Caesar B. Cororaton

1. Experiences with Ex-ante Poverty ImpactAssessments of Macroeconomic Adjustments Policies:The Case of the Philippines Caesar B. Cororaton

2. Objectives of the Paper • To review results of economic models developed in the Philippines used in ex-ante analysis of poverty effects of macroeconomic adjustment policies • To draw lessons from the exercise

3. Outline of Presentation • Philippine Macroeconomic Trends • Adjustment Policies • Poverty and Distribution Trends • Framework of Analysis and Models Used • Some Results • Some Insights

4. Philippine Macroeconomic Trend I

5. Philippine Macroeconomic Trend 2

6. Adjustment Policies are Necessary Because of weak economic fundamentals: • Growth is unsustained • Price instability Therefore, adjustment policies are extremely necessary

7. Adjustment Policies • Stabilization policies (intended to reduce aggregate demand and inflationary pressures - usually implemented with IMF conditionalities) • Examples in the Philippine case: Cap on reserve money; cuts in government spending • Structural Adjustment Policies (intended to increase aggregate supply - usually implemented thru various World Bank structural adjustment loans, in some cases unilateral policy reform of government) • Examples in the Philippines case: tariff and other tax reforms, privatization, exchange rate deregulation, etc

8. Poverty and Distribution

9. Poverty Headcount: Urban-Rural

10. Framework of Analysis and Models Used

11. Framework of Analysis and Models Used Macro policy changes

12. Framework of Analysis and Models Used Macro policy changes Models: Macroeconometric models, CGE models, SAM analysis, Partial equilibrium models: sectoral and commodity

13. Framework of Analysis and Models Used Macro policy changes Models: Macroeconometric models, CGE models, SAM analysis, Partial equilibrium models: sectoral and commodity Results: Growth, productivity, reallocation/efficiency, factor prices and employment, commodity prices, household income, etc

14. Framework of Analysis and Models Used Macro policy changes Models: Macroeconometric models, CGE models, SAM analysis, Partial equilibrium models: sectoral and commodity Results: Growth, productivity, reallocation/efficiency, factor prices and employment, commodity prices, household income, etc Micro-simulation analysis using household survey data Household econometric models

15. Framework of Analysis and Models Used Macro policy changes Models: Macroeconometric models, CGE models, SAM analysis, Partial equilibrium models: sectoral and commodity Results: Growth, productivity, reallocation/efficiency, factor prices and employment, commodity prices, household income, etc Micro-simulation analysis using household survey data Household econometric models Household effects: nutrition, health, and education Household effects: Welfare, distribution, poverty

16. Transmission Channels • Factor Prices and employment • Household income • Commodity prices and inflation • Government budget allocation

17. Some Results Tariff reduction leads to: (food effects) • lower prices of food items; • progressive effects on income; • higher demand for food items • Increased availability of calorie and protein in households (health effects) • Households in lower income quintile will use less hospital outpatient and independent private clinics and will depend more on home care and public and charity clinics • Households in high income bracket will use hospital outpatient and independent private clinics, despite higher prices for these services. • Implication: progressive income effects of tariff reduction is insufficient to counteract the expected price increase in health care in hospital outpatient and independent private clinics

18. Some Results • Impact of globalization - While factor returns show improvement over 1989-95, unskilled labor inputs are found to have lower returns relative to other inputs. Owners of capital get the highest return, followed by skilled labor. • Using a CGE microsimulation, tariff cuts in 1994-2000 are poverty-reducing due to fall in consumer prices and increase in direct tax that compensates the lost in tariff revenue. Experiments where lost tariff revenue is compensated by increased sales taxes would have larger negative poverty implications.

19. Some Results • The impact of the Doha-only scenario on the Philippines is very small, yet biased against agriculture. Philippine trade reform (elimination of all tariffs and rice quotas) magnifies the anti-agricultural bias and increases poverty. Rural households are hit in terms of increased poverty, whereas urban households see poverty rates decline.

20. Ex-ante Analysis Policy Formulation(Few examples) • Passing of WTO Bill in Senate in 1994 and Philippine signing of WTO Agreements in January 1995 • Approval of Central Banking Act in Congress and Senate in 1992 • Series of policy discussions and debate on trade reform and the implementation of unilateral trade reform program in late 1980s and early 1990s in manufacturing sector • Reduction in tariff rates • Simplification of tariff structure

21. Ex-ante analysis Policy Formulation (yes in some cases)

22. Ex-ante analysis Policy Formulation (yes in some cases) Poverty and distributional impacts (?, or not very clear)

23. Ex-ante analysis Policy Formulation (yes in some cases) Poverty and distributional impacts (?, or not very clear) Why?

24. Possible reasons • No coherent and long-lasting poverty alleviation measures • No continuity. Poverty alleviation action plans tend to be coterminous with the administration that developed it. Incumbent administration scraps old programs and specifies new ones that may not be consistent with previous programs • Poverty targeting is poor because of lack of good data at the community level