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Spending Our Way
Out of the Global Crisis:
Making It Work for the Poor
and for Our Children
Cielito F. Habito
Ateneo Center for Economic Research & Development
Ateneo de Manila University
Philippines
Overview
 The Backdrop
Persistent Philippine challenges
 Impacts of Financial Crisis, 1997-98 & Now
Human & environmental costs
 Government Responses
Fiscal Stimulus Package
Social Protection Measures
 Looking Ahead
Meeting the MDGs and beyond
Persistent Challenges
Non-inclusive Growth
 Narrow: Growth propelled primarily
by a few leading sectors and
geographic areas
 Shallow: Weak linkages to rest of
economy – e.g., low domestic valueadded exports
 Hollow: Jobless growth; povertyincreasing growth
Top-Heavy Growth,
Bottom-Heavy Needs
 Poverty incidence rose from 30% in 2003 to
33% in 2006
 Real per capita income fell 10% nationally,
and fell in 50 provinces between 2003 and
2006 (PHDR 2008/2009)
 Basic education enrollment rates dropped
in 75% of provinces between 2002 & 2004
 Wide disparities in life expectancy across
provinces: from low of 53.4 (Tawi-tawi) to
high of 74.6 (La Union)
The Crisis Challenge:
• Measures for short-run stabilization
could take a toll on human welfare
and long-run sustainability (financial
stability vs. sustainable human
development: tradeoff or win-win?)
• Financial markets: “Heads you win,
tails I lose” situation for vulnerable
sectors
Asian Financial Crisis, 1997-98
Human Costs
Increased poverty
 Higher unemployment
 Increased school drop-outs
 Increased hunger, malnutrition and sickness
Reduced social investment
 Budget cuts on social services
 Public investments in HD
 Higher cost/reduced private provision of
social services
Asian Financial Crisis, 1997-98
Human Costs
Damaged social capital
• Rise in




