ratios for reference year against previous penod. The t-test for the significance ofpoverty analysis of trends in growth, inequality and poverty difference is based on the methodology proposedby Kakwani (1993). Source. Batisacan (2000). reduction in the Philippines at the aggregate, and re- gional and sectoral levels for the 1985-97 period. The main findings are the following: (i) when growth ing substantial povertyreduction. But if elasticities are occurred, it translated into poverty reduction; (ii) calculated using survey-based consumption growth there was no trend in inequality; (iii) there were sig- rates (3.2 percent per annum over the period), the nificant regional disparities in growth and poverty Philippines ends up with the least pro-poor growth reduction; and, (iv) the pace of poverty reduction of all. Which is correct? It is possible that the discrep- was much slower in the agriculture sector but the ancy between the GDP per capita and the household shift in the sectoral composition of employment - per capita consumption growth rates is grounded in while limited - was enough to keep the sectoral economic realities: if the household sector grew more Figure 1: Pro-Poor Growth in East Asia Mid-1980s to the Mid-1990s 10- Growth (Survey) Growth (NA) 8 7Growth Elasticity (Survey) Growth Elasticity (NA) 7.6 6 5.9 58 .6 5.9 - 34.7 4- a) -02 2-09 -0.7 1-0.8 1.52 -2.4 -45. -6 --5.4 China Thailand indonesia Philippines Malaysia Notes. The empirical growih easticiy is the ratio of percentage change in the headcount index to the percentage change in mean consumption from the survey (Survey) and to the percentage change in per capitapnvrate consumpfion from the NationalAccounts (NA. Source: Based on staff estimates and those in World Bank (2000s) 6 POVERTY IN THE PHILIPPINES \7 composition of poverty constant. These points are, and 1994-97,' for instance, accounted for more than in turn, taken up below. 85 percent of the total decline during 1985-97. Sini- larly the decline in the depth and severityrof poverty 20. Overall poverty reduction has been significant during the two sub-periods accounted for a little but subject to much variation during 1985-1997. under 80 percent of the total decline. Most of the decline in poverty was confined to the first and last three years of this period (Figure 2). 21. Underlying the uneven performance in poverty The decline in the headcount index during 1985-1988 reduction was the uneven growth performance Figure 2: Trends in Poverty, at a Glance Rorty decined when mean consumption grew while inequality ...but there was substantial variation in regional growth and.. fluctuated with no trend.. caAAgon 2 0. 'Mean consumption (survey) -R .2 2- 140 - 5 Mean consumption (NA using CP) CAR' . Metro Manla* 3. A Poverty nri e Contra: Mindanao 0 120- * Gi Southern Mindanao' .9 Nrtherin d Mnanao 44 Weste'nMindanao 2.3 100 Eastern Visayas 1.7 0 Central Visaa 31 estern Visayas 20 80 - Bco 32 Sciim nrz 22 CnalLuzon- 60 4 Cagavan 10 1985 1988 1991 1994 1997 locos a -3 -2 -1 0 1 2 3 4 5 6 ...poverty trena'r The sectoral composition ofpoverty remained stable.. CaRAGA Region 2 3 ARMM 3.3 100% -63 Melo Manila S central Mindaao i1 80% s M ao 80 .14 industry 1 Soutern Mindanao* -6.21in isr Northern Mindano -0. Western Mindanao' -3. 60% Eastemn V"sayas 7 Cent Visayas' - 0 40% agriculture Western Visayas - Bhco ' Souien Luzon' - 20% Cental Luzon - 1. 7 Cagayn 9 Ilaos 1 0% - - -12 -10 -8 -6 -4 -2 0 2 4 6 1985 1997 ...despite the differential rates ofpoverty reduction across the reflecting the shift of the population out ofagriculture, sectors 100 110 90 80 100 agriculture 7 0 90 60 8 industry a-0 ~40 S 70- 30 60 services 20 10 i A ruAure Mindusin; EServ.s 50 0 1985 1988 1991 1994 1997 41 Ol co Ca 1` M Co Source: Staff computations. 7 PHILIPPINES POVERTY ASSESSMENT (Figure 2). When the economy grew, poverty man Development Index (HDI) for the Philippines, declined. But the quality of growth for the poor which rose from 0.683 in 1985, to 0.711 in 1990, to also varied during this period with no apparent trend. 0.740 in 1997 (UNDP, 1999). This is all the more Some simple calculations are illustrative of both the creditable as it occurred during a period of relative importance of sustained growth and the sustained stagnation in per capita GDP. quality of growth. Thus, for instance, if the highest growth rate in per capita consumption of 6.3 per- Rural-urban and regional disparities cent during 1994-97 was maintained over the whole period, the incidence of poverty would have de- 24. While povertyin the Philippines is a largely rural clined to 12.9 percent (compared with the actual value phenomenon, tracking progress in rural and urban of 25.1 percent). But, if the highest empirical elastic- poverty reduction is not straightforward owing to ity of poverty incidence with respect to growth (of the reclassification of some rural areas into urban -1.58 during 1985-88) were maintained over the en- areas in 1990. Despite the problem of comparability tire period, then the existing growth rates would have across the two decades, however, certain patterns are implied a decline in the headcount index to 16.5 per- clear. There are large urban-rural disparities. Average cent by 1997. living standards are significantlyhigher (about twice) and poverty levels are significantly lower (about one-third) 22. There has been some concern that inequalities in urban areas. The lower urban poverty levels exist have been widening in the Philippines in recent years. despite the higher levels of urban inequality (Table 6). Data on consumption and income distribution do There are indications of widening urban-rural dispari- not validate this concern. While the inequality mea- ties in poverty rates between 1994 and 1997 although it sures for income are consistently higher than those is not clear whether this represents a trend. for consumption, which is unsurprising, the evolu- tion of income and consumption inequality over time 25. Regional disparities in living standards and pov- was remarkably similar. Irrespective of the measure erty have been an important policy concern in the used, inequality seems to have fluctuated without any Philippines. While there has been some reduction in significant trend (Figure 2). In particular, the rise in provincial disparities in poverty levels between 1988 inequality during the most recent period, 1994-97, and 1997 and considerable re-ranking of provinces should not be confused with a trend increase. But by their poverty levels (the poorest 10 provinces in inequality in the Philippines is relatively high, espe- 1988 and 1997 had only four provinces that were ciallyfor income (Gini coefficient of 0.51 in the mid- common, and the poorest 15 had only seven com- 1980s) - at par with levels in Thailand and Malay- mon ones), there is no strong evidence for conver- sia, and significantly above levels in Indonesia, Ko- gence of poverty levels, and clearly a number of rea and China. 2. Table 5: Evolution of Select Social Indicators 23. Has human and social development kept pace with the progress in reducing income and consump- Social indicator 1987 1998 tion poverty? The evidence suggests that the Philip- Life expectancy at birth, female (years) 65.9 70.5 Life expectancy at birth, male (years) 62.2 66.8 pines has achieved steady improvement in a number Illiteracy rate, adult total (% of people 15+) 8.4 5.2 of social indicators over the 1980s and 1990s (Table Illiteracy rate, adult female (% of females 15+) 9.1 5.4 Immunization, measles (% of children under 12 mos.) 68.0 83.0 5). Thus, life expectancyhas improved, and illiteracy Low-birth weight babies (% of births) 18.0* 8.7 has declined for both males and females. Similarly Malnutrition prevalence (% of children under 5) 32.9 29.6 Mortality rate, infant (per 1,000 live births) 45.0 32.2 immunization and access to safe drinking water in Safe water, rural (% of rural population with access) 67.7* 81.0 both rural and urban areas has improved, while child Safe water, urban (% of urban population with access) 80.5* 91.0 malnutrition and infant mortalityrates have declined. Note: 'refers to 1988, " 1997, *" 1993, and*"" 1996 respectively. These improvements are also reflected in the Hu- Source: WorldBank (2000). 8 POVERTY IN THE PHILIPPINES provinces failed to participate in the significant pov- these five regions accounted for 25 percent of the erty reduction observed at the national level. total population and 30 percent of the total number of poor in 1997. The lack of poverty reduction in 26. At the regional level, there is a large variation in these regions points to a major failure of the growth both growth in mean consumption and rates of pov- process to deliver widelyshared benefits. It also points erty reduction across the 16 regions (Figure 2). Five to the need for a regional focus to the poverty allevia- regions have clearly lagged behind in terms of pov- tion strategywhich accords high priorityto the devel- erty reduction. These are ARMM, CARAGA Region, opment of these poor and lagging regions. Eastern Visayas, Cntral Mindanao, and Cntral Luzon. In the case of four of them, this seems to be driven Sectoral composition of poverty by the lack of significant growth in mean consump- tion. For Eastern Visayas, there was growth (though 27. Poverty declined significantly in all sectors, still low in comparison with most other regions), but though more in some sectors than others. The sec- the poor failed to share adequately in the benefits of tor where it declined the most (measured by per- growth due to an increase in inequalities. Together, centage change between 1985 and 1997) was finance, insurance, real estate and business services; this is true for all poverty measures. The sector with the least Table 6: Living Standard, Poverty, and Inequality by decline was agriculture, fishing and forestry for the Locality, 1985-1997 headcount index, and mining and quarrying for 1985 1988 1991 1994 1997 measures of the depth and severity of poverty Urban Mean living standard 24,099 26,283 26,213 25,093 31,657 (per person per year 28. Despite the differential rates of poverty reduc- at 1997 prices) (6.2) (-3.2) (11.5) tion, the sectoral composition of the poor has re- Dimension of poverty mained remarkably stable since the mid- 1980s (Fig- Incidence (percent) 21.7 16.0 20.1 18.6 11.9 (-8.1) (-2.9) (14.8) ure 2). Agriculture, fishing and forestry accounted Depth (percent) 5.9 3.8 5.7 4.4 2.6 for two-thirds of the poor in 1985; it still accounted Severity (percent) 2.3 1.4 2.3 (.5 0.9 for two-thirds of the poor in 1997. This is because (-8.2) (-8.7) (11.1) the occupational distribution of the population Inequality shifted in favor of sectors where poverty has rela- nhil T0.327 0.286 0.355 0.2 0.379 tivelydeclined more rapidly, thus leaving the sectoral Theil L 0.280 0.253 0.300 0.255 0.303 shares in aggregate poverty relatively stable. For in- Rural stance, while the incidence of poverty declined least Mean living standard 12,838 14,414 13,864 14,154 16,475 rapidlyi the agricultural, fishing and forestry sec- (per person per year at 1997 prices) (10.2) (1.8) (14.4) tor, the population share of this sector also declined Dimension of poverty from 47 percent in 1985 to 40 percent in 1997. Incidence (percent) 53.1 45.7 48.6 45.4 36.9 (-9.4) (-4.0) (-11.7) Depth (percent) 17.8 14.0 15.6 13.0 9.8 29. The large share of the agricultural sector in total (-11.1) (8.0) ir) poverty is the joint product of the high levels of Severity (percent) 8.0 5.9 6.8 5.2 3.6 (40.7) 8.8) s-10.6) poverty in this sector and the high (though declin- Inequality ing) share of population dependent on this sector Gini 0.352 0.350 0.359 0.336 0.352 for its livelihood. This has two policy implications Theil T 0.226 0.217 0.238 0.205 0.230 Theil L 0.204 0.200 0.211 0.183 0.202 for future poverty reduction strategies. First, in the short-to medium-term, there is no getting away from Notes: Poverty and inequality estimates are based on per capita consumption expendi- thetto ariutral dee i signifrcn tures adjusted forprovincial cost-of-living differences. The derivation of provincialpov- the task of agricultural development if significant erty lines is described in Annex A, Volume I. Figures in parentheses are t-ratios for inroads are to be made into the problem of pov- differences between poverty measures for the reference yearand the previous year. Source: alisacan (assa). ertyreduction in the Philippines. And the reason is as 9 PHILIPPINES POVERTY ASSESSMENT simple as the fact that 67-75 percent of the poverty tional determinants of povertyand to evaluate the impact problem rests in the agricultural sector. Second, pov- of specific interventions. erty reduction over the medium-to long-term will require a continued structural shift of employment 31. There is considerable overlap between the and output from agriculture to the more produc- framework proposed above and the one discussed tive non-agricultural sectors of the economy in the National Anti-Poverty Action Agenda. The (Figure 3). Agenda discusses four dimensions of poverty so- cial, economic, environmental and political referring A FRAMEWORK FOR ATTACKING respectivelyto access to quality basic services; asset POVERTY reform and access to economic opportunities; sus- tainable development of productive resources and 30. This section proposes a franework for attacking democratizing the decision making and management povertybuiltonthreepillarswhicharefamiliartothePhil- process. It then proposes a four-pronged strategy ippines: opportunity securityand empowerment. Oppor- to combat poverty, comprising: (i) equitable and sus- tunity refers to improving the access of the poor to hu- tamed economic growth; (ii) focused targeting; (iii) man and physical assets and increasing the retum on these effective delivery of public goods and basic social assets both in absolute terms and relative to the rest of services; and, (iv) people empowerment. society It encompasses the range of policies that promote broad-based growth and equitable investments in human Growth with equity: creating opportunities capital Securityrefers to protecting the assets of the poor for the poor and reducing the volatilityin their retums; it involves mini- mizing the consequences of short-run negative shocks for 32. Providing opportunities for the poor is prima- thepoorest,suchashealthshocks,unemploymnt,transi- rily about creating the conditions for economic tional costs of economic reforms, macro-economic cri- growth and enhancing the ability of the poor to ses and natural disasters. Protecting the poor requires poli- participate in that growth by building up their assets cies that serve to reduce the probability of shocks, miti- through investments in their human capital and their gate their impact and improve the ability of the poor to physical environment. As discussed earlier, the Phil- cope with them. Empowerment is about making public ippines performance in poverty reduction has been institutions work for the poor. This requires actions to uneven primarily because economic growth has fluc- improve delivery of services, especially by giving poor tuated considerably since 1985. Maintaining political people the voice to shape policies and influence program and macro-economic stability remains the key to design and implementation. Finally an effective program fostering confidence in the Philippine economy - of action to attack poverty requires good information to for domestic and foreign investors alike. Equally im- monitor developments, to analyze keypolicy and institu- portant is enhancing predictabilitythrough transpar- ent and accountable institutions. Beyond creating the Figure 3: Output Per Worker, 18 conditions for economic growth, there remains scope for influencing the pattern of that growth 700 athrough policies and programs that have potentially 60o0 600 favorable distributional implications. 0 40.0 300 33. The Medium-Term Philippine Development 20.0 Plan 1999-2004 (MTPDP) has proposed certain 10 * growth and poverty reduction targets. In the high Agriculture Industry Services (low) case scenario, GDP growth is expected to Laborproductivtyis/owestIn theagriculure sector average 5.3 (4.7) percent over the plan period, re- Sou/ce: Staftcaculatoas. sulting in a 20 percent fall in poverty incidence by 10 POVERTY IN THE PHILIPPINES the government's measure - from 32.1 percent in 36. The third set of projections uses the Plan (high 1997 to 25.6 percent in 2004. It is useful to test the case) projections of sectoral growth instead of his- sensitivity of expected poverty reduction to various torical growth rates. These growth rates are compa- parameters. The discussion below reports on pro- rable with the survey growth rates for total indus- jected poverty rates based on four scenarios using trial and services sector incomes, but are significantly different growth rates and various assumptions about higher for the agricultural sector (Table 7). This trans- the distribution of that growth. The projections are lates into even higher agricultural growth in per capita shown for three different assumptions for the distri- terms because of Plan assumptions on population bution of growth within the sector: distribution neu- growth and sectoral employment/population shifts. tral growth; worsening inequality (i.e., 10 percent in- The Plan assumes a lower overall rate of population crease in the Gini coefficient)9 and improving inequal- growth (2.1 percent against the historical 2.5 percent ity (i.e., 10 percent reduction in the Gini coefficient). during 1988-97), and also a faster shift out of agricul- Poverty rates are projected for 2004 and 2010. All ture (implying sectoral population growth rates of projections are based on sectoral growth rates and 0.6, 3.7 and 2.8 percent in agriculture, industry and take into account projected population shifts across services, respectively). The fouth set of projections sectors for 2004 and 2010 (Table 7). also uses the Plan (high) growth rates but applies the (survey-based) historical sectoral poverty elasticities. 34. The first set of projections uses historical growth rates from the national accounts for each sector for 37. Several points emerge from these projections the 1988-97 period. The growth of household con- (Table 7). First, growth is critical for poverty reduc- sumption in each sector is assumed to equal the tion. Second, agriculture growth in particular is cru- growth of value-added in that sector; however, per cial for making a significant dent into poverty Third, capita consumption growth rates are worked out a structural shift of population out of agriculture taking into account population shifts across sectors will accelerate progress, as growth prospects and over the same period. In other words, the rates of levels of productivity are higher in other sectors. population growth are different across sectors and Fourth, the distribution of a given growth matters are determined by the change in population shares hugely for the poor; this goes beyond the sectoral of sectors over the period 1988-97. distribution of growth and encompasses the distri- bution of growth within a given sector. 35. The fecond set of projections is based on histori- cal growth of per capita consumption as calculated 38. The outlook for poverty reduction would be directly from household survey data. As discussed bleak in the Philippines if in the next ten years per earlier, there is a large discrepancy between GDP capita consumption increases at no more than the per capita (similarly for private consumption per historical national accounts growth rates of the pre- capita) growth over this period as captured in the vious decade (scenario 1). Under this scenario, there national accounts and household consumption per is very limited growth and, assuming no change in capita as recorded in the survey data. The survey the distribution, there is limited reduction in national growth rates for all sectors are significantly higher poverty Even in 2010, 21.4 percent of the popula- than the NA growth rates (Table 7). The reason for tion will remain poor, down from 25 percent in this discrepancy is not entirely clear: it may be re- 1997. This reflects modest improvements in agri- flecting higher growth in the household sector than culture and services, and a worsening of povertyin in the economy as a whole or it may be due to data the industrial sector, and some movement out of measurement problems. agriculture (the 0.2 percent annual per capita growth in the industrial sector is not enough to make up for the decline during 1998-99). 