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The Philippines and Aid Conditionality

IBON Foundation. The Philippines and Aid Conditionality. Regional Workshop on CSOs and Aid Effectiveness Hanoi, Vietnam October 9-12, 2007. Outline. Brief overview of conditionalities The Philippine experience: Accumulating conditionalities, deepening underdevelopment ODA profile

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The Philippines and Aid Conditionality

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  1. IBON Foundation The Philippines and Aid Conditionality Regional Workshop on CSOs and Aid Effectiveness Hanoi, Vietnam October 9-12, 2007

  2. Outline • Brief overview of conditionalities • The Philippine experience: Accumulating conditionalities, deepening underdevelopment • ODA profile • Macroeconomic conditionalities: trade and investment (WB, IMF, ADB, Japan) • Sectoral conditionalities: Health sector (WB, ADB, IMF) • The (implicit) debt service conditionality • Some key points • Suggested areas for CSO action

  3. What are conditionalities? • The application of specific, predetermined requirements that directly or indirectly enter into donor decisions to approve or continue to finance a loan or grant. • Donors using financial pressure to leverage actions they believe would not otherwise have been taken • By purpose: policy conditionalities, outcome conditionalities, process conditionalities and fiduciary conditionalities

  4. “Aid” not always helpful • Donors exploit recipient country weaknesses: • Scarce capital and foreign exchange in backward countries (hence importance of ODA) • Lucrative opportunities for corrupt domestic government officials • ODA’s most severe and far-reaching effects stem from conditionalities, especially policy conditionalities • ODA important part donor of foreign policy tools donors wield in their self-interest • Conditionalities a particularly direct way of leveraging desired outcomes in recipient countries

  5. The Philippines and ODA • Total ODA commitments: US$13.2 billion (2001) US$9.5 billion (2006) • Equivalent to 8% of GDP, 45% of gross international reserves • 2006: Japan (US$4.7 billion or 49% of the total), ADB (US$1.8 billion or 19%), WB (US$1.5 billion or 16%) • 2001-2006: Infrastructure (67%) vs. social reform & development (7%) Source of basic data: NEDA 15TH ODA Portfolio Review (July 2007) • Outstanding ODA loans: US$21.6 billion or 40% of foreign debt stock (2005) • US$1.2 billion in external debt service to JBIC (US$495 M), WB (US$360 M), ADB (US$295 M) (2008) … • … out of total US$3.9 billion in central government external debt service

  6. Macroeconomic policy conditionalities The Philippines has a long history of ODA conditionalities… (in 1980 was only months away from being the World Bank’s (WB) first structural adjustment loan (SAL) recipient) … which are an accumulation of “free market” policies of “globalization”, and have caused severe damage to the economy, lives and livelihoods.

  7. The WB’s and the ADB’s biggest loans have had “free market” policy conditionalities attached to them since at least the 1980s. • These have required changes in overall macroeconomic and sectoral policy frameworks, as well as gone into very specific implementation details. The WB has a Country Assistance Strategy (CAS) and in 2006 gave a US$250 million Development Policy Loan (DPL) that was “acknowledgement of past government successes [and] incentive for maintained good performance]” – fiscal austerity, new taxes, power privatization

  8. The IMF’s last loan to the Philippines had 110 conditionalities which it called “structural reform measures” (a US$1.4 billion stand-by arrangement from 1998-2000) Philippines is now among Southeast Asia’s most open economies – with the lowest tariffs and least restrictions on foreign investment, next only to Singapore Since the 1980s, share in GDP of trade has doubled and of foreign investment quadrupled…

  9. Macroeconomic policy conditionalities Yet the Philippines is more backward than ever • De-industrialization and underdevelopment: shrinking share of manufacturing in economy (lower than in 1960s), and more and more foreign-dominated • Backward agriculture at historically low levels, rising agricultural trade deficits since mid-1990s, and record dependence on imported food

  10. Record joblessness for over six years • Average 11% unemployment • 12 million jobless or underemployed Filipinos • 9-10 million “economic refugees” (i.e., overseas Filipino workers) • Severe poverty at lowest income levels, disguised by sharpening inequality • 69 million Filipinos (80% of population) struggle to survive on P96 (US$2) or less a day • 46 million Filipinos hungry everyday (by dietary needs) • Note: Japan ODA being used as leverage to seal a Japan-Philippines free trade agreement?

  11. Health sector privatization WB and ADB funding for health sector programs, resulting in or otherwise supporting privatization through: • Health Sector Reform Agenda (HSRA), 1999 • FourMula One for Health (F1), 2005

  12. Neglect of public health 1990-910.74% 19970.58% 20080.31%

  13. Deteriorating public health services • Rising proportion of Filipinos dying without medical attention • 74% attended by trained health professional (1975)  67% (2002) • Declining coverage of fully-immunized children • 69.4% coverage (1993)  59.9% (2003) • Budget cuts in programs for poorest • Subsidies to indigent patients, public hospitals

  14. The debt service conditionality • Rising foreign debt payments • Debt stock: $17 billion (1980) • … $130+ billion paid in debt service since 1980 • Debt stock: $60 billion (2006)

