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Spending Our Way Out of the Global Crisis:

This article discusses the impacts of the financial crisis on the Philippines, government responses, and the challenges of non-inclusive growth. It also explores the human and environmental costs of the crisis and the need for social and environmental expenditures. The article concludes by examining the government's fiscal stimulus package and social protection measures.

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Spending Our Way Out of the Global Crisis:

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  1. 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

  2. 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

  3. Persistent ChallengesNon-inclusive Growth • Narrow:Growth propelled primarily by a few leading sectors and geographic areas • Shallow:Weak linkages to rest of economy – e.g., low domestic value-added exports • Hollow: Jobless growth; poverty-increasing growth

  4. 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)

  5. 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

  6. Increased poverty Higher unemployment Increased school drop-outs Increased hunger, malnutrition and sickness Asian Financial Crisis, 1997-98 Human Costs • Reduced social investment • Budget cuts on social services • Public investments in HD • Higher cost/reduced private provision of social services

  7. Damaged social capital Rise in Crime incidence Domestic violence Child abuse Street children Breakdown in community cohesion Asian Financial Crisis, 1997-98 Human Costs

  8. Reduced environmental investment Low priority for environmental investments Shelve planned investments in environmentally sound technologies Non-operation of existing environmental equipment Asian Financial Crisis, 1997-98 Environmental Costs • Easing of environmental standards • Relaxed policies & standards • Non-enforcement of existing ones • Pressure on environmentally-sensitive exports

  9. Adverse migration impacts Increased pressure on uplands & coastal areas (“The environment is the social security system of the poor”) Asian Financial Crisis, 1997-98 Environmental Costs

  10. Liquidity & budget support (for banks) Support for social safety nets Monetary easing Fiscal stimulus Stronger international (G-20) and regional (ASEAN, ASEAN+3, EAS) cooperation International Response to the Current Global Crisis

  11. Fiscal stimulus subject to fiscal sustainability (record fiscal deficit of PhP300bn in 2009; return of ‘debt penalty’?) Need for emphasis on social & environmental expenditures in light of “past sins” The Philippine Balancing Act:

  12. Domestic Production (GDP):Government spends its way out of recession • Government consumption & cons-truction up 8.5% & 15.7% respectively • Consumption growth moderates as consumers pull back • but… • Total investment spending dropped 10% even with brisk government construction • Exports fell dramatically (-15%)

  13. Govt Spending Dominates GrowthAmid Declining Investment

  14. Digression:The Multiplier Process Multiplier = 1/saving rate = 1/.2 = 5

  15. The Multiplier Effect is stronger when: • Marginal saving rate is lower • Import content of the stimulated economic activities is lower (= domestic content higher)

  16. Social Sector Spending:The Best Stimulus • Labor intensive • generates more jobs (broader benefits) • money circulates more among lower-income, lower-saving individuals • Lower import content than most other government projects • money stays in domestic economy • generates more tax revenues • Uplifts people’s lives

  17. 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)

  18. RP Fiscal Stimulus PackageEconomic Resiliency Plan (P330bn) • P160B for hiring more teachers, police-men, 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

  19. CCT/4PsFeatures • 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)

  20. CCT/4PsFeatures • 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

  21. CLEEPFeatures • 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

  22. CLEEPContributed 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)

  23. Where Are The New Jobs Coming From?

  24. Where Are The Services SectorJobs Coming From?

  25. 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

  26. 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.

  27. 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 2000-2007 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.

  28. 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

  29. 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

  30. Mabuhay!

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