17 PHILIPPINES POVERTY ASSESSMENT Table 7: Poverty Projections, 2004/2010 Assumptions/Actuals GDP/National Agriculture Industry Services Historical, NA (1988-97) Total 3.4 1.9 3.6 4.0 Per capita* 0.9 0.7 0.2 0.5 Historical, Survey (1988-97) Total 5.0 2.8 5.7 5.9 Per capita* 2.5 1.6 2.3 2.4 Plan (high) Total 5.3 3.4 5.7 5.7 Per capita* 3.2 2.8 2.0 2.9 Poverty Incidence, 1997 25.0 42.3 18.6 11.7 Inequality (Gini), 1997 42.7 33.7 41.1 41.5 Scenarios 2004 2010 2004 2010 2004 2010 2004 2010 1. Historical growth (NA) 23.8 21.4 41.2 38.1 22.2 21.7 10.7 9.8 Gini +10% 28.7 26.5 44.1 41.2 27.8 27.2 17.0 16.1 Gini - 10% 18.4 15.8 37.8 34.1 14.9 14.2 4.4 3.8 2. Historical growth (survey) 20.6 14.8 38.2 31.2 16.9 11.2 7.9 4.9 Gini +10% 25.6 20.1 41.3 35.4 23.7 17.5 14.0 10.5 Gini - 10% 15.3 9.8 34.2 26.0 9.7 4.4 2.4 0.8 3. Plan growth (high) 18.8 11.6 33.8 22.2 17.3 12.0 7.4 4.0 Gini +10% 24.0 17.0 37.3 26.8 24.3 18.8 13.4 9.5 Gini - 10% 13.2 6.6 28.7 16.0 10.2 5.2 2.0 0.6 4. Plan growth with historical elasticity 20.7 16.2 36.5 29.9 17.9 15.1 9.2 7.1 Note: * Per capita growth rates incorporate differential population growth as implied by the shift of population across sectors. The growth rate of GDP per capita is higher than the sectoral per capita income growth rates because of the shift of population from low-income agriculture to relatively high-income industry and services. NA denotes National Accounts. Source: Staff projections based on 1997FIES data; Medium-Term Philippine Development Plan, 1999-2004. 39. The Philippines will have to grow more rapidly tural poverty (a near halving of poverty incidence if povertyis to be reduced perceptibly For instance, by 2010 to 22 percent, starting from 42 percent in if it grew at the historical rates implied by the sur- 1997), and hence in national poverty In the absence veys (scenario 2), there would be a far greater re- of anyinter-sectoral population shifts, national pov- duction in the incidence of national poverty - to erty incidence in 2010 would have been 15.5 per- 20.6 percent by 2004 and 14.8 percent by 2010 un- cent rather than the projected 11.6 percent, but 70 derthe distribution-neutral growth scenario. The poor percent of povertyreduction between 1997 and 2010 would fare even better with the more robust growth still comes from intra-sectoral growth rather than assumptions of the Plan. National poverty incidence changes in sectoral composition. More importantly, in this scenario (scenario 3) falls to 18.8 percent by without the shift in population, even the 3.4 percent 2004 and 11.6 percent by 2010 assuming a neutral growth in agriculture would have implied a much distribution of the gains from growth in each sector. slower growth in living standards in per capita terms, leading to unacceptably high levels of poverty in this 40. The projections for scenarios 2 and 3 highlight sector (34 percent in 2010 under the distribution- the importance of both agricultural growth and a neutral growth scenario). While there maybe room structural shift out of agriculture for poverty reduc- for attaining higher rates of growth in agriculture, tion. The main difference between these scenarios is these projections vividly show the need for acceler- that the Plan scenario assumes both faster agricul- ating structural change in the Philippine economyso tural growth (3.4 percent planned against the histori- that the rural population can shift more rapidly out cal 2.8) and faster movement out of agriculture (0.6 of farming. percent planned agricultural population growth against the historical 1.2 percent). The joint effect of 41. The projection also clearly demonstrates that these two factors is a much faster decline in agricul- modest changes in the distribution of the benefits 12 POVERTY IN THE PHILIPPINES of growth can make a huge difference to the pov- experience significant hardship during periods of erty impact. For instance, a 10 percent deterioration economic downturn and high inflation. Increased in- in inequalities (increase in Ginis) can virtually wipe tegration in the national economy and with global out the gains in poverty reduction by 2004 and cut markets has strengthened transmission mechanisms bynearlyhalf the gains by2010, under both the Plan - for good and for bad - underscoring the im- and the historical survey growth scenarios. By the portance of prudent management of the economy same token, small improvements in the distribution on the one hand and preparedness for systemic shocks of growth can induce a much larger poverty reduc- on the other. The next section on securityexpands on tion; for instance, a 10 percent decline in the Ginis this topic. virtuallyeliminates povertyin the non-agricultural sec- tors in the Plan scenario. It is interesting to note that 44. Beyond maintaining economic and political sta- changes in inequalitywithin the agriculture sector have bility, what are the ingredients of poverty-reducing a smaller impact on poverty incidence: for agricul- growth in the Philippines? What kinds of policies ture, a 10 percent deterioration of the Gini at his- are likely to yield distributional changes in favor of torical (survey) growth rates yields a headcount ratio the poor (i.e., result in the 10 percent improvement in 2010 of 35.4 percent compared to 26 percent, in the Gini coefficient simulated above) and there- with a 10 percent improvement in the Gini, whereas fore imply a much greater poverty reduction im- the favorable and unfavorable distribution scenarios pact for a given growth rate. Prospects for the poor yield headcount ratios of 4.4 versus 17.5 percent for in the Philippines will depend on policies that im- industry and 0.8 versus 10.5 percent for services. This prove productivityin agriculture; accelerate the move- is primarily on account of higher rates of initial in- ment out of agriculture, including through helping equality in industry and services (Gini coefficient of develop the non-farm rural economy; reduce high around 41) than in agriculture (33.7); therefore, both food prices; and increase the assets of the poor, the absolute changes in inequality are larger and the through land reform and investing in their human resulting high levels of inequality dampen the impact capital. Regional policies that focus on poor areas of a given growth on poverty that may be handicapped by a confluence of low human and physical assets can also help. 42. The final set of projections, which uses historical elasticities and Plan growth targets, also underscores the 45. Growth in Rural Incomes. Because the bulk importance of distributional effects. The results are less of the poor depend on agriculture for their liveli- favorable than under the Plan scenario assuming distri- hood, with little difference in the incidence of pov- bution neutrality Poverty incidence declines to 16.2 erty between those who are self-employed and those percent by 2010 rather than 11.6 percent in the distri- who are wage-earners, (Chapter 1, Volume II) higher bution neutral scenario (scenario 3). At the level of the productivity in agriculture is key to improving in- sectors, distribution-neutral growth (scenario 3) pro- comes of the poor. A recent World Bank report duces larger falls in poverty than achieved with histori- suggested a number of measures to enhance growth cal elasticities, suggesting that there is considerable room in the rural sector."' Particularly important are poli- for enhancing the poverty impact of growth through cies and investments to improve infrastructure and better distribution of growth in all sectors. support services. Expanding irrigation will help boost grain yields which have largely stagnated since the Policies forpro-poor growth completion of the Green Revolution in the early 1980s. Strengthening the research and extension sys- 43. The importance of macro-economic stability tem is important for enhancing agricultural produc- and good governance for sustaining growth has been tivity and facilitating on-farm diversification. Im- recognized internationally and in the Philippines. In proved rural infrastructure, in particular rural roads, addition, there is mounting evidence that the poor has many benefits as it reduces transport costs, in- 13 PHILIPPINES POVERTY ASSESSMENT creases accessibility of markets and public services, to the structural transformation of the economy In and enhances opportunities for off-farm employ- the absence of protection, domestic producers of ment. rice (and corn and sugar) are more likely to shift out of the production of these commodities into other 46. Rice Policy. Quantitative restrictions on the more competitive products or off-farm, thereby cn- import of rice and other foodstuffs result in do- hancing their opportunities for growing out of pov- mestic prices that are significantly higher than world erty In addition, trade protection for foodstuffs ap- market equivalents: despite the substantial devalua- pears to have fueled an increase in the value of land, tion of the Peso, the nominal protection rate for which has elevated the fiscal cost of land reform as rice remained 34 percent in 1998, down from nearly envisaged under the Comprehensive Agrarian Reform 80 percent in the three years leading up to the finan- Program (CARP) with adverse consequences for the cialcrisis. ability of the poor to gain access to land (see below). 47. What are the distributional implications of this 50. Changing trade policies with respect to food- protection? Standard economic theory tells us that stuffs will therefore be an important anti-poverty trade protection favors the producers at the expense measure. But there will be short-run costs that need of the consumers. On the consumption side, it is clear to be managed. Phasing in the liberalization of rice that rice is an important component of poor people's imports, in line with the country's commitment to consumption; for instance, it accounts for about 22 the World Trade Organization and, more recently percent of total consumption of the poorest two under the Grain Sector Development Program sup- deciles (Figure 4). Rice budget shares decline slowly ported by the Asian Development Bank (ADB) for higher deciles, and are about 14 percent even for seems appropriate (see Box 1), but there is a need to the sixth decile. This has two implications: the poor prepare the farmers who will be affected by this derive prponotdylarger consumption benefits from move. On the consumption side, there is a case for a lower price of rice but a large share of total con- a targeted program that subsidizes low quality rice sumption benefits would still accrue to the non-poor to be sold in stores placed in poor communities, on account of their large share in total rice consump- especially during the transition period when rice tion. prices will remain high. Even after liberalization, sub- sidies for rice primarily consumed by the poor may 48. The distributive impact of protection critically be a cost-effective way of reaching poor households depends on who the net consumers of rice are, and as leakages to the non-poor and program costs where they are located in the overall income distri- would be contained through self-targeting.It should bution. Estimates based on the 1997 FIES data sug- be possible to manage food security concerns gest that the poor in the Philippines are net consum- through a flexible import policy but some limited ers of rice (Figure 4). Under three alternative as- buffer stocks may be considered for unexpected sumptions on the differential between retail and farm shortfalls in domestic production or disruptions in gate prices," it is reasonable to conclude that the world markets. poor (bottom one-fourth of the population) are net consumers of rice, while the net producers are spread 51. Land Policy. Progress under the government's over the middle and higher deciles. Overall, there- land redistribution program has been slow due to fore, a reduction of implicit tariffs on rice is likely inadequate funding, administrative problems of sur- to have progressive welfare effects, and in particu- veying and land valuation, and opposition of land- lar, is likely to be beneficial to the poor.12 lords. Both financial and political costs of the pro- gram have increased as the "easier" redistribution 49. Beyond the short term impact, liberalization of of public land has been completed and much of rice trade may serve to provide an added impetus the land that remains is still in private hands. Earlier 14 POVERTY IN THE PHIL IPPINES Figure 4: Share of Rice in Total Consumption and Net Consumption of Rice,y Deciles, 1997 25 m 10 20 8 ---* -----'30% 1 - 40% Cus6 .% - - - 50% E -1 - 2 2 > 1 4 1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 910 Deciles (ranked by per capita consumption) Deciles (ranked by per capita consumption) Note The decles are decles of population ranked by per capita consumption, adjusted for spatial cost of 1/vig differentils. The 30, 40 and 50% refer to assumptions on the mark-ups on farm -gate prices used to adUst the value of rice produced (valued at farm gate prices) to make it comparable with the value of rice consumed (valued at local retail prices). Source: Ba//sacan (2000), and calculations based on 1997 F/ES data studies have highlighted some of the adverse incen- increase in the return on those assets and a build up tive effects associated with the slow implementation of other assets for the future. of CARP. Of particular importance is that the slow pace of land acquisition and distribution may have 53. Yet there are reasons to be concerned about the increased uncertainty, thereby, lowering private in- unintended impact of the program on non-beneficia- vestments in the rural sector and reducing the collat- ries. The analysis suggests that the ability of the poor eral value of agricultural land for purposes of credit. and the landless to gain access to land through estab- Many observers, both in the Philippines and abroad, lished markets has declined over the course of the pro- have thus been questioning the government's ability gram period (Figure 5). There is a need to confirm to implement the land reform program in its present findings from this small surveywith analysis of a larger format and within the time frame established with- and more representative sample of CARP beneficia- out a clear and predictable source of funding and ries. It is encouraging that the government is placing a some important changes in program design. Analy- high priorityin undertaking an assessment of the CARP sis based on a survey of five villages suggests some to be carried out by the Department of Agrarian Re- additional issues which reinforce the need to modify form (DAR). program design (Chapter 4, Volume II). 54. Virtually all the shortcomings of the current land 52. Based on surveyresults, evidence is overwhelm- reform program can be traced to the unintended inglyfavorable on gains from land redistribution for consequences of administrative efforts aiming to in- beneficiaries: the analysis points to gains in produc- crease the supply of land (or to reduce the cost at tivity and incomes, and a higher propensityto invest which such land can be acquired). To increase the in both physical and human capital (of the children) supply of land, the government has prohibited share among beneficiaries of CARP compared to a group tenancy and imposed land ownership ceilings. These of non-beneficiaries. This suggests that the measures are not onlycostlyto implement (and of- government's land reform program attains not only ten circumvented by spurious subdivision owners) its redistributive or equity aims (transfer of assets) but also restrict access to land through the rental but it also succeeds in creating the conditions for an market and are likely to discourage land-related in- vestment in labor intensive agro-export and planta- 15 PHILIPPINES POVERTY ASSESSMENT Box 1: Proposed Rice-Related Reforms under the ADB Grain Sector Development Program Loan (1999) The proposed rice-related reforms under this Loan focus on the following areas: (i) liberalized grain import policy, and more cost-effective grain pricing; (ii) improved administration of grain buffer stocks; (iii) restructuring of the NFA from a grains marketing monopoly into a public regulatory agency and a private marketing corporation; and, (iv) a better targeted food subsidy program. The following specific reforms are proposed. (i) The regulatory and proprietary/marketing functions of the NFA should be decoupled. (ii) The proprietary function should be privatized, by creating a corporation from the grain marketing part of the NFA with at least 51 percent private sector equity. (iii) The regulatory functions of thi NFA should be folded into a new or existing government line agency which should be responsible for ensuring food security through setting the band for rice wholesale prices that must be defended, deciding on the volume of rice imports needed to stabilize prices, moving rice into areas hit by natural disasters, and stabilizing paddy prices in case of a bumper crop. This agency will contract out services to the marketing corporation and/or other private sector grain traders to implement its food security program. (iv) An annual technical assessment should determine how much rice should be imported in a given year given production and consumption projections. The private sector will be permitted to importthe amount of rice required to stabilize supply and prices after setting aside the volume that the government needs for its 30-day buffer stock. The government will auction the import volume to private traders. (v) Local paddy procurement should be limited to meeting the requirement of a 30-day rice buffer stock inclusive of government imports, and setting the procurement price as a weighted average of prevailing unit production costs and world rice price. (vi) Quantitative restrictions (QRs) on rice imports will be replaced by tariffs by December 31, 2004, consistent with WTO commitments. Also, a minimum access volume (MAV) will be instituted consistent with the government's commitment to the WTO, with a provision for increasing the minimum access volume based on the annual technical assessment of local supply and demand conditions. (vii) One or more targeted food subsidy and/or food-for-work programs for the poor (with a budgetary appropriation of not less than PhP2 billion) should replace the general rice subsidy program. (viii) Private sector involvement in research and development is to be encouraged through legal protection of intellectual property rights in new varieties, simplified public bidding of irrigation projects, and better seed certification. Source: Asian Development Bank (1999b). tion crops. It is important to explore alternative productive efficiency and avoid the disincentives for mechanisms that would be less costlyin administra- investment that plague existing instruments. A land tive as well as economic terms, provide better in- tax would also induce local governments to upgrade centives for increased efficiency of production, and the outdated registry and cadastre system in the Phil- at the same time solve the issue of financing. Pro- ippines, thus establishing the basis for a modem gressive (by size of land holding) land taxes at the system of land administration. Third, a progressive local level that feed into a special fund would help land tax would go some way toward increasing the in terms of fiscal sustainability efficiency and land supply of land on the market by reducing the access/supply marginal profitability of larger holdings. But even more important in this respect is the need to reduce 55. Firrt, a land tax would make the program fi- the trade distortions that result in the overvaluation nanciallyindependent of legislative decisions and thus of agricultural land in the Philippines. ensure its sustainability- the pace of implementa- tion under the current scheme depends critically on 56. There is a clear economic rationale for asset re- the allocation of appropriate funds through the land- distribution in the Philippines because the impact on owner-dominated Congress. Second, a land tax beneficiaries appears to be overwhelmingly positive would provide strong incentives for increased in the long run. A well-designed and implemented 16 POVERTY IN THE PHILIPPINES program for land redistribution is therefore an im- underpreparation will