  15. Some key points from Philippine experience • Affirms adverse effect of conditionalities: aid has contributed to poverty, inequality & underdevelopment • Severe and accumulating damage to economy and to people’s lives and livelihoods • worst for the most vulnerable sectors(peasants, labor, informal workers, women, children, migrants…) • … on top of the problems with tied aid • Also strengthens or creates specific interest groups, and weakens others. After 2 ½ decades of “globalization”: • Created a domestic corps of neoliberal technocrats, consolidation and strengthening of domestic business elites aligned with foreign capital, diminished national industrial capitalists

  16. Some key points from Philippine experience • Conditionalities increasingly “internalized” by the government • Recipient governments sharing donor priorities and concerns • Resulting policy framework appealing to donors and foreign investors; national “development” strategies virtually indistinguishable from what donors want • Conditionalities look less externally imposed • While prior compliance, performance benchmarks, etc. persist • Donor pressure is also applied on the basis of the sum of all ODA and not just case-to-case

  17. Some key points from Philippine experience • Long-standing engagement of CSOs on conditionality issue • Maximizing strength and reach at grassroots and among wider public • Solid constituency built • ODA to the Philippines has been unmindful of the (un)democratic or human rights record of recipient governments • Wittingly or unwittingly, supports even those which have worked to co-opt or suppress CSOs

  18. Some suggested areas for CSO action on conditionality Reforms in delivery and management are important, but removing the undue direct and indirect donor influence on national policies through ODA is crucial • Central demand: Remove all explicit and especially “free market” conditionalities in ODA • Single biggest barrier to aid effectiveness – ODA not just developmentally ineffective but actively counter-productive • Without meaningful reductions, danger of Paris Declaration becoming merely diversionary • Removal may not automatically result in development but will at least remove a key adverse influence on domestic policies • Oppose donor-proposed mechanisms that further increase their individual and collective leverage over recipient country policies – esp. WB-, IMF-centered • ex. Poverty Reduction Strategy Papers (PRSP), Country Assistance Strategies (CAS), Highly-Indebted Poor Countries (HIPC) initiative…

  19. Some suggested areas for CSO action on conditionality • Demand debt cancellation • Where continued debt servicing is the most pervasive, albeit merely implicit, conditionality • Increased allocations for social services (e.g., health, education, water & sanitation) + for countries with greater absolute poverty • Not just increase CSO voice but also build capacity and strengthen role: • Making governments more transparent and accountable • Creating domestic policy and political conditions to overcome backwardness

  20. Some suggested areas for CSO action on conditionality • However link of ODA to self-interested donor foreign policy is basic constraint in current aid system Need to de-link ODA from donor foreign policy • How to remove or minimize undue donor discretion in where ODA goes? • How to ensure not just increasing recipient government discretion but also CSO participation? •  Towards claiming the development process and building societies that genuinely serve the people’s interests and welfare

  21. Maraming salamat!

  22. Reality: Long-term decline Decliningmanufacturing Decliningagriculture

  23. Agricultural neglect Food insecurity and dependence on foreign sources of food • Domestic food production has fallen 27% • 1,509 kg/person/year (1979-1981)  1,100 kg (2000-02) • i.e., cereals, fruits, vegetables, root crops, sugar, spices, dairy products, meat, fish and other aquatic products • Comparing the period 1991-1995 with 2001-2003, increase in annual import volumes of: • Rice by ten-fold (increased by 916%) • Corn five-fold (427%) • Vegetables tripled (215%) • Root crops quintupled (305%) • Sugar and other sweeteners doubled (100%) • Pork thirty-four-fold (3,300%) • Poultry twenty-fold (1,900%) • Beef almost tripled (169%) • Fish by more than 49%

  24. Reality: Long-term decline Declininginvestment Decliningsavings

  25. Reality: Long-term decline Rising unemployment • Historic unemployment • 2001-2006 worst ever 6-year period of unemployment (11.3%) and underemployment (18.7%) • 11.6 M looking for work (4.1 M jobless, 7.5 M underemployed) • Majority of jobs recently created are low-quality & low-earning • e.g., unpaid family work, household help, wholesale/retail trade • Unprecedented economic refugees • 9-10 M overseas Filipinos in 192 countries • 3,400 leave the country everyday

  26. A weakening economy • Govt neglects national industry & agriculture, and instead… • … focuses on sectors profitable for a few but of low development impact • Low employment generation, low capital accumulation, technological non-development, disconnected from the domestic economy • Narrow or otherwise unsustainable sources of growth: • Overseas worker remittances • Wholesale/retail trade, real estate • Export enclaves (manufacturing, BPOs) • Mineral resource plunder • [In 2007] Elections

  27. Shrinking govt budget 199020.7% 199720.3% 200816.8%

  28. Govt neglect of health • Out of 192countries worldwide, the Philippines ranks among the worst: • 174th – 3.4%; Total expenditure on health as % of GDP • 153rd – 39.8 %*: General government expenditure on health as % of total expenditure on health • 156th – 6.3 %: General government expenditure on health as % of total government expenditure • Note: using definition allowing for cross-country comparisons • 39th – 60.2%: Private expenditure on health as % of total expenditure on health

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