Crime incidence
Domestic violence
Child abuse
Street children
• Breakdown in community cohesion
Asian Financial Crisis, 1997-98
Environmental Costs
Reduced environmental investment
• Low priority for environmental investments
• Shelve planned investments in environmentally
sound technologies
• Non-operation of existing environmental
equipment
Easing of environmental standards
• Relaxed policies & standards
• Non-enforcement of existing ones
• Pressure on environmentally-sensitive
exports
Asian Financial Crisis, 1997-98
Environmental Costs
Adverse migration impacts
• Increased pressure on uplands &
coastal areas (“The environment is the
social security system of the poor”)
International Response to the
Current Global Crisis
• Liquidity & budget support (for banks)
• Support for social safety nets
• Monetary easing
• Fiscal stimulus
• Stronger international (G-20) and
regional (ASEAN, ASEAN+3, EAS)
cooperation
The Philippine Balancing Act:
• Fiscal stimulus subject to fiscal
sustainability (record fiscal deficit of
PhP300bn in 2009; return of ‘debt
penalty’?)
• Need for emphasis on social &
environmental expenditures in light
of “past sins”
Domestic Production (GDP):
Government spends its way out
of recession
•Government consumption & construction up 8.5% & 15.7% respectively
•Consumption growth moderates as
consumers pull back
but…
•Total investment spending dropped 10%
even with brisk government construction
•Exports fell dramatically (-15%)
Govt Spending Dominates Growth
Amid Declining Investment
2008
Q4
FY
Q1
Personal Consn Exp
5.0
4.5
Govt Consumption
2.6
4.3
Capital Formation
Of which:
Construction
Public
Private
Durable Eqpt
Br Stck & Orch Dev
-13.1
4.2
8.2
3.2
17.8
-7.9
1.2
6.3
-0.7
11.4
1.7
-1.6
6.7
8.9
11.5 27.7
4.3
-10.1
-18.5 -19.7
1.0
-5.6
Exports
Imports
-11.5
5.0
0.0
-1.1
-14.7 -18.1 -13.6 -13.0 -10.0 -14.2
-20.6 -2.2
0.2
0.1
-2.5 -5.8
Indicator
Q2
2009
Q3
Q3
Q4
FY
1.3
5.4
4.0
3.2
5.1
3.8
4.5
9.7
7.9
8.1
12.1
8.5
-15.1 -10.3 -11.3 -12.1 -0.8
-9.9
1.7
22.2
-9.7
-5.7
1.4
1.7
21.8
-9.4
-4.2
1.5
-2.9
-7.2
-0.1
-0.1
-2.0
5.8
15.7
-4.2
-11.4
-1.4
Digression: The Multiplier Process
1
2
3
4
5
6
7
etc
1,000,000
800,000
640,000
512,000
409,600
327,680
262,144
Savings
Incomes
(20%)
1,000,000
200,000
800,000
160,000
640,000
128,000=
Multiplier
512,000
102,400
1/saving
rate
409,600
81,920
=5
327,680= 1/.2
65,536
262,144
52,429
TOTAL
5,000,000
5,000,000 1,000,000
Round
Spending
The Multiplier Effect is stronger
when:
 Marginal saving rate is lower
 Import content of the
stimulated economic activities
is lower (= domestic content
higher)
Social Sector Spending:
The Best Stimulus
• Labor intensive
 generates more jobs (broader benefits)
 money circulates more among lowerincome, lower-saving individuals
• Lower import content than most other
government projects
 money stays in domestic economy
 generates more tax revenues
• Uplifts people’s lives
Philippine Govt Responses for
Social Protection: Four Components
• Fiscal Stimulus: Economic Resiliency Plan
(ERP)
• Conditional Cash Transfers: Pantawid
Pamilyang Pilipino Program (CCT/4Ps)
• Comprehensive Livelihood and
Emergency Employment Program (CLEEP)
• National Household Targeting System for
Poverty Reduction (NHTS-PR)
RP Fiscal Stimulus Package
Economic Resiliency Plan (P330bn)
• P160B for hiring more teachers, policemen, soldiers & doctors; repair/ rehab
govt buildings; supplies and equipment
e.g. patrol cars, ambulances; agri
support
• P100B for infra investments by SSS, GSIS
• P30B additional SSS, GSIS & PH benefits
• P40B in income tax cuts
CCT/4Ps
Features
• Beneficiary household receives
PhP500(USD11)/mo. for health & nutrition +
PhP300(USD6.50)/mo. for education expenses
for a maximum of 3 children
• Eligible household with 3 children receives up to
PhP1400(USD30)/mo. or PhP15,000(USD326)/year
• Allotted PhP5 bn(USD109m) in 2008 (350,000
beneficiaries); PhP10 bn (USD218m) in 2009
(targeted beneficiaries doubled to 700,000)
CCT/4Ps
Features
Conditions for Grants
• Pregnant women must get pre/post-natal care; must
be attended by trained professional at childbirth
• Parents/guardians attend parenting sessions/classes
• Children 0-5 yrs must receive regular preventive health
checkups & vaccinations
• Children 3-5 yrs must attend preschool at least 85% of
the time
• Children 6 -14 yrs must enroll in elementary/HS and
attend at least 85% of the time
• Children 6 -14 must avail of deworming pills every 5
months
• Compliance monitored by the DSWD; noncompliance
leads to suspension/cessation of grants
CLEEP
Features
• Targets the poor, returning expatriates, export
industry workers, & out-of-school youth by
providing emergency employment and
funding/supervising livelihood projects
• Allotted PhP10bn(USD218m) in 2009
• Administered by National Anti-Poverty
Commission (NAPC)
• Participating Agencies: DA, DepEd, DENR, DFA,
DOH
CLEEP
Contributed Programs
• DA: Gulayan ng Masa, ISLA for Fisherfolks
• DepEd: 1,500 OSYs as school utility workers;
12,300 OSYs trained for livelihood; Negosyong
Pang-Eskuwela (school co-op enterprises)
• DENR: 111,536 “green collar” workers for Upland
Devt Pgm, Bantay Gubat; Jatropha planting,
tricycle LPG retrofitting, etc.
• DFA: FAME (Financial Assistance & Microfinance
for Expatriates) – for laid-off OFWs
• DOH: Botika ng Bayan, Nurses Assigned in Rural
Service (NARS)
Where Are The New Jobs
Coming From?
New Jobs by Sector
(Thousands)
Agriculture
Agri, Hunting & For
Fishery
Industry
Manufacturing
Mining
Utilities
Construction
Services
Jan
2009
61
38
23
-122
-122
2
2
-39
626
April
2009
408
385
28
86
-16
7
6
80
964
July
2009
-177
-214
38
136
-28
39
4
120
921
Oct
2009
-196
-271
75
68
44
5
39
15
1,142
Ave
2009
24
-16
41
42
-30
13
13
44
913
Total New Jobs
565
1,457
880
1,014
979
Where Are The Services Sector
Jobs Coming From?
Services Sector Jobs
626
964
921
1,142
913
W&R Trade
Priv HH Emp
Real Est&Bus Act
Public Admin
Hotels & Rest
Other Services
Transp-Stor-Comm
Health & SW
Education
Finance
Intl Orgs
312
29
118
27
16
14
10
41
87
-28
0
346
139
76
108
41
71
42
51
45
16
0
104
263
132
46
97
57
173
46
99
10
0
356
189
98
82
96
57
142
11
66
10
0
279
155
106
66
63
50
92
37
74
2
0
Who need the jobs?
Profile of the Unemployed
 63.8% are male, 36.2% female
 50% are under 24 years old; 80% are under
34 years old
 60 percent managed to make it only to
high school or less
―12.6% only made it to elementary
grades
―47.2% went to high school; only 34.7%
finished
―39.7% made it to college, but only 18%
graduated
Why can’t we generate the
needed jobs?
 2.8 million unemployed
 Mostly male, young and undereducated
 7 million underemployed
 Mostly in agriculture
 budget allocation for “Social Security, Welfare, and
Employment” increased from 4.5 percent in 2007 to 5.7
percent in 2008 and to 6.1 percent in 2009.
Habito 2009 (ADBI Study)*:
• For every one percent of GDP spent on
education and health, poverty elasticity of
growth improves by 0.2 percent
• RP social expenditures (as % of GDP) in 20002007 less than Malaysia, Singapore, Thailand, Sri
Lanka & Nepal; higher than Bangladesh,
Cambodia & Indonesia
• Philippines had perverse experience of rising
poverty (30%  33% from 2003-2006) at a time
GDP reportedly grew the fastest in decades.
“Patterns of Inclusive Growth in Developing Asia: Insights from an
Enhanced Growth-Poverty Elasticity Analysis,” ADBI Working Paper.
What Needs To Be Done?

Boost multisectoral initiative for massive
education reform
― Open up Local School Boards

Education for entrepreneurship
― Entrepreneurship values from primary school
― Entrepreneurship skills from high school
onward

Strategic education planning
― Anticipate and respond to emerging
requirements
What Needs To Be Done?

Triple government housing targets;
quadruple budgetary allocation to public
housing (Karaos et al 2009)
― Strong multiplier effect to create massive jobs
boost

Address governance impediments to
investment growth
―
―
―
―
Corruption, corruption, corruption
Streamline business registration & start-up
Business-friendly, not extortionary LGUs
Boost tax compliance & collection efficiency
Mabuhay!