pilot such a community-based portant instrument for reducing rural povertyin the landreform scheme which will make grant funding Philippines. The key is choosing the appropriate available for the purchase of land on the basis of a mechanisms for effecting this transfer to the poor- voluntarytransaction between buyer and seller. Com- est segments of society without generating costly munity involvement is expected to improve the tar- distortions to incentives. International experience geting of the subsidy (grant) for land purchase and shows that the benefits of land reform cannot be facilitate the transaction. It will be important to draw fully realized if policy distortions remain in place, if the lessons learned from this pilot project for wider contract choices are limited, or if access to comple- implementation of a decentralized and market-based mentaryinfrastructure, inputs and services is lacking. land reform scheme adocated in this report. The combination of decentralized modernization of land administration, collection of a land tax, and a 58. Regional Policy. The provincial level analysis program of grants to facilitate acquisition of land in Chapter 2, Volume II, suggests that there has been ownership may offer scope to improve the func- overall convergence in income and poverty levels tioning of land markets, agricultural efficiency rural between 1988 and 1997, with considerable re-rank- investment, and land access by the poor. ing of provinces between the two years. Onlya hand- ful of provinces that were in the bottom ten in 1988 57. No matter how sensible in economic terms, any were still in that list in 1997. A pnon, this suggests changes to land reform policies in the Philippines that the Philippines does not have a problem of lag- will have to contend with well-established stakehold- ging regions - a common phenomenon in other ers. In order to enhance the political acceptance of large developing countries. But the province may be land taxes, a land fund could be established from its too disaggregated - a level for considering the role proceeds at the local level, with disbursements from of regional policyin the Philippines. A map of pov- the fund subject to community-level decisions in erty incidence in 1997 shows a clustering of poor accordance with transparent procedures. This would provinces in the middle part of the country around serve to create a link between land tax collection the Eastern Visayas, and in the Muslim Milndanao re- and land reform implementation and enlist com- gion. These two regions are also among the five re- munity involvement in the implementation of land gions where poverty has stagnated or even increased reform. A World Bank-supported project currently over the 1988-97 period (see earlier discussion), mainly Figure 5: Cultivated Versus Owned-Land, 1985 and 1998 In 1985, most small farmers culvatedbetween1 and2hectares oflandregardless ofhowmuch landthey ownedbutby 1998, there /9 a much closerink between area owned and area cultivated suggestng lIted access to rental land market for the landless 3 Non-parametric regression of cultivated on owned land, 1985 3 Non-parametric regression of cultivated on owned land, 1998 2.5 2.5 2 - 2 1.5 1.5 3 a .5 .5 0 -- - -------- - - - 0----- - - .5 1 1.5 2 2.5 3 .5 1 1.5 2 2.5 3 Owned land (ha) Owned land (ha) Source: Derminger Lara Jr., Maertens and Ouisumbing (2000). 17 PHILIPPINES POVERTY ASSESSMENT on account of lagging growth, but in some cases, urban and rural areas and byincome class (Figure 6). adverse distribution shifts also played an important By age 16, children from the wealthiest income role. These regions also have some of the lowest hu- quintile have completed more than two years of man development indicators. education more than their counterparts in the poor- est income quintile. Providing high- quality education 59. Poor area development programs have been to poor households, and reducing drop-outs, espe- successful in some countries. These programs are ciallyin rural areas, should therefore continue to be typically based on principles of geographic target- the focus of attention. One positive aspect of the ing and they include interventions that augment in- provision of education in the Philippines is that come generation capacity, both through improved there is no evidence of discrimination against girls: techniques in agriculture and through off-farm em- if anything, girls appear to receive more schooling ployment; investing in human capital; and improv- than boys, especiallyin rural areas. ing infrastructure. This approach to developing poor areas merits consideration in the Philippines. 62. There also appear to be large differences in the quality of education received by students from poor Invesing in people and non-poor households. Some of these differences are probably related to the higher fraction of non- 60. Building up the human capital of the poor is poor children (29 percent versus 5 percent for the important for enhancing productivity and capacity poor) who are enrolled in private institutions, where to earn higher wages. Since labor is the most impor- quality appears to be higher. Indeed, cohort-sur- tant asset of the poor, ensuring that they, or their vival rates, and the performance of students on stan- children, get high returns on this labor is therefore dardized tests are both higher in private than in pub- the surest way of giving them a path out of pov- lic schools. Qualityin the public sector is also com- erty Healthier, better-educated people are also more promised by the fact that a very high - and grow- likely to make better-informed decisions about ing - fraction of total expenditures in the sector health, management of community resources, gar- are devoted to teacher salaries, at the expense of bage disposal and a host of matters that affect oth- maintenance and other operating expenditures ers - including their own children, and other mem- (MOOE). In per-pupil terms, MOOE expenditure bers of their community They are also more likely in the public sector was only PhP135 in 1997 (less to lead fuller lives. than US$4), only about a quarter of what it had been in 1990. 61. Education. Given its per capita income, the Philippines has a good track record in providing 63. Differences in the quality of education received education to its citizens. Secondaryschool enrollment by poor and non-poor children are reinforced by rates in the Philippines are well above what would very large differences in private expenditures on edu- be predicted for the country's income level (Figure cation even for public schools. The richest house- 6). Moreover, the average educational attainment holds spend more than 20 (12) times as much as the of Filipinos has gone up considerably over time: on poorest households for every child enrolled in pri- average, someone born in 1920 finished only five mary (public) school, and more than 10 (9) times as years of schooling, while someone born in 1965 fin- much for everychild enrolled in (public) tertiaryedu- ished almost nine. Still, educational attainment re- cation. mains the single most important determinant of household welfare: in 1997, 75 percent of the poor 64. The overall incidence of public spending on lived in households where the head had no more education is progressive: the poor receive more in than elementary education. This is reflected in the per capita terms than the rich (Figure 6). However, large differences in educational attainment between this is not the case for public spending on university 16 POVERT YIN THE PHILIPPINES education, which is clearly regressive, favoring the a 16 percent increase in hourly wages. But, there are rich over the poor. important differences in the degree to which the la- bor market rewards different kinds of education: 65. More education allows people to earn higher on average, every year of university education is as- wages in the labor market. The mean rates of return sociated with a 19.3 percent increase in wages, com- to education in the Philippines are high: on average, pared to 10.4 percent for every year of secondary every additional year of schooling is associated with school, and 7.2 percent for every year of primary Figure: Education Disparities In Attainment, Incidence of Public Spending and Labor Market Returns Enrollment rates in the Philippines are higher than would ... but there are large discrepancies in educational attainment be predicted by the country's income level... between urban and rural areas... China Secondary enrollment rate 1995 140 Phlpprnes Korea 120 i.; 10L *. Male-Urban 00 ~, 0.6Fem.ne-Jbao Male-Rral 60 Malay a 0.5- Farca-R-1 40 - - - - - V 0 eram 04 0 5000 10000 15000 20000 25000 1 1 2 ' 4 09 7 0 9 Per capita GDP (US$ 1995 prices) Grade attained Educational attainment, ages 15-19 by gender and place of residencce, 1998 ... and by income level Overall, incidence of education spending is progressive I I l ll I I ideal trjectory 12 S.7- 2 poorest 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 I I I T I I Age 0 .1 .2 .3 .4 5 .6 7 8 .9 1 Cum. oroportion of population (rank by per capita cons} Average years of schooling attained by age and income quintile ... but pending on terizary educaiion Ibeui the better of ... ... so poor chbeldren are less well positioned to access the higher returns to tertiarg education. 9 Diisoun Rate 0 025 1:00000 .7- 60000 .6 500 co .5 0000007o eary 600000 400000- 200000 P'n-y 0 1 2 3 4 5 .6 7 8 .9 1 2000000 0 b 0 15 20 25 30 35 40 4 b0 Cum proportion of population (rank by per capita cons) Years Since Graduation from Primary School 1/The vetcal//ne in these graphs represents the poverty headcoant which was estimated at S 8percent in 1996 using the APtS dataset note, however that this is not comparable to the 25oercent headcoant eshimated toe 1997 asing F/ES data. Source: Based on staff estimates. 19 PHILIPPINES POVERTY ASSESSMENT school (Chapter 3, Volume II). This may reflect the where infant mortalityis higher tend to receive lower relative abundance of people with primary and sec- subsidies. Clearly there is room for further enhanc- ondary schoolin- on the labor market as well as the ing the distribution of public spending towards the higher demand for university graduates, coming in poor, in particular by reconsidering the geographic particular from the booming electronics export sec- distribution of DOH spending. tor. It may also reflect underlying differences in the quality of education. Because poor children have very 69. Third, data on the pattern of public spending limited access to the current program of scholar- are silent on the quality of service delivery and this ships for tertiary education, which is merit-based, it may be an issue particularly for the poor who visit would be useful to consider targeting able but poor public health facilities more frequently Data from children. Expanding targeted scholarship programs the Demographic and Health Survey (DHS) show could be funded by greater overall cost recovery at that there are indeed large variations in health status this level. by income level, although not by location (Figure 8).There is also some concern about the deteriora- 66. While women have more education than men in tion in health care services since the devolution be- the Philippines, they do not appear to be rewarded cause of insufficient funding, inadequate local ca- commensurately in the labor market. There are nu- pacity and deficiencies in the referral and procure- merous possible explanations for this, but discrimi- ment system. It is cause for some concern that a nation by employers may be a contributing factor. recent report prepared by the DOH finds evidence Understanding the reasons whywomen earn less than of stagnation in levels of infant and maternal mor- expected given their education and experience is tality Finally there are also growing challenges in en- important to help design appropriate polities. vironmental and work-related health risks which re- main unaddressed. 67. Health. The devolution of health services which began in 1991 appears to have been accompanied 70. As part of this overall poverty study, a national by an increase in the share of health spending which survey covering 1,200 households is being carried is devoted to public (i.e., preventive) health care, in- out on users' awareness, access to and satisfaction cluding such high-externality interventions as com- with some publicly provided services, including pri- municable disease and vector control, immunization, mary education, primary health, drinking water, low and health awareness programs. (Chapter 3, Volume income housing and subsidized rice. An innovative II). Partly as a result, the overall pattern of health part of the exercise is to link the information col- spending in the Philippines is mildly progressive lected to household welfare levels by including the (Figure 7). short consumption module of APIS in the ques- tionnaire; this will enable analysis of responses by 68. Still, the Philippines continues to face important different income groups. While the results of the health challenges. First, there are large differences in survey are not yet available for inclusion in this re- the incidence of public spending by level: barangay port, they will yield valuable information about the health stations and rural health centers both dispro- key constraints that the poor face in accessing public portionately benefit the poor, while government services, their views about the quality and quantity hospitals do not (Figure 7). Second, more than 70 of services they receive from different service pro- percent of total public health spending is still for viders and the extent (if any) of harassment they personal health care services, and more than half of experience in their interactions with government of- the resources of the Department of Health (DOH) ficials. These findings will complement the results are devoted to public hospitals. This is particularly from APIS, discussed earlier on access to public ser- worrying because the geographic distribution of vices, and will be made available in a follow-up re- DOH hospital subsidies is itself regressive. Regions port. Another effort underway in the context of this 20 POVERTY IN THE PHILIPPINES poverty study focuses on undertaking case studies nisms for coping with risk. They do - but these of some local government units to examine the in- mechanisms cannot eliminate vulnerability Typically, stitutional and political economyingredients of pro- poor households have limited recourse to poor policies. The results from these case studies intertemporal consumption smoothing because they will also complement the analysis provided in this have few savings or assets and are constrained in report. their ability to borrow. Private or community level support systems help in sharing risks across house- Protecting the poor holds but have limitations in cases of systemic or regional (covariate) shocks. Some household strate- 71. Protecting the poor is about reducing their vul- gies may help in the short run but at the expense of nerabilityto adverse shocks. These shocks can result longer-term well-being. The government's response from events that affect households (illness, death, to vulnerability must be aimed at helping the poor and disability), a community region, or the whole manage risk by preventing and mitigating risk and nation (natural disasters, macro-economic crises)." lessening the impact of shocks. Policies must take Few are immune from shocks but the poor are par- care to nurture informal safety nets and understand ticularlyvulnerable because they are less able to cush- their limitations. ion their welfare and because small declines in con- sumption can put them seriously at risk. This is not 72. There is no formal analysis of the extent of to suggest that poor households do not have mecha- vulnerabilityin the Philippines which typicallyrequies All public health facilities Barangay health station .89 8 7- .7- .5-, 4- 0 . 0- I l I l l l I l l lIlltI 0 1 2 .3 4 .5 .6 .7 .8 .9 1 0 1 2 3 .4 .5 .6 .7 .8 .9 1 Cum. proportion of population (rank by per capita cons) Cum. proportion of population (rank by per capta cons) Rural health unit/center Government hospital f I i t i l l l1II I I l l sI .8 8- . 7- . 7- 6- 6- 4- 4- 3- 23- 0- 0- 0 .1 2 3 .4 .5 6 .7 8 .9 1 0 1 .2 3 .4 .5 .6 .7 .8 .9 1 Cum. proportion of population (rank by per capita cons) Cum. proportion of population (rank by per capita cons) Note: The vertcaline in these graphs represents the poverty headcount which was estrnatedat3t18percentin 1998 using the APIS dataset note however, that II i5 not comparable to the 25percent headcount estimated for 1997using F/ES data. Source: Staff calculations based on 1998 APIS data 21 PHILIPPINES POVERTY ASSESSMENT panel data to examine the frequency of movements that make them vulnerable to illness, spells of un- into and out of poverty But analysis available from employment that are not derived from systemic other countries suggests that a significant portion of events, and old age. As different risk mitigation poverty in any given year is likely to represent tran- mechanisms are indicated for different types of risks, sient poverty- that is, households who are poor in the discussion here focuses first on macro level or one year but have consumption levels above the covariate shocks and then considers micro level or povertyline in "normal" years.14 Understanding the idiosyncratic sources of risk. sources of this variability and designing mechanisms to reduce either the variability or its impact would Macro-economic crises and natural improve the welfare of the poor. disasters 73. In the Philippines, the main sources of vulner- 74. The best approach to reducing the welfare im- ability are likely to be related to climate and eco- pact of risks is to eliminate the source of the risk nomic instability, certain parts of the countryar also itself. This is possible for some categories of risk affected by political unrest. At the household level, but not for others. There is clearly potential to re- the impact of these events is felt through lower real duce the frequency and the severity of economic incomes due to loss of crops, reduced employment, crises through sound macro-economic management lower pay or higher prices, especially for food. In though the extent of the contagion seen during the addition, poor households face idiosyncratic risks Asian crisis suggests limits to the ability of govern- Figure 8: Health Indicators by Income and Location, 1998 Health indicators vary by income status but rural-urban differences are small and even favor rural residents... Infant Mortality Rates by Quintile Under 5 Mortality Rates 5 5 4,:1Rural URural irm U' Urban 22 0 10 20 30 40 50 60 0 20 40 60 80 100 Percent Percent ...but the rural poor have lower immunization coverage and less access to medically trained persons for deliveries. Immunization Coverage (%) Delivery by Medically Trained Person 907] 100- 80a 90 70 Rra 80 60- 70 40- a 30 - 30 10-1Rua 1 l 1 2 3 4 5 1 2 3 4 5 Quintile Quintile Notes: Ouintiles are based on the entire population. Because there are few rural residents in the fifth quintile nationally, these values are subject large sampling errors; as a result, the graphs do not show values for the fifth quintile for rural areas. Infant mortality and under 5 mortality refer respectively to deaths underage 12 months per thousand births and deaths under5 years per thousand births; immunization coverage is for children 12-23 months. Source: Filmer(1999b). 22 POVERTY IN THE PHILIPPINES ments to inoculate their economies. Even so, in the in most countries of the region, including the Philip- Philippines, macro-economic stabilityin the 3-4 years pines, were not geared toward providing real time leading up to the Asian financial crisis has arguably information. Quarterly estimates of self-reported made the greatest contribution to poverty reduc- poverty for the Philippines are one exception tion. (Mangahas, 1999): according to these surveys, the incidence of poverty increased somewhat in 1998 75. Natural disasters are a common occurrence in (61 percent reported being poor) compared to the the Philippines and can have devastating impacts on period 1996-97 (when 59 percent reported being the affected population. As a matter of fact, El Nifho poor). To remedy this information gap, a significant has occurred with remarkable regularity every three effort was made to gauge the impact of the crisis or four years in recent history Although there is no through rapid assessments (Box 2). Much of the scope for eliminating this risk, policies can help miti- qualitative discussion of the impact of the crisis gate its impact and assist households in coping with found in the World Bank and ADB documents, sum- its consequences. Effective public polices and regu- marized in Box 2, is largely borne out by the more lation in some areas - including watershed man- quantitative analysis included here; one exception is agement, impounding, drainage, flood control, for- that this report finds that the government was largely estry regulation, housing and zoning standards, and successful in protecting social sector expenditures trash collection - can help reduce the financial and whereas the ADB report reached the opposite con- human costs of natural disasters. But public safety clusion, reflecting changes in the underlying infor- nets are still needed to mitigate the impact on vul- mation available between now and the ADB report. nerable households. The rest of this section discusses the social impact of the crisis and builds upon les- 78. Concern about the social impact of the crisis sons learned to discuss options for public safetynets provided the impetus and the funding necessary to in times of systemic shocks. launch the first round of the APIS in 1998. The 1998 APIS came on the heels of the 1997 FIES and 76. Social Impact of the Crisis. In the wake of was expected to yield information about poverty the worst drought in 30 years and the Asian financial trends, in addition to collecting indicators on other crisis, which spread in earnest to the Philippines by dimensions of household welfare (i.e., use of vari- the last quarter of 1997, real GDP per capita de- ous services) not available in the triennial FIES. A clined by2.6 percent in 1998. Agriculture contracted decision was also made to include a section in the the most, by 6.6 percent while industrial production survey with direct questions on the crisis and this fell by 1.7 percent. Unemployment rates increased turned out to be very useful in analyzing the distri- to double-digit levels during 1998. Inflation, too, rose butional impact of the crisis, given issues of com- to double-digit levels and with plummeting agricul- parability of consumption and income information tural output, food prices increased faster than the between FIES and APIS (Box 3). Partial funding general level of prices. The crisis also reduced gov- for the 1998 APIS was made available under the erinent revenues, which constrained public spend- ASEM trust fund which was created at the initiative ing despite an overall counter-cyclical fiscal policy of ASEM leaders at the second Asia-Europe adopted by the government. However the govern- (ASEM) Summit in London in April 1998. ASEM ment was successful in protecting expenditures in funding helped in particular with the quicker than the social sectors. usual turnaround in data availability 77. What has been the distributional impact of the 79. Analysis of data available from the 1998 APIS crisis? There was limited information at the time the suggests that the impact of the crisis was modest, crisis was unfolding because data collection systems leading to a 5 percent reduction in averageivitg stan- 23 PHILIPPINES POVERTY ASSESSMENT dards and a 9 percent increase in the incidence of poorer agriculture-based households whereas the fi- poverty, with higher increases indicated for the depth nancial crisis affected the relatively better-off wage and severity of poverty (Chapter 5, Volume II). The earners more severely In rural areas, the main impact largest share of the overall impact on poverty is at- was felt through production short falls, increases in tributable to the El Nifio shock as opposed to shocks the relative price of food, which was limited due to a mediated through the labor market. The impact on responsive import policy on the part of NFA, and measures of overall inequality was minimal but the increases in underemployment. In urban areas, there distributional impact of the two shocks was differ- was an increase in unemployment reflecting the slow- ent: while the labor market shock was progressive ing down of the economy as a result of the financial (inequality reducing), the El Nifio shock was regres- crisis. sive (inequality increasing). This is also evident in Table 8 which shows the distribution of the different 80. Households were able to smooth consumption shocks across the deciles (based on the 1997 FIES) to some degree but the poorer ones among them and is consistent with the notion that the impact of were more constrained in their ability to do so. For the El Niflo drought was heavier on the relatively three-fourths of the affected households, consump- Box 2: Rapid Assessments of the Social Impact of the Crisis The World Bank and ADB each conducted assessments of the socioeconomic impact of the crisis. The World Bank assessment was done in February 1998, and relied on economic analysis and focus groups discussions. The team identified five major trends affecting the poor, including lower real incomes (largely due to price increases), increased unemployment and lower wages, reduced social services, reduced access to credit, and negative impacts on social capital. Each of these effects was seen to be the combined impacts of the drought and economic crisis. The report noted that the crisis was felt more strongly outside of the National Capital Region, largely because of the increased effects of the drought in rural areas, and that a number of factors (such as the drawing down of inventories, government price supports, and delays in the impact of overseas contract workers losing jobs in other East Asian countries) were delaying the worst of the impact. The team recommended a variety of strategies to mitigate the impact of the crisis, including protecting the social sectors from budget cuts, protecting programs that are disproportionately used by the poor, developing programs to promote labor mobility, and using participatory processes to evaluate the impact of income and employment generation programs with a view to scaling up the most successful of them. The ADB assessment was completed a year later than the World Bank report (in June, 1999) and had the benefit of a much more substantial information base. Focus group discussions, surveys of community based leaders, and a household survey of 430 households in the same communities were conducted specifically for this assessment. The ADB report finds evidence for adverse impacts of the crisis, including increased unemployment (due to the labor force growing faster than employment), lower incomes among poorer rural communities in particular, price increases (particularly for food), increases in self-rated poverty (up from 40% to 43%), lower enrollment rates (particularly for secondary and first year of primary) and higher drop-out rates in education, reduced availability of medical supplies, but social fabric largely unaffected. The ADB report finds that despite the best efforts of the Philippine Government, expenditures on social services did decline, and suggests that the government should use external budget sources (particularly donor funding) to make up for this shortfall. The report also calls for better targeting methods for assistance, and suggests that these need to be based at the barangay level, as well as arguing for a social monitoring system. More specific recommendations included facilitating access to basic commodities within tar- geted communities at below market prices, employment creation, increasing microcredit programs, focusing healthcare resources on primary and preventative health programs (in particular, immunization and feeding programs, in the short term), and restructuring education provision to make it more cost-efiective (and in the short term, increasing the subsidies available under a student/teacher assistance program). The ADB survey also showed that the poor, especially in urban areas, benefited from increased financial support from relatives. While both of these assessments show that the crisis period was a difficult one for the poor, the effects of the crisis per se were found to be limited. The combination of the crisis and drought was judged to have been more severe, especially on farmers and fisherman, and the urban poor. Source: World Bank (1998b); ADB (1999a). 24 POVERTY IN THE PHILIPPINES tion impacts were smaller in magnitude than the in- credible." Administrative data suggest that enroll- come impacts (Figure 9). But while the mean con- ment rates continued to increase for both elemen- sumption to income shock ratio for the non-poor tary and secondary schools with no perceptible was 78 percent, it was 94 percent for the poor. change even in the rate of increase compared to previous years."6 It is possible that households' re- 81. Household Response. In response to the crisis, sponses to this question are reflecting an increase in poorer households reported changing their eating the incidence of absenteeism. While households ben- pattem, increasing hours worked, taking their children efited from private assistance, it is not possible to out of school and migrating more often than non- tell as to what extent private transfers or informal poor households (Table 9). But the overall safety nets played a role in mitigating the impact of proportion of households who responded by tak- the crisis on the poor. Further work in this area ing their children out of school is too high to be would be very helpful in understanding the insur- Box 3: Using the 1998 APIS to Estimate the Impact of the Crisis: Getting Around Measurement Issues The 1998 Annual Poverty Indicators Survey (APIS) was designed to be a longitudinal survey forming a panel with the 1997 Family Income and Expenditure Survey (FIES). 23,150 households (59.8 percent of the APIS sample) were thus common to both surveys. Unfortunately, problems of comparability of income and consumption across the two surveys have handicapped researchers' ability to estimate changes in welfare between 1997 and 1998. The comparability of income was impaired because of the shorter reference period used in the APIS compared to the FIES. A partial year recall of incomes introduces unknown seasonal biases in the estimates of incomes, and has particularly serious implications for estimates of agricultural incomes and incomes from self-employment. The comparability of consumption, on the other hand, was compromised by the use of a much shorter consumption module in the APIS (two-page module for APIS versus a forty- page consumption module for FIES). A shorter consumption module generally introduces a downward bias in measured consumption levels. Thus, expostit is virtually impossible to separate out how much of any observed decline in consumption would be attributable to a real crisis-related welfare shock versus how much is simply on account of measurement error related to the use of a shorter module. Fortunately, a separate section of the APIS survey included some direct questions on the crisis, where households were asked if they were adversely affected by the crisis in different ways. Households were asked: "During the past six months, did the following problems affect you and your family?" (i) increasing prices of food and other basic commodities; (ii) loss of job within the country; (iii) loss of job due to retrenchment of migrant/overseas workers of the family; (iv) reduced wages; (v) drought or "El Niho." It is however not clear what being "affected by a problem" means and the survey includes only yes/no responses from households; with no measure of the intensity of the effect of any one of these shocks. It is possible, nonetheless, to analyze the welfare impact of the crisis on households by identifying the impact of being affected by one of these five shocks after controlling for a large number of household attributes, the attributes of the communities in which they live and for geographic fixed effects. For the purposes of this analysis the shocks were classified into three after discarding the price shock because nearly everyone reported being affected, making the identification of its impact virtually impossible. The remaining three mutually exclusive categories of shocks then were: (i) the labor market shock applying to households who experienced either reduced wages or a loss of job within the country or overseas; (ii) the drought or El-Nifio shock and (iii) a joint labor market and El-Nino shock given that some households experienced both types of shocks. Household characteristics include household demographics, characteristics of house- hold head, education level of adults, occupational characteristics, including a measure of diversity of employment, and access to land, electricity, social networks and public assistance. Community or barangay characteristics include three indices based on barangay or community-level data: one for infrastructure capital, one for community social capital, and one for commercial capital, In addition, the analysis is extended to allow for variation in the severity of the shock and the ability of the household to cope based on certain household and community characteristics as there is no direct measure of the severity of the shock. These include households' endowments of labor, land and human capital, households' social network and employment diversity, as measures of their risk-management abilities and the community-level indices of infrastructure, social and commercial capital. (see Chapter 5 of Volume 11 for further details on methodology and results) 25 PHILIPPINES POVERTY ASSESSMENT ance function of private transfers during systemic revived, making workfare an effective countercyclical downturns. fiscal policy instrument. Finally, because workfare programs rely on self-selection, they are administra- 82. Public Safety Nets. There is a clear role for tivelyless cumbersome and do a betterjob of reach- government in mitigating the impact of natural di- ing the poor if properly designed (see Box 4). The sasters and economic downturns on the poor, espe- key here is setting the wage level low enough so that cially since natural disasters occur with some regu- only the poor will choose to take advantage of the larity in the Philippines. Encouraging the purchase program. of private insurance for those who can afford it will help free up government resources for poorer house- 83. There is tremendous merit in capitalizing on the holds. Preparedness - at the level of institutions, Philippines' earlier experience with public works programs and sources of funding - can reduce programs and considering the adoption of a response time considerably thereby attenuating the workfare scheme as part of the country's perma- adverse impact on households. In response to shocks nent safetynet. These programs can be implemented such as the recent El Nifio drought, government in poorer provinces of the Philippines on an ongo- policy should focus, as a matter of priority on help- ing basis to provide an income floor to poorer ing farmers restore their income generation capac- households. Direct communityinvolvement in project ity An instrument of choice under these circum- selection and implementation has been shown to stances is public workfare. Workfare programs can increase program benefits in other countries and provide an effective safety net for the able-bodied should be encouraged in the Philippines. Funding poor. Their benefits to the poor are maximized if can come from the budget in normal years; to handle the projects can create assets which the poor value increased demand during periods of crisis, it should (schools, rural roads, etc.) in addition to transferring be possible to provide for accumulating funds in income to maintain current consumption. Creating "good" times which can then be drawn down in these assets as part of reconstruction efforts in the "bad" times. International assistance is often a supple- aftermath of natural disasters that inflict physical mentarysource of funding during crises. Before re- damage is particularly useful. In addition, workfare activating previous institutions and methods for programs have a built-in automatic stabilization func- implementing workfare, it would be important to tion which is helpful during periods of economic draw from the lessons learned from the Philippines' downturns: demand for workfare increases as do- own past efforts as well as to capitalize on recent mestic output falls and abates as economic activityis experience from other countries around the world. An earlier study on Philippine public works and food Table 8: Impact of Economic Crisis and El Nilo Per capita Percent of households affected by expenditure Loss of Loss of F igure 9: m s i an t 0 Decile (1997 Price domestic overseas Reduced FIES) increases job job earnings ElNiho The consumption shock was smaller than the income shock for most 1 (Poorest) 93.5 17.0 3.8 15.4 78.6 households, but less so for the poor. 2 91.5 16.6 3.2 13.9 72.7 0.4 3 90.9 18.3 2.9 15.5 68.3 4 91.7 18.5 4.1 17.1 64.5 5 90.0 21.5 4.5 17.1 61.7 Con.umpton shiock as a 6 90.2 20.5 3.8 16.8 55.0 propotam of 7 89.7 20.7 4.7 17.1 51.4 counerfactual 8 89.6 19.4 4.8 15.2 45.2 9 88.3 18.3 5.1 14.2 43.5 10 (Richest) 84.7 14.7 4.8 11.2 37.8 Overall 90.0 18.5 4.2 15.3 57.9 3 0 03 Note. Calculations are based on panel data (23,150 households) constructed from the Income shock as a proporton of counerfaclual income 1997 F/ES and the 1998 APIS Source: 3alisaca 'T oo9a), based on 1998 APIS data. Source: Staff c Iculations based on 1998 APIS data. 26 POVERTY IN THE PHILIPPINES for work schemes suggested problems with target- children in general, and particularly during periods ing on account of higher than market wages, inad- of crises. equate maintenance of assets created, concern with the types of works that are technically amenable to 85. While timelysurveydata made it possible to cap- labor-based methods, incentive issues with use of ture, to some extent, the household level of impact private contractors and inadequate monitoring and of the recent twin macro level shocks and to iden- evaluation.17 It would be important to address these tifythe characteristics of vulnerable households, sini- concerns before the reintroduction of a large-scale lar information does not exist for a systematic evalu- program. ation of the determinants of vulnerabilityin normal times. Who is vulnerable to micro level shocks in the 84. In addition to helping maintain consumption Philippines and what coping mechanisms do they levels through workfare, government policy should utilize? Some insights can be obtained from the protect public spending in the social sectors during poverty profile (Chapter 1, Volume II). periods of crisis. The Philippines government was successfulin this regard during the recent crisis. Health Micro level shocks expenditures declined marginally and mainly for curative services which are utilized more commonly 86. The literature on vulnerability and participatory by wealthier households. In the Philippines, it is par- poverty assessments identifies several major sources ticularly important to maintain funding for rural of idiosyncratic risk, including health, death of pri- health facilities and barangay health centers because mary income earner, loss of a job, crime and vio- the poor utilize these facilities much more than the lence, and old age. In the Philippines, households non-poor. It is also important to make sure that chil- headed by women, the elderly and the unemployed dren from poorer households do not drop out of - primary candidates for vulnerabilityin developed school or experience increased absenteeism. Special societies - are not among the ranks of the poorest. dispensation from school fees for the poor, espe- These findings are not unique to the Philippines. Be- cially for primary and secondary schools, can help cause there is an element of choice in becoming a but there may be a need to provide scholarships to household head, it is quite plausible that poor women poor families. School feeding programs can also help and poor elderly choose not to become household reduce the incidence of absenteeism among poor heads; they prefer instead to live with other family members. So the information on poverty incidence Table 9: Household Responses to Crisis Percent of HH responding to crisis by: Changing Taking children Migrating Receiving Receiving Increasing Income Decile Total HHs eating out of to city or other assistance from assistance from working (1997 FIES) responding pattern school countries other households government hours 1 2,256 56.7 12.4 7.8 16.5 10.7 37.5 2 2,223 52.3 9.3 5.4 17.1 8.8 36.8 3 2,211 50.7 7.3 5.4 16.3 8.4 33.6 4 2,206 51.0 8.7 5.2 17.0 6.8 33.1 5 2,180 47.8 7.1 4.5 17.2 5.9 29.4 6 2,155 48.3 5.6 3.8 16.4 5.7 27.0 7 2,138 47.0 5.0 3.7 15.0 4.5 26.1 8 2,125 44.1 3.5 3.4 12.5 2.9 22.3 9 2,097 41.4 3.2 3.1 13.8 3.9 23.1 10 2,011 33.3 1.2 3.5 12.0 2.6 18.2 Total 21,602 47.5 6.4 4.6 15.4 6.1 28.9 Note: Calculations are based on panel data (23,150 households) constructed from the 1997 FIES and the 1998 APIS. Source Balisacan (1999a), based on 1998 APIS data. 27 PHILIPPINES POVERTY ASSESSMENT Box 4: Public Workfare: An Essential Part of a Permanent Safety Net? Public workfare programs require participants to work in order to receive benefits and are a useful countercyclical measure in fighting poverty during periods of crisis. The crisis could be a macro-economic or agroclimatic shock, or a deep structural change in the economy whereby large numbers of able-bodied people become unemployed. Such programs help fight poverty in two ways: first, by providing paid employment to the poor and helping households smooth their consumption, and second, by creating assets and services that the poor value (e.g., minor construction of schools, health facilities, basic sanitation facilities, small roads and bridges, small dams and canals, community kitchens and centers, and low-cost housing). International experience offers several lessons in the design and implementation of such programs and highlights some of the trade-offs. Guarantee of Employment Existing market and non-market arrangements for insurance often leave the poor exposed to significant risk. A workfare program that guarantees employment can reduce the longer-term risk the poor face. While highly desirable, guarantees have not been a feature of most public workfare schemes. One possible exception is the Employment Guarantee Scheme (EGS) in Maharasthra, India, that guarantees unskilled manual work within the district within 15 days of registering for employment with the EGS. While this does not necessarily mean locally accessible employment, this scheme comes closest to offering a guarantee of any kind. Wage Rate: The key to the success of a workfare program is in setting the wage rate. The wage rate should be no higher than the market wage for unskilled manual labor in agriculture or the informal sector during a normal year in the environment in which the program is introduced. While determining the precise level of the wage rate may not be easy, it is better to err on the side of starting with a wage rate that is too low - if there is no demand at the offered wage rate, it can be raised. Setting the wage rate at a low level ensures that the workfare scheme uses self-targeting to reach the poor - that is, only the poor would choose to participate at that wage level. It also maintains the incentive to take up regular work when it is available. A low wage also helps with the guarantee aspect in that the scheme can reach as many of those in need as possible. Labor intensity: The labor intensity, that is the share of the wage bill in total costs, should be higher than normal for similar projects in the same setting. There is a trade-off between immediate income gains through employment of the poor, and gains to the poor from the quality and durability of the assets created. In a crisis situation, where current transfers to the poor have a high weight, a high labor intensity is likely to be desired. Illustrative average labor intensities range from 0.5 - 0.65 percent in low-income countries, and somewhat lower (0.4) in middle income countries, though labor intensities often vary significantly by sub- projects. The Korea workfare program introduced during the recent economic crisis was very successful in achieving a high labor intensity of 70 percent. In the Trabajar workfare program in Argentina, a high labor intensity was encouraged through an arrangement in which the central government paid the labor costs of the program, whereas local governments financed the capital costs. In addition, sub-projects competed for funds and were appraised on the basis of an objective points system, which favored sub-projects with higher labor intensity. Eligibility conditions and other means of rationing should be avoided; ideally the only requirement should be the willingness to work at the offered wage. It rationing is unavoidable (for example if the demand for employment at the wage set exceeds the available budget), then the program should be targeted to poor areas and confined to time periods when the need is greatest.Targeting to Poor Areas: Ideally, workfare sub-projects should be targeted to poor areas to ensure that the assets created are of maximum value to poor people; in the Argentina Trabajar scheme, the above-mentioned point system favored sub-projects in poor areas. Any exceptions, where the majority of the benefits go to the non-poor, should require co-financing from the beneficiaries and this money should go back to the workfare budget. Administration and Implementation: Direct community involvement in project selection and implementation is highly desirable. Work should be performed only on technically feasible projects proposed by bonafide community groups to help ensure that the efforts respond to the needs of local communities. Women's participation can be enhanced through non-discriminatory wages and the provision of on-site daycare centers. While the design features of workfare programs are well researched, administering and implementing an effective scheme present challenges. For example, ensuring that the workfare program is poverty focused is often difficult because of conflicting pressures from alternate target groups (for example, the skilled unemployed). Local capacity for implementation is often limited, and inter-agency co-ordination, often required for implementation of these programs, presents difficulties. Corrup- tion is often also a problem. 28 POVERTY IN THE PHILIPPINES based on headship does not mean that poverty does have been a powerful anti-poverty force in the Phil- not represent a problem for women or the elderly ippines. in the Philippines. Povertyis an issue for these groups to the extent that they live in poor households, and 90. What then is the role for public safetynets? FM4 if within (even non-poor) households, spending is as discussed in the previous section, informal safety biased against them. As for unemployment, there nets have their limitations when the shock is covariate may also be an element of choice here, reflecting in nature so that there is a role for government in high reservation wages, in particularly for the more helping households cope with systemic shocks. Sec- educated. Typically the poor cannot afford to be org it is not clear as to what extent private transfers unemployed; for example, it is underemployment fulfill an insurance function; do transfers respond to that is prevalent in rural areas in the Philippines. downturns in household income for idiosyncratic rea- sons? Future analysis based on the 1998 and 1999 87. But there is another factor at play in the Philip- APIS panel would help answer this question.The case pines. Transfers, and these are primarilyprivate trans- for public safety nets needs to be balanced against an fers, play a significant role in reducing poverty in the additional consideration having to do with the po- Philippines. In addition, they are equalizing and ben- tential displacement of private safetynets. Earlier work efiting vulnerable groups more proportionately. on the Philippines (Cox and Jimenez, 1995) suggests Transfers are large in the Philippines and have been large displacement effects both for unemployment increasing over time. Theyaccounted on average for insurance and old age pensions. 13 percent of pre-transfer household incomes in 1997 (Table 10) with 57 percent coning from abroad. 91. At the current level of the Philippine economic Data from the balance of payments puts worker's and institutional development, the case for the in- remittances at PhP134 billion (US$ 7.7 billion) for troduction of an unemployment insurance system is the same year, equivalent to 7.6 percent of personal weak. Even a non-contributory assistance scheme is consumption reported in the national accounts and not a priority given the low level of poverty inci- up from less than one percent in 1988. dence among households with an unemployed head. The same reservations apply for the introduction 88. Transfers are highlyprogressive, benefiting more of a national pension scheme. But the workfare households with low levels of (pre-transfer) income scheme advocated as an instrument of choice for per capita. For the poorest quintile (ranked by pre- addressing shortfalls in consumption during periods transfer incomes), transfers received constitute almost of systemic shocks is also effective in the event of 60 percent of pre-transfer incomes (Table 10). For a idiosyncratic shocks. large number of households, private transfers are the tickets out of poverty Income poverty would 92. There is also a role for government in bringing have been much higher in the Philippines in the ab- into the economic mainstream, groups that suffer sence of transfers: the headcount index would have from discrimination or may be left behind by the been 32 percent rather 25 percent. The distributionally growth process. Ethnic minorities, the disabled, do- sensitive measures would have been even higher sug- mestic violence victims, and children come to mind, gesting that transfers help some of the poorest in particular. Fortunately among the myriad of gov- among the Philippine households. emnent programs that are purported to help the poor, the Comprehensive and Integrated Delivery 89. Furthermore, analysis of the determinants of Social Services (CIDSS) program of the De- of transfers suggests that having an unemployed, partment of Social Welfare and Development elderly or female-head has a large and significant (DSWD) appears to be one of the most effective. impact on transfers received by the household. On A recent assessment of this program (Bautista, 1999), the whole, private transfers or informal safety nets based on qualitative feedback from stakeholders and 29 PHILIPPINES POVERTY ASSESSMENT data collected on unmet minmum basic needs impact assessment should also be considered: the (MBN), suggests that CIDSS communities experi- 100 Poorest Families Program should be among enced a greater improvement in community welfare those selected (see below). than non-CIDSS areas. There appears to be scope for both deepening and expanding the reach of 95. The so-called "100 Poorest Families Program" CIDSS. or Lingap Para sa Mahihirap (Box 5) constituted the Estrada Administration's flagship program. The 93. The current housing programs, on the other program aimed to identify the 100 poorest families hand, are highly regressive. Responses to the APIS in each province and municipality based on local level questionnaire suggest that some two million urban information such as the MBN indicators and to de- residents had access to assistance from a government liver a range of services and interventions through housing or financing program, but that the programs the relevant line departments. PhP2.5 billion were fail in reaching the urban poor (Figure 10). Since the allocated to seven departments in the 1999 budget analysis here does not impute value to the housing to provide credit, health, housing, infrastructure, and assistance received, it is quite likelythat the distribution other services. Even though the program targeting of benefits is even more skewed than simple access starts with identifying the poorest families, many of to the program. Since there is a multitude of pro- the interventions were envisaged to be at the com- grams to provide housing and upgrade slums in the munitylevel rather than household-specific, thereby Philippines, a serious evaluation to assess which, if helping expand the reach of the program. This re- any publicly-funded housing programs actually ben- sulted in a program that may be too dispersed as an efit the poor should be an important priority for the area program (and it is not based on geographic future. poverty indicators) but too expensive as a means- tested program for households. In addition, local 94. There is also a need to examine the effectiveness level decisions on targeting maybe effective because of the multitude of targeted programs currently typically communities have more information than under implementation. It would be useful to map central authorities but there is a risk of local capture. spending levels by province to determine overall ef- It is important therefore to conduct an evaluation fectiveness in targeting poorer provinces. Selecting a of Lingap from the perspective of both targeting few of the more important programs for detailed effectiveness and welfare impact. Facilitating empowerment Table 10: Private Transfers Benefitthe Poor, 1997 Income Quintile Income Gross transfers Share ot 96. Empowerment is about making public institu- (ranked by per capita per capita transfers in tions work for the poor. In a participatory assess- income before before gross received pre-transfer transfers) transfers (PhP) (PhP) income (%) ment of poverty in the Philippines, poor people Quintile 1 6066 3549 58.5 characterized well-being in terms of material and Quintile 2 10877 2183 20.1 human deprivation and vulnerability, they talked Quintile 3 16203 2594 16.0 about access to resources (land, capital); sufficient Quintile 4 25353 3224 12.7 Quintile 5 70935 5185 7.3 and stable income and benefits; being able to eat Average 25887 3347 12.9 three times a day, and the capacity to send children Poverty and to school (South Asia Partnershi Canada, 1999 inequality indices ip Incidence 32.0 25.2 But the poor also cited lack of relevant government Depth 10.7 7.2 support as one of the causes of poverty and indi- Severity 5.0 2.9 cated feeling sociallyexcluded bythe inattentiveness Theil 0.52 0.49 Log of variance 0.71 0.64 of government agencies. They considered efficient Source: Staffestimates based on 1997FIES data. delivery of social services as the key manifestation 30 POVERTY IN THE PHIL IPPINES of their inclusion in the nation's political life. The tralization, and civil society participation. Governance poor also found access to the legal system and its is about enhancing transparencyand accountabilityof enforcement difficult and this contributed to their public institutions, combating corruption and deliver- sense of insecurity Finally the patronage system in ing effective justice; decentralization is about bringing finding jobs further fueled feelings of social isola- government closer to the people so as to improve re- tion, unfairness and powerlessness. sponsiveness to local needs; and civil societyparticipa- tion is about translating the needs and aspirations of 97. Empowerment of the people requires the fair the poor into demands for public action and creating and predictable application of the rule of law so the means for effective monitoring. that public officials are held accountable for their actions. But creating public institutions that are re- Improving governance and combating sponsive to the needs of the poor is ultimately about corruption the ability of the poor themselves to influence policy and hold public institutions accountable. Poverty as 99. Improving governance requires a range of mea- material and human deprivation is closelycorrelated sures designed to create a motivated and meritocratic with voicelessness. Poor people are unable to help civil service and to enhance expenditure manage- shape policies to improve their lot in large part be- ment through greater attention to performance, pre- cause theydo not have access to information critical dictability and accountability Better governance is for influencing decisions, nor do they have the fi- also about combating corruption and delivering jus- nancial and intellectual wherewithal to demand be- tice. These issues are discussed in some detail in a ing heard. Hence, actions discussed in earlier sec- number of recent World Bank documents covering tions of the report to improve material well-being, social and structural reforms, anti- corruption strate- investing in the human capital of the poor, and re- gies, and judicial reforms (World Bank 2000b, 2000c ducing their vulnerabilitywill improve the poor's abil- and 2000d). Here we focus briefly on the corrosive ity to be heard. effects of corruption on society as a whole but par- ticularly for the poor. 98. This section touches upon three institutional con- siderations that are important in enhancing government' 100. Corruption has declined in the Philippines accountability to the poor. public governance, decen- since the restoration of democracy in 1986 (Figure 11) but efforts can be made to further limit its scope. Figure 10: Public Housing and the Poor Internationally the Philippines ranks in the middle Public housing in urban areas is highly regressive. among a group of 99 countries for which a corrup- 1 tion perception index was calculated, as published V .9 byTransparencyIntemational. At home, a 1998 sur- B- veybythe Social Weather Stations revealed that nearly .6- two-thirds of respondents thought there was cor- ruption in government (World Bank 2000c). W .4- Z26 101. There is now mounting evidence on the posi- tive links between good governance and economic 0- 0 o I . & . 2 . 1 1 1and social development. Corruption is a key aspect Cum. proportion of population (rankea by per capia cons.) of governance that directly affects poor people's lives. Corruption undermines development and hurts the Note: The vertical line in these graphs represents the poverty headcount which was esti- mated at 31.8 percent in 1998 using the APIS dataset; note, however that this is not poor by diminishing the quality and delivery of pub- comparable to the 25 percent headcount estimated for 1997 using FIES data. l Source: Staff estimates basedon 1998 APJS data. lic services, raising the prices of goods and services 31 PHILIPPINES POVERTY ASSESSMENT Box 5: 100 Poorest Families Program of the Estrada Administration In response to former President Estrada's call for concrete programs to fight poverty in March 1999, the National Anti- Poverty Commission (NAPC) - the main agency of government tasked with coordinating the anti-poverty program - directed local government units (LGUs) to identify the 100 poorest families from four or five poorest barangays in their respective jurisdictions. An excerpt of the series of memorandum circular issued by the DILG is as follows: "Using the guidelines issued by NAPC, the LGUs shall identify the poorest families from five barangays in each province and city The poorest families in each of these barangays shall form one cluster containing twenty (20) to twenty-five (25) families. Each cluster shall be nurtured by the concerned national agencies and local government into a self-sustaining community-based cooperative. Each cluster shall organize itself into livelihood groups, each of which shall contain four to six families. A livelihood group shall elect its group leader and shall identify and manage one group-based livelihood activity." Given that there are about 76 provinces and 80 cities in the country, the program will identify about 15,600 households in its first year of implementation. The households will be formed into groups of five to form the Livelihood Groups (LG). The expected 3,120 LG units will form the first batch of small enterprises to be supported by the anti-poverty program of the administra- tion. The one hundred poorest families are to be selected as follows: Structure: In the case of the provinces, the Governors shall identify five (5) most depressed municipalities in its area of jurisdiction. The Municipal Mayor of the identified munici- palities shall identify one (1) most depressed barangay. In case of cities, the City Mayor shall identify five of its most depressed barangays. The barangay captains in the chosen municipalities and cities shall, in consultation with the barangay council, identify twenty (20) of the poorest families, representing one cluster, in his or her barangay. Each cluster shall organize themselves into livelihood groups composed of five (5) families per group with an elected group leader and a set of rules and regulations which all members shall commit to observe. All the designated group leaders shall form themselves into the Ugnayang Pangkalakan sa Barangay (or the barangay entrepreneurial unit). This unit for each barangay shall be the grassroot, socio-economic institution to be recognized by government as representative of the cluster. It shall also be developed as the initiating group that will form the community-based cooperative that may be established in the barangay concerned. Criteria for Selection: The identification of the poorest barangays shall be based on indicators such as the minimum basic needs (MBN), the human development index, their location, occupation/nature of employment, and their primary resource base. In the barangay level, there should be: Willingness of the barangay to undertake the project. Willingness of the barangay council to pass a resolution to guarantee a portion of the loan; and, -Proper information to all households as to the selection of the poorest families. A barangay assembly shall be called for this purpose. Symo Mechanisms: 0n the national level, the Department of the Interior and Local Government (DILG), in coordination with the NAPC, shall be responsible for the creation and monitoring of the 100 Poorest Families Program. The designated local government unit (LGU) shall provide infrastructure support to their respective poorest barangay and guarantee the loans for micro-finance operations of the poorest families. Infrastructure support, at the minimum, would consist of the provision of a common warehouse and a livelihood center. The designated LGU shall provide assistance to the poorest families towards their eventual formation into a community-based cooperative or integration into the cooperative that is actively operating in the area, as certified by the Cooperative Development Authority (CDA). The barangay captain of the selected depressed barangays should show good leadership towards the development of their designated cluster and is expected to provide guarantee to portions of the loans incurred by the livelihood groups. Micro-finance operations to the livelihood groups shall be expected to come from government financial institutions, government corporations engaged in livelihood development, and other concerned agencies of government. It shall be impressed on the chosen household that there exist a joint guarantee system among members to pay the loan that their livelihood groups incurred. 32 FO VERTY IN THE PHILIPPINES leading to regressive taxes, and producing shoddy ment Code. This was motivated in large part by a construction that can result in accidents and fatalities desire to improve service delivery by bringing gov- Corruption also inflicts untold social damage, leading ernment services in closer contact with users. It was to a corrosion of social values and creating deep mis- also expected that devolution would put local gov- trust of government and ruling elites among the poor. emments at the forefront of the fight against pov- Corruption in the judiciary is particularly pernicious erty The code established three levels of local gov- as it amplifies the vulnerability of the poor to the ernment (provinces, cities and municipalities, and whims and interests of private employers and public barangays) and assigned to them major responsibili- officials alike. ties in the fields of agriculture, environment and natu- ral resource management, health, public works and 102. Because corruption reduces resources avail- highways, and social welfare development." able for poor communities and undermines public confidence in the government's will and capacity to 105. Considerable resources are involved in this serve the poor, an anti-corruption strategy is an es- initiative. Alongside the devolution of responsibili- sential complement to government's pro-poor and ties, the Local Government Code of 1991 vested local pro-growth stance. Popular opinion surveys in the governments with revenue raising powers and ex- Philippines draw a strong link between good gov- panded the share of national revenues transferred ernance and meaningful efforts to combat poverty under the Internal Revenue Allotment (IRA).'9 The Additional information on perceptions of and ex- magnitude of these transfers is rapidly rising: from perience with corruption will soon become avail- 18 percent of the national government budget in 1996 able through a special round of the SWS survey, the to 24 percent in the President's budget for 2000 (ex- surveywill allow a better understanding of howthese cluding debt service). differ by respondents' income level. 106. Has Decentralization Been Pro-Poor? 103. Building upon the many favorable conditions No systematic evaluation has been made of how in the Philippines - a vibrant civil society and media, local governments have actually performed in de- a legal framework and specific institutions charged livering the functions devolved to them or in allevi- with combating corruption in the public sector - ating poverty Whereas there is considerable anec- the World Bank's recent report on Combating Corrup- dotal evidence of decentralization having stimulated tion in the Phihppines identified nine key elements for local authorities to improve service delivery, it is also an effective national anti-corruption program. These the case that local governments have so far failed to are designed to reduce opportunities and motivation assume some of the functions devolved to them, for corruption (e.g., policy reforms and deregulation particularly for school construction. Many questions to reduce economic rents; campaign finance reform; have also been raised about the local governments' and budget reform, improving meritocracyin the civil service) and make corruption a high-risk, low-returnT, activity (byincreasing public oversight; and enhancing Figure 11: Transhanc laternaional corruption sanctions against corruption, supporting judicial re- 4 form). This report urges action in line with these rec-35 ommendations as an essential ingredient of pro-poor 3 policies. 25 Decentralization 5 104. The devolution of responsibilities to local 1980-85 1988-92 1995 1996 1997 1998 1999 governments started under the 1991 Local Govern- NoIe S,-7 1//0'h71S0or10 M& werprcpt1 n 0191tacorrO,PO Source- World Bank (2000c3 PHILIPPINES POVERTY ASSESSMENT continuing capacity to deliver such key services as dependent evaluation of the experience with the agricultural extension, primary health, or even local Code, leading up to recommendations for possible roads maintenance. As concerns health, for instance, legislative or administrative action. Agenda items the increasing share of resources devoted to public might include: (i) reassessing the scope of devolved health services notwithstanding, there are concerns services against the actual performance of local gov- that the referral system has broken down, that the ernments; (ii) re-evaluating the appropriateness of technical integrity among the different levels of the the existing arrangements for administrative, finan- system is not being maintained, and that the quality cial, and human resource management at the local of services is suffering as a result. government levels, as well as the effectiveness of existing accountability (to local constituencies and 107. There are many reasons why decentraliza- oversight agencies), and audit mechanisms; and (iii) tion in the Philippines may be producing mixed re- reviewing the IRA formula with a view to improv- sults. There could, for example, be a mismatch at ing its equity incentives for local revenue mobiliza- the aggregate level between newly devolved expen- tion, as well as its overall fiscal sustainability Many diture and revenue responsibilities, but there is no of the recommendations for remedial action will firm evidence to support this contention. Weak in- need to be based on in-depth institutional assess- stitutional capacity at the local level is likely to con- ments of both national and local government agen- strain abilityto deliver quality services while political cies. While this is beyond the scope of this report, patronage at the level of local governments may be the analysis of the system of intergovernmental trans- thwarting incentives to be responsive to the needs fers presented below suggests that there is room of poor constituencies. With the number of politi- for enhancing the redistributive potential of the cur- cal appointees almost as large as in the national ex- rent scheme. ecutive and with local elections held everythree years, lack of continuity is also an important problem 109. Intergovernmental Transfers. How (World Bank 2000b). Finally national departments devolution affects regional welfare disparities de- have not provided all the support that local govern- pends in part on how resources are transferred from ments may have needed. If some national depart- the national to local government units. As noted ments (e.g., Social Welfare and Development) have earlier, there are important and persistent geographic diligently adjusted their structures and operations to differences in social and economic outcomes in the support devolution, others are only now beginning Philippines, including the distribution of income- in earnest (e.g., Health). In manyrespects, these prob- based poverty malnutrition, health indicators such lems are not unique to the Philippines. International as infant mortality, enrollment and educational at- experience suggests that devolution is a complex tainment. Public policies can affect the extent to policyintervention where success depends on a large which these geographic differences are corrected. number of factors (see Box 6). For example, social expenditures can be targeted geo- graphically, and transfers from the central govern- 108. The full impact of decentralization can only ment to local governments can be designed in such be judged over decades, not years, of implementa- a way as to favor poorer provinces and municipali- tion and adjustment. Indeed, the authors of the Local ties. Government Code did not believe that they could get it fullyright the first time. Rather, theyenvisaged 110. The main block grant from the central gov- that decentralization would involve a substantial part ernment to local governments in the Philippines is of learning-by-doing, and a regular need to review the Internal Revenue Allotment (IRA). IRA trans- practical experience and make mid-term corrections. fers to provinces, cities, and municipalities are based It is now time for such stocktaking to take place. on a formula which considers the population, area, One possible way would be to commission an in- and an "equal share" component, while IRA trans- 34 POVERTY IN THE PHIL IPPINES Box 6: Decentralization, Redistribution, and the Provision of Social Services Efforts to decentralize various government functions, including the provision of social services, are underway in scores of developing countries. Perhaps the most important economic appeal of decentralization is that it can result in increases in allocative efficiency if lower tiers of government have better information about household preferences. Because decentrali- zation can make more apparent the connection between taxes collected and services provided, it may increase consumers' willingness to pay for these services. Decentralization can also provide better opportunities for local residents to participate in decision-making, result in greater accountability of public officials, and strengthen democratic processes. On the other hand, decentralization may lead to increases in regional disparities and greater inequity. Moreover, if local governments do not have adequate capacity, some of the expected increases in efficiency could fail to materialize. There is no cookbook recipe for successful decentralization, but the following issues require consideration. The function or service to be decentralized: Decentralization is not an "all-or-nothing" proposition. In many instances, efficiency gains may be possible without increases in inequality if the central government keeps primary responsibility for financing while local governments take over responsibility for spending decisions, inputs, and implementation. Some social services may inherently be more difficult to decentralize than others. Economic theory suggest that redistribution may best be carried out by higher levels of government, because labor mobility will make attempts by lower jurisdictions to change the distribution of income self-defeating as the poor gravitate to areas of high redistribution, while the rich cluster in areas of low redistribution. Still, even if central governments take primary responsibility for the financing of safety nets, and establish the criteria which determine eligibility for transfers, local governments may have an informational advantage screening appli- cants. Decentralization of the health sector is also complicated because of the need for effective referral across levels - from health posts which provide basic services, to high-technology hospitals. Unless these inter-linkages are considered carefully, decentralization can result in a deterioration of some aspects of the services provided, as may have happened in the Philippines, Bolivia, and Zambia. The level of the sub-national government to which responsibilities are decentralized: Economists often argue that decentralization should follow the principle of "subsidiarity," whereby decisions are made at the lowest level of government consistent with allocative efficiency. This often involves a careful parsing out of responsibilities. In education, for example, national governments are often responsible for setting standards, curriculum development, and textbook production and distribution; and local governments, communities, and parent-teacher associations are responsible for construction and maintenance of school facilities, and the day-to-day running of schools, as what happens in a multitude of countries, from the United States to Bhutan. International experience suggests that efficiency gains in the provision of social services frequently materialize when the central government devolves responsibilities to the community or facility level, but rarely when they are devolved to provinces or regions. In every instance, it is important that revenues for social services follow responsibilities for their delivery. The extent of community mobilization and oversight: Increases in allocative efficiency in the delivery of social services can only take place if more accurate local information can reach decision-makers, and if there are mechanisms whereby these decision-makers are held accountable for their performance. In Colombia, accountability to constituents pushed local mayors to concentrate more on training and hiring effective civil servants. In Northeast Brazil, community oversight and fear of job loss helped motivate civil servants. Initial conditions: The initial distribution of income is important. If income is distributed more unevenly within jurisdictions than across them, decentralization could be equalizing if local authorities have the capacity to transfer income to the poor and share the equity objectives of the center. On the other hand, if there are large initial differences in capacity or jurisdictions that do not share the same equity objectives, some sub-national governments may not effectively target the poor. Central governments may therefore have to target poverty funds themselves or create stronger incentives for sub- national governments to do so. 35 PHILIPPINES POVERTY ASSESSMENT Figure 12: IRA Allo4ationsae Unrelated to the Poor 4000 4000 300unw)c 3000 ae _2000 E* oaco o o 2000eo 4** co 1000 0 a o 0 0 0 20 40 60 80 100 0 5 10 15 20 25 30 35 Incidence of Poverty, 1997 Depth of Poverty, 1997 Source Balisacan (1999a),3a statica/1cU/ationlS. fers to barangay onlytake into account population 112. Allocation of central government resources and the equal share component. There is, therefore, is sometimes also guided by the economic classifi- no redistributive intent in the IRA formula. To see cation of local government units under the Local whether IRA transfers are redistributive in practice, Government Code (LGC) froml1 to 6, with 1 con- we aggregate transfers to provinces, cities, munici- sidered the most well- off. How well does this clas- palities, and barangay for every province, and graph sification reflect povertyincidence at the provincial the per capita transfers to provinces as a function of level? On average, provincial classification under the the incidence and depth of poverty Figure 12 shows LGC is correlated with poverty incidence but that that there is essentiallyno relationship between pov- there is large variation within a given class (Figure erty and IRA allocations, suggesting that the main 13). Hence, there are a large number of provinces block grant from the central government to local in class 3 and above that are less poor than many Governments does not help to reduce regional in- provinces in classes 1 and 2. This is not altogether equalities. surprisig because the economic classification of LGUrs is based on total revenues at the disposal of 111. Intergovernmental grants are an important LGUs, including IRA, and because the allocation of source of revenue for sub-national governments in most developing countries. The design of these transfers affects the efficiency and equity of local service provision. Box 7 summarizes some consid- on erations which should be taken into account for thed design of an optimal schee of intergovemnmental On average. provinces a a es the economic classification moves frorn 1 to 5 but large variation within a given class suggests considerable grants. One important objective of intergovernmen- room for improved targeting tal transfers in many countries is to reduce regional 100 Incidence fiscal disparities without providint acccentives to local resource mobilization. One recommendation 60 of this report is that the Philippine government con- 40 15 40 sider incorporating an explicitlyredistributive com- 2 C I ponent into the IRA scheme to enable all local gov- * enments to provide adequate social services to their 0 1 2 3 4 5 6 7 constituents. Economic class of provinces Source: Staffcalculations 36 POVERTY IN THE PHILIPPINES Box 7: The Design of a System of Intergovernmental Grants The design of the most appropriate formula for intergovernmental transfers is a difficult issue, and often reflects some combination of the desire to equalize fiscal capacity or to reduce disparities in the levels of public service and to encourage local governments to mobilize resources. First, the formula may be designed to reflect differences in expenditure needs. Different indicators can be used to measure expenditure needs: (i) population; (ii) indicators of physical factors that may lead to greater costs of service provision, e.g., land area, population density, urbanization; (iii) measures to reflect the concentration of high cost population in the local government area, for example, the percent of families living below the poverty line, the percent of the population on pensions, the percent of school-aged children; and (iv) indicators of infrastruc- ture needs, such as the miles of paved highways, percent of households with access to adequate water supply, etc. Second, the intent is income or fiscal capacity equalization, which means an equalization in the capacity of local govern- ments to finance a given level of services. The grant formula attempts to provide more money to those local governments with a lower capacity to raise taxes. Such a formula may allocate funds according to the level of average income in the local area. Since this provides no incentive for the recipient government to increase its tax effort, the formula often includes a measure of tax effort, or requires the maintenance of some level of revenue mobilization as a condition of receiving the grant. Third, the grant formula could reflect a balance between revenue raising capacity and expenditure needs. But once local governments get additional resources, there is no guarantee that these resources are used to finance services that the poor value. Different types of intergovernmental grants can be used to influence the allocation of local government resources. For example, if national governments want to ensure minimum standards of service provision, grants could be provided conditional on the funds being used for a particular purpose, such as basic health services, and with conditions on standards of service and access. Such transfers ensure that the recipient government spending on a particular category will at least be equal to the amount of the grant. There are alternative grant types, such as matching grants or cost-sharing programs, which are conditional transfers that require funds to be spent for specific purposes and the recipients match the funds to some degree. Such transfers have an income effect, as the subsidy gives the community more resources, and a price or substitution effect, since the subsidy reduces the relative price of the subsidized service. Matching transfers may change local priorities, which may be the desired outcome if the objective is to achieve national policy objectives. This type of grant has the potential to be inequitable, since richer communities can raise matching funds more easily. But this effect can be offset by adjusting matching rates to local government wealth. Source: Bahl (1999). IRA itself was not found to be correlated with pov- the unprecedented recognition and engagement of the erty levels. Reliance on the economic classification NGOs as partners of the government in carrying out under the LGC for targeting of anti-poverty pro- development and reform programs. With the explo- grams is therefore not advisable; there is sufficient sion of civil society initiative in the nineties, broader information for more effective targeting at the pro- approaches to poverty alleviation began to emerge vincial level. whereby the poor came to be seen not merely as re- cipients/beneficiaries of government programs or Civil society participation policies, but as agents of their own destinies. This helped shape the development of a consensus around the need 113. Along with a vibrant press and a vocal, if nar- to ensure equitable access to assets and productive row labor union movement, the participation of non- livelihood, and to secure the rights of poor comuni- government organizations (NGOs) in public affairs has ties (e.g., fishing rights, indigenous peoples' ancestral do- been one of the greatest developments of the decade. main) and individuals. Empowerment of the poor In addition to enhancing availability of public infor- through social mobilization came to be considered both mation and scrutiny of public policies, the people's as an end in itself and as an essential instrument to de- power revolution in 1996 created the momentum for liver on the equity agenda. To that end, a Community 37 PHILIPPINES POVERTY ASSESSMENT Box 8: Community-Based Monitoring of Poverty in the Philippines The origins of community-based monitoring of poverty and local targeting of social programs were under the Social Reform Agenda (SRA) of the Ramos Administration. The Minimum Basic Needs (MBN) system collected information on 33 indicators from a 2-page questionnaire, for all households in a locality, using local volunteers and manual data analysis. The MBN approach was first implemented in the 20 poorest provinces then expanded to all remaining provinces and renamed the MBN-Community Based Information System (MBN-CBIS) when it was officially adopted by the government in 1995. In 1996, the National Statistics Office (NSO), with the support of UNDP, assisted the program in refining the list of indicators and developing a system for aggregating the information. The number of core indicators was reduced to 24 and grouped into Survival Needs (basic and reproductive health, food, nutrition, water and sanitation); Enabling Needs (schooling, participation in peoples' organizations, literacy); and, Security Needs (employment, shelter, income, avoidable deaths). The data collection form was revised to make data processing easier. This improved system, called the Community-Based Poverty Indicators Monitoring System (CBPIMS) was applied in six pilot provinces in May 1999, focusing on the 5* and 6* poorest class municipalities. Some 56 municipa;ities, 1,290 barangays, and 205,000 households were involved. Results are being aggregated at the municipal and provincial level. Based on the results, the community is to develop a list of priority projects for which they can request co-financing. These systems have less consistent methodology and uneven implemen- tation across communities, compared to surveys implemented by government agencies. However, they remain important tools for engendering local participation in poverty reduction efforts and are an independent source of information that can lend insights when combined with the results of systematic household surveys. Based Minimum Basic Needs Monitoring System was ernment organizations (Chapter 1, Volume II). It is developed to involve the communities themselves in not clear whether this is a symptom of poverty or the identification of basic needs requirements (Box 8). has some causal effect on welfare: low membership in cooperatives may lead to less information and 114. The passage of the Anti-Poverty Bill in lower bargaining power for the poor with negative December 1997 and the subsequent creation of a impact on economic activity while the findings on National Anti-Poverty Commission (NAPC) to POs and NGOs may suggest that the poor may be monitor and coordinate the country's fight against inadequately served by these important intermedi- poverty served to embed the objectives and voice aries. There is a clear momentum to civil society en- of people's empowerment in a national institutional gagement in influencing policies and helping deliver structure. In keeping with the spirit of empower- services and the instruments and institutional frame- ment, the Commission is composed of representa- works have been put in place to build on this mo- tives of the major departments involved in poverty mentum. It is now up to the players involved to rise reduction, as well as the most affected sectors of to the occasion. society farmers, fisherfolk, urban poor, formal and informal labor, women, youth and students, chil- INFORMING PRO-POOR POLICIES dren, senior citizens, persons with disabilities, vic- tims of disasters and calamities, cooperatives and 116. To improve the effectiveness of poverty re- NGOs. duction programs, local and national policymakers need information that allows them to monitor poverty lev- 115. In many ways, the empowerment agenda els, understand the causes of chronic and transient pov- remains unfinished. Particularly disturbing is the re- ertyand measure the impact of povertyreduction poli- cent finding that poverty is correlated with low lev- cies and programs. Making this information available els of association. The poor are less likely to belong to researchers, and more generally the public, helps to a cooperative and fewer of them are also mem- improve the quality of the diagnosis and build consen- bers of people's organizations (POs) or non-gov- sus around objectives and policies to attain them. 38 POVERTY IN THE PHILIPPINES Information needs of poverty are thus important to consider in de- signing an effective poverty reduction strategy 117. Monitoring Poverty. Who are the poor? What are their characteristics and where do they live? 119. Evaluating the Impact of Poverty Policymakers need information on the level and depth Reduction Programs. Impact evaluation helps of poverty trends inpovertyovertime, and the move- policy makers identify and select the most cost- ment of households into and out of poverty. effective poverty reduction strategies. Large-scale Povertyis multi-dimensional; povertyindicators should household surveys maynot capture a sufficient num- therefore include not only income and/or expendi- ber of people participating in any given program to ture-based measures, but also direct measures of provide for proper evaluation. Further, they usually individual and household well-being, like schooling, relyon a single cross-section of households and have health status, and access to safe water, as well as re- limited or no information on project inputs or out- spondents' own perceptions of their place in the puts. Impact evaluation must quantifythe outcomes income distribution and changes in living standards. for poor and non-poor over time, relative to what Poor households can be part of the chronic poor would have happened in the absence of the pro- or recently pushed into poverty, in response to a gram. This usuallyinvolves baseline and follow-up shock against which theycould not insure themselves. data collection, documentation of program inputs, The abilityto distinguish between chronic and tran- outputs, and costs, and setting up a control group. sient poverty is important for designing and target- Without such a careful design, it is difficult to confi- ing different types of poverty reduction programs dently attribute changes in welfare or povertyto the - those that improve the long-run productivity of program, as opposed to changes that might have the poor and those that provide temporary assis- occurred anywayin its absence. tance to households recovering from an adverse shock like the El Niflo or an economic crisis. 120. These information needs - the levels of poverty, the causes of poverty, and the impact of 118. Understanding the Causes of Poverty. poverty reduction programs - are the foundation Monitoring poverty and the characteristics of the for efforts to improve the effectiveness of public poor is useful in identifying households in greatest anti-poverty policy They may be met by a combi- need, but it is not sufficient for understanding why nation of data collection activities from the public some households remain poor while others do not. and private sector, quantitative and qualitative, from Policy makers need information that relates poverty the top down and the bottom up. Independently outcomes to potential causes or determinants: the collected data from different sources can confirm household's productive assets (human and physical the basic trends found by any one source. Qualita- capital); the activities and allocation of time of house- tive data may yield important insights or hypotheses hold members; access of the household to public on dimensions of poverty and its causes that cannot and private services; participation in formal and in- easily be quantified. formal safety nets, including government anti-pov- erty programs; receipt of public and private trans- Evaluating the information base in fers; and the impact of exogenous environmental the Philippines factors, like local consumer and producer prices, rain- fall, drought, natural disasters and epidemics. There 121. There are five main categories of informa- are always some factors that are difficult to observe tion available in the Philippines for monitoring pov- or record on a household survey questionnaire, but erty and poverty reduction programs. these may be important for welfare outcomes. Sub- jective views of the poor and non-poor on the causes 39 PHILIPPINES POVERTY ASSESSMENT Box 9: Monitoring Dimensions of Poverty: Household Surveys The Family Income and Expenditure Survey (FIES) is the main instrument for monitoring the levels and depth of poverty in the population. Conducted every three years since 1956, the FIES collects comprehensive information on the annual income and consumption of a national cross-section of Philippine households. It is from these data that government can assess the official poverty line in terms of household income and obtain estimates of the extent and geographic distribution of poverty. The FIES results are also used to weigh the Consumer Price Index (CPI). The most recent FIES was in 1997; the sample size was expanded to 41,000 households to obtain poverty estimates by province. The objective of the Annual Poverty Indicators Survey (APIS) is to monitor trends in non-income dimensions of poverty and well-being. These include: demographic and socioeconomic characteristics of all household members; education and school attendance; health status and use of health care; use of family planning and maternal and child health services; housing characteristics; access to safe water and sanitation; main and secondary economic activities. The APIS was specifically designed to measure poverty indicators not collected by the FIES and to monitor trends during the two intervening years between the triennial FIES but as discussed earlier, comparability between the FIES and APIS was impaired. Another key feature of the APIS that distinguishes it from the FIES is that it collects information on the characteristics and welfare of individual household members, while the FIES contains only summary information on the characteristics of the head of household. The APIS was piloted in the spring of 1998 and launched on a national scale in October 1998 on a sample of roughly 40,000 households. The timing of the survey presented an opportunity to include a set of subjective questions about the impact of the financial crisis and thee El Niflo. The second APIS, conducted in October 1999, while keeping the same basic questionnaire as the previous year to maintain comparability of indicators over time, incorporated several small improvements in the methodology that greatly enhanced its potential use for analyzing poverty transitions, the determinants of poverty, and the incidence of public subsidies. The 1999 APIS re-interviewed a panel of 10,000 households interviewed in 1998, making it possible to track changes in individual and household welfare over time. Household members in the 1999 APIS were also linked to their responses to the Labor Force Survey, making it possible to analyze the labor force characteristics of the poor and non-poor. The use of public vs. private services, participation in anti-poverty programs, and receipt of public and private transfers was more systematically recorded, making possible a comparison of the use of public services by the poor and the non-poor. Finally, the 1999 APIS included a set of subjective questions on recent changes in welfare and respondents' assessment of their own location in the income distribution, permitting a comparison of objective and subjective changes in (non-income) poverty indicators within the same households. Nationally representative household survey conducted - their outputs and in some cases, their outcomes, by the government. These include the two main na- like school enrollments. tional surveys with explicit poverty-monitoring ob- jectives - the Family Income and Expenditure * Special surveys and decentralized monitoring sytems. Survey (FIES) and the Annual Poverty Indicator These include specialized surveys and community- Survey(APIS) - and other more in-depth surveys based monitoring of nutrition, often linked to on specific dimensions and determinants of pov- specific national and provincial programs of erty, such as the quarterlyLabor Force Survey (LFS) public and non-governmental agencies. and health and literacy surveys conducted every five years (see Box 9). * Community-based assessments of poverty. These systerns generate information on local poverty and * Administrative reporting systems. These systems, basic infrastructure on the basis of which local which maybe facilityor contact- based, collect per- officials can identify the poorest households and formance indicators for government services, like set priorities in resource allocation. The system in health, education and agriculture, that are elements widest application is the Minimum Basic Needs/ of the povertyreduction strategy Theydocument Community-Based Information System (MBN- the extent to which programs were implemented CBIS). The involvement of communityvolunteers 40 POVERTY IN THE PHILIPPINES in data collection and the feedback of results to chronic poor and the transient poor. Even then, the the communityenhance transparencyand empower ability of the system to track transitions into and out communityparticipationin these decisions. of poverty is still weak (based on non-income indi- cators only) and it is not clear whether the panel de- Private monitoring of self-assessed poverty. The Social sign will be maintained in subsequent rounds. Weather Station (SWS) surveys measure the per- ceptions of a national sample of 1,200 voting-age 125. Second, the income-based estimates of pov- adults on a range of issues related to their welfare, erty from the FIES are available only every three including a subjective assessment of whether they years. With this frequency, the FIES will not be use- consider themselves to be poor. The SWS has pro- ful in monitoring changes in poverty arising from duced a time series of 34 national surveys from acute events like the East Asian crisis or the El Nifio. 1981 to 1997. It provides an additional dimension The APIS indicators, on the other hand, are col- to the long time series on objective measurements lected annually but we do not know how they of poverty is independent, and complements the "map" into income- or expenditure-based mea- community-based and national sample survey ap- sures of poverty from FIES. The two surveys are proaches. conducted in different years and APIS includes a greatly reduced set of income and expenditure 122. How adequate is this existing information questions that are not comparable to FIES. The base for informing pro-poor policies? The informa- SWS survey is conducted quarterly but again can- tion base is strongest in monitoring levels and trends not be used as a proxy for the quantitative changes in quantitative and subjective measures of poverty, it in poverty that would be measured by the FIES. is weaker in the abilityto distinguish between chronic and transient poverty and to analyze poverty deter- 126. The community-based information collection minants.Fewanti-povertyprograms inthe Philippines systems (MBN-CBIS), even when regularized and have been subjected to rigorous impact evaluation aggregated to provincial levels, are not substitutes for the quantitative measures of the FIES or APIS 123. Monitoring Needs. The major strength in monitoring poverty. The advantage of the of the existing information base is the diversity of community-based systems is that they may be cost- poverty indicators collected from independent effective at the local level in identifying poor house- sources. The types of indicators include traditional holds and they encourage the formation of social income- and expenditure-based measures of pov- capital (Conning and Kevane, 1999). However, there erty from the FIES, non-income welfare indicators are also disadvantages that undermine the useful- at the household and individual level from the APIS, ness of the results in terms of monitoring poverty subjective assessments of relative poverty from the nationally and allocating resources across commu- Social Weather Station, and community-based as- nities. First, communities vary greatlyin their ability sessments from the MBN-CBIS. The FIES and SWS to collect information in a consistent and sustainable surveys have been collected for many years, making way The uneven capacity results in possibly large it possible to track trends. vaniation in the quality and accuracy of results when comparing across communities. Second, when the 124. Nevertheless, there remain important gaps in results of such a local assessment can influence re- monitoring capacity First, until the recent use of source allocation, there is an incentive to portraythe panel data and retrospective questions on changes in situation in such a way as to obtain more resources. well-being by the 1999 APIS, there was no moni- There are also important caveats to the use of these toring of transitions of households into and out of systems for targeting anti-poverty programs: to the poverty, nor an ability to distinguish between the extent that communities are empowered to decide 41 PHILIPPINES POVERTY ASSESSMENT on their own targeting criteria, some communities 128. Evaluating Program Impact. The Philip- may be reluctant to target the poor. Given a choice, pines has rich experience with several large and a some poor people might prefer that national gov- multitude of smaller pilot poverty reduction pro- ernment make the decision on targeting criteria. grams and policies implemented by government and Unfortunately the accuracy of targeting by these non- governmental organizations, but very few have community-based systems is very difficult to evalu- been subjected to in-depth impact evaluation. A ate. It is impossible to tell whether a lack of correla- rapid assessment of pro-poor programs in 1999 tion between objective measures of poverty and found that most programs had some type of as- characteristics of households receiving benefits is due sessment mechanism- including institutional moni- to poor targeting or to incomplete information pro- toring of program inputs and outputs, case studies, vided by the quantitative measures. Thus, commu- and documentation of success stories. However, nity-based assessments are important complemen- in most cases there was no framework that would taryinformation but they are not in any sense a sub- identify the impact of the program on welfare out- stitute for more frequent systematic monitoring of comes relative to what might have happened in the poverty based on sample surveys. program's absence. This is best accomplished through specialized in-depth evaluations of the im- 127. Understanding the Determinants of Poverty. pact of specific programs. The existing information base on this is on weaker ground. There are almost no variables at the indi- 129. An impact evaluation needs to be able to vidual or household in the FIES to explain poverty measure welfare before and after the intervention The APIS has much of the necessary household- and to control for other non-project factors that level information required between poverty out- might affect outcomes. This is often accomplished comes and determinants, but not the full income or using baseline and follow-up surveys and some type consumption poverty outcomes measured in the of "control" - either statistical or through the FIES. Until now it simply has not been possible to monitoring of individuals, households or commu- make the necessary links. However, tentative plans nities that did not benefit from the project. Fur- for the 2000 FIES include administering the stan- ther, to be credible, impact evaluation should be dard FIES questionnaire plus an abridged version conducted by individuals who are not involved in of the 1999 APIS questionnaire to all households, program implementation. Measures of program which will greatlyimprove the abilityto analyze pov- impact should be compared with program costs to erty determinants for the first time. The ability to obtain cost-effectiveness estimates of alternative understand determinants would also be helped programs and strategies for improving the welfare greatly by linking results of community and other of the poor. external data to each household. For example, the APIS has a separate questionnaire with summaryin- Improving the information base for poverty formation on the availability of social services that reduction can be linked to households in each barangay. This short "barar*uy questionnaire" could, be deepened 130. The information base for poverty reduc- and augmented with separate surveys of the locally tion can be strengthened through improving the available services or by linking data from the ad- compatibility of the FIES and APIS household ministrative reporting system to households in each surveys, increasing links between poverty indica- arangy in the surveys. Rainfall and price data can tors and determiants, incorporation of panet de- also be linked from external sources, and will likely signs into data collection, and expanding and deep- have strong explanatory power. ening the information on public services and pov- 42 POVERTY IN THE PHILIPPINES Box 10: Recommendations for Improving the Household Survey Information Base 1. Enhance the ability to continuously monitor overall levels of poverty and to understand the relation between different poverty indicators by: adding the non-income poverty indicators of the APIS to the FIES. This would ensure continuity in the monitoring of non-income poverty indicators during years in which FIES is implemented and enhance the understanding of the relation of non-income to income- and expenditure-based measures of poverty; and expanding the consumption expenditure module on the APIS to enable continuous monitoring of levels of an expenditure-based measure of welfare that could be calibrated with the FIES. Official poverty estimates have traditionally been based on the detailed income questions of the FIES, and it is not proposed to change this. However, over time it would make sense to scale-back the household consumption expenditure modules in FIES while expanding the consumption expenditure module in the annual APIS sufficiently to allow for reasonable expenditure-based estimates of household welfare. These two recommen- dations would result, in the longer term, in continuous annual monitoring of non-income poverty indicators and an expen- diture-based measure of household welfare. Every third year, with the FIES, this would be augmented with what would amount to a special, comprehensive module on household income, thereby preserving the long series. 2. Enhance the ability to monitor transitions into and out of poverty by: greater use of retrospective questions, qualitative and quantitative, on changes in household and individual welfare and the proximate reasons; and, greater experimentation with use of panel data within the APIS and FIES surveys, while maintaining national representativeness of the overall sample. 3. Improve the ability to analyze determinants of poverty outcomes by: ensuring that the use of and access to social services and various anti-poverty programs are reflected in all of the household survey questionnaires; expanding the coverage and depth of community questionnaires (like the barangay module) that are implemented in the areas where households are interviewed, to include greater detail on the availability of different types of services and community infrastructure; implementing on a pilot basis specialized questionnaires for the schools and health facilities located in the areas from which households are drawn. These questionnaires would provide greater detail on the nature, quality, access, and price of services. When linked to the household data, this information will allow analysis of the determinants of use of public services by the poor and the non-poor; and, strengthening the links between the household surveys and (i) other surveys in the same households (like the links between APIS and the LFS); and (ii) exogenous information from adminis- trative reporting systems. ertyalleviation programs that can be linked to house- during periods of economic downturns that may holds (see Box 10). Equally important, the govern- necessitate cuts in public spending. Based on such ment can improve the cost-effectiveness of the key evaluations, different government programs could anti-poverty programs by launching external, in- be placed in different categories indicating their rela- depth impact evaluations of selected programs tive importance as part of the budget appropria- and interventions on a regular basis, beginning with tions process. If such procedures were adopted, the largest and most established programs. Periodic government agencies could be required to provide in-depth impact evaluation of programs should evaluation reports on different programs to help become an integral element of the overall poverty policymakers identifysocial programs with high rates reduction strategy, such an evaluation should become of return. a requirement for pilot programs that are proposed for wide-scale implementation with public money THE REMAINING AGENDA 131. Evaluation reports on programs can also 132. This report has aimed to provide an updated be used to inform budget decisions, particularly picture of poverty in the Philippines and a frame- 43 PHILIPPINES POVERTY ASSESSMENT work for identifying priorities in designing a strategy Education. Expanding access to education in rural to attack poverty But this is far from a blue print for areas, reducing school drop-outs from poorer action which would require a more detailed discus- households, improving the quality of secondaryedu- Sion of policies and programs in each area of public cation and increasing access of poor but able chil- intervention, including issues of necessary legislative dren to universities are important priorities that re- changes, institutional design, and costing. This consti- quire public action. Specifically; it would be useful tutes the next step. It is also the next step in the na- to examine the feasibility of "food for education" tional process of consultations that has resulted in the programs in rural areas and scholarships for tertiary National Anti-Poverty Action Agenda. The report has education that are targeted to the poor. Analysis of identified several priority areas that may require fur- the determinants of the gender gap in labor market ther analysis or an implementation plan to be action- outcomes found in this report is also important; the able. These are recapitulated as follows. follow-up could include structured interviews with employers to probe reasons for possible discrimi- Rice policy. The findings of the report lend fur- nation and identify areas amenable to public action. ther support for the timely implementation of the country's commitments under the WTQ and more Health. This report's contributions in identifying recently, the Grain Sector Development Program policies to improve health outcomes is minor. There supported by the ADB. More flexible import poli- is a large agenda of future work here which includes: cies, including providing for private sector imports, analysis of the determinants of health outcomes (dis- along with a targeted program of subsidized rice aggregated for rural and urban areas), the most im- will help the poor. portant of which maylie outside the sector (e.g., wa- ter, education); review of the experience with decen- Land policy. This report's recommendation to re- tralization to determine impact on the quality of ser- consider the design of land reform is consistent with vices provided and success in reaching the poor; re- recommendations included in earlier work from the view of the geographic distribution of spending by World Bank and others. The report provides new the Department of Health; and review of the pro- analysis pointing to an adverse impact of CARP on gram of health insurance. the landless poor on account of reduced access to land; there is a need to confirm this finding which is Housing. The report finds that urban housing pro- based on a small survey of five villages with a larger grams are highlyregressive. Further work in this area nationally representative survey The recommenda- should focus on an evaluation of the cost-effective- tion to establish a progressive land tax that would ness and targeting efficiency of existing programs obviate the need for compulsory sale of large hold- as an input into reforming the government's hous- ings as currently mandated under CARP has far- ing policies. reaching implications and requires detailed scrutiny of legislative, institutional and political constraints to Safety nets. Further analytical work is required to implementation. determine as to what extent private transfers perform an insurance function. Other priorities include de- Regional policy. The report recommends a role signing an effective workfare program as part of the for regional policies in helping poor and lagging Philippines permanent safetynet to mitigate the im- regions. A multi-sectoral working group could be pact of macro-level as well as idiosyncratic shocks. established to consider long-term development This would build upon lessons learned from the plans for some lagging regions, such as the East- country's past experience with public works and re- ern Visayas, with a view to identifying key public cent efforts in other countries. There is also a need interventions. to examine the effectiveness of the multitude of 44 POVERTY IN THE PHILIPPINES targeted programs currently under implementation. poses of (targeted anti-poverty) program placement Starting with an inventory of programs (annexed to should be reconsidered; there is scope for better the National Anti-Poverty Action Agenda), it would poverty targeting, at least at the provincial level. be useful to map spending levels by province to de- termine effectiveness in targeting poorer provinces. Monitoring poverty. The report makes a number Selecting a few of the more important programs of recommendations to improve poverty monitor- for detailed impact assessment should also be con- ing and analysis. The next steps would involve de- sidered; the 100 Poorest Families Program should veloping a blue-print for an information system de- be among those selected. signed to provide timely and relevant information to the public and to decision-makers to improve Intergovernmental transfers. The report finds that the effectiveness of poverty reduction programs. IRA transfers are not correlated with the prevalence of povertyin the province. In the context of ongo- 133. The Government of the Philippines is well ing discussions on reforming the system of inter- placed to build on the momentum established do- governmental transfers, it would be important to mestically through extensive national consultations propose various formula-based options to make and to capitalize on renewed donor focus on the IRA more responsive to poverty status without un- core objective of poverty alleviation so as to move dermining incentives for revenue collection. The use from strategyto action. This report is intended as a of the economic classification of LGUs for pur- contribution to that process. 45 PHILIPPINES POVERTY ASSESSMENT Endnotes 1 This is obtained by dividing the poverty gap index by the headcount ratio. The poverty gap index can be expressed as the product of the headcount ratio and the average poverty deficit of the poor (as a proportion of the poverty line). 2 The official poverty line is based on a food bundle which corresponds to the average within a region rather than the food bundle of the poor in the region. As a result, the differential between the official and basic needs poverty lines tends to be greater for the richer regions, again reflect- ing the relatively more expensive food bundles typically consumed in the richer regions. An- other difference potentially contributing to the relatively higher official food poverty lines is that while the basic needs food poverty line is anchored to the norm of 2000 calories per person per day, the official line is calibrated to both that caloric norm as well as the recommended daily allowance (RDA) for proteins and 80% of the RDA for vitamins, minerals and other nutrients (NSCB 1999a, and Balisacan, 1999a). There are other differences between the estimates reported here and the official estimates. An important one is the use of per capita income rather than consumption as the welfare measure in the official methodology. This however contributes in the direction of lower official poverty estimates reflecting some positive savings even among those below the poverty line. Using income per capita and the basic needs poverty lines, poverty incidence is estimated to be 22.1 percent. See Annex A, Volume II, and Balisacan (1999a) for further discussion of the difference between the two approaches. 3 The projections assume that relative inequalities within sectors do not change and that average consumption growth for households in a given sector mirrors the growth of value added within that sector. The resulting estimate for 1998 is consistent with the estimated impact of the crisis, as discussed further in the main report and in greater detail, in Chapter 5 of Volume II. The estimates in Chapter 5 indicate a 9 percent increase in the incidence of poverty due to the crisis. 4 These regions also include urban areas so "true" rural-urban differentials are likely to be much higher. 5 Fertility rates are high for poorer households (6.5 for the lowest quintile in rural areas) but the measure of welfare used in the DHS survey, which is based on per capita assets rather than income or consumption, suffers from the same problems discussed earlier regarding economies of scale and household composition. 6 52 percent of secondary school graduates who are aware of family planning methods and know where to obtain the services reported using contraceptives whereas only 37 percent of women who never completed a grade did (based on 1998 APIS). 7 The decline in poverty during 1985-88 may however be somewhat misleading since 1984-85 was a year of sharp economic contraction. Per capita GDP shrank by an average of 10% a year during 1984-85. Based on FIES household data, real mean consumption in 1988 was 10% higher than that in 1985, although arguably still much lower than the level prevailing at the turn of the 1980s. 8 For example, the share of urban households in all Filipino households estimated from successive rounds of the FIES were 38% in 1985, 39% in 1988, 50% in 1991, 50% in 1994 and48% in 1997. The sudden jump in the proportion of urban households in 1991 is on account of a large-scale reclassification of erstwhile rural areas into urban areas. 46 ENDNOTES 9 The 10% increase (decrease) in Gini assumes a proportional outward (inward) shift of the Lorenz curve by 10%. 10 World Bank. (1998a). 11 The FIES survey values the household production of rice at farm-gate prices while household consumption of rice is valued at local retail prices. An (upward) adjustment therefore needs to be made to the value of rice produced in order to make it comparable with the values of consump- tion. Using data on farm-gate and retail prices from the Bureau of Agricultural Statistics and Roumasset (1999) and using a 65% recovery rate for rice (frompalay), the effective differential between retail and farm-gate rice price is estimated to range between 3 0-50% (off farm-gate price). Thus, three alternative adjustment factors of 30, 40 and 50% are used to derive estimates of the value of rice production, and hence of the value of net consumption of rice. 12 For a similar analysis for Thailand, see Deaton (1989). 13 World Bank (2000g). 14 Jalan and Ravallion (1998) found that 49% of poverty in rural China in the mid-eighties was transient in nature. 15 Given the formulation of the question, households would have responded with a yes even if they took their children out of school for a day as a result of the crisis. 16 Initial data (August 1998) from the Department of Education, Culture and Sports suggested a substantial decline in secondary enrolments and constitutes the basis for concerns expressed in the ADB report. 17 Subbarao, et. al. (November 1995). 18 Agriculture: agricultural and fishery extension services, regulation and research; procurement and disbursement of seeds; purchase, expansion and conversion of breeding stocks; and con- struction, repair and rehabilitation of water impounding systems. Environment and Natural Resources: forest management services; mine and geo-science services; environmental manage- ment services; and reforestation, integrated social forestry, and watershed rehabilitation projects. Health: provincial health offices and district, municipal and medicare community hospitals; purchase of drugs and medicines; implementation of primary health care program; field health services; aid to puericulture centers; and operation of 5-bed health infirmaries. Public Works and Highways: repair and maintenance of infrastructure; and barangay road, water supply and communal irrigation projects. Social Welfare Development: program for rebel returnees; barangay day care centers; and poverty alleviation programs in low-income municipalities, barangays and depressed urban barangays. 19 The total IRA allocation is set at 40% of internal revenues of 3 years hence. This amount is further subdivided between level and class of local governments according to a formula. The distribution formula based on population, land area and equal sharing among local governments was retained. A larger weight was given to land area and equal sharing and a smaller weight to population resulting in a double formula based on (i) population (50% weight), land area (25% weight) and equal share (25% weight), on the one hand; and (ii) class of local government (e.g., province, municipality, barangay), on the other. 47 PHILIPPINES POVERTYASSESSMENT References Alba, Michael M. (2000). "Exploring the APIS Data on the Accessibility of Public Services." July. Alba, Michael M., and E. F. Esguerra. (1999). 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