Philippines - Restoring stronger growth with greater equity : what the government can do and how the World Bank can help

- 63499 - - Restoring Stronger Growth with Greater Equity What the Government Can Do and How the World Bank Can Help World Bank August 1998  PHILIPPINES - Restorin Stron er Growth with Greater E uity: What the Government Can Do and How the World Bank Can Help Foreword 1. During July 1998, the World Bank (WB) officials held a number of meetings to brief the new members of President Estrada's Cabinet. The theme of these presentations was the WB' s lending and non-lending services available to the government to help achieve its objective of restoring stronger growth with greater equity. Drawing on these presentations, this document presents an overview of the WB policy recommendations and proposed assistance program. 2. In each country, the WB's assistance is governed by a Country Assistance Strategy (CAS) prepared in consultation with the Government. The last CAS for the Philippines was prepared in February 1996 and the next one is planned for early 1999. This document is intended as a background paper for starting the consultations with the GOP on how the WB can help (i.e., its country assistance strategy) with the formulation and implementation of the GOP's development agenda. The consultations are scheduled to start in September 1998. 3. The document contains a 9-page overview paper and 18 briefing notes. Mter a brief introduction, Section IT of the Overview paper outlines the recommended strategy for restoring stronger growth with greater equity. The focus of the paper is clearly on the medium-term but paragraphs 4-6 contain recommendations on policy stance in the short-term. Section ill outlines how the WB can help. The briefing notes present more details of recommendations on what the government can do in each sector (or thematic area) and how the WB can help. This briefing paper is an evolving document and, as such, is subject to change. 4. This briefing paper was prepared by members of the WB's Philippine Country Team headed by Mr. Vinay Bhargava with specific contributions from Messrs.lMdmes.: M. Farhandi and L. Rodaje (Energy); M. Benjamin (Housing Finance); J. Balachander, R. Lakshminarayan and N. Sta. Ines (Health and Education); A. Ordu and M. Belizario (Portfolio Management); S. Dhar, B. Funck, J. Balbosa, and M. Zonaga (Poverty Reduction, Public Sector Management and Economic Management); A. Baietti (Private Participation in Infrastructure); R. Raturi, C. Figueroa-Geron and R. Anson (Rural Development); C. Robb and T. Quinones (Social Impact of the Crisis); D. Ahmad (Transport); V. Jagannathan and T. Hashimoto (Water Supply and Sanitation); T. Zearley and J. League (Urban); and L. Gonzales and C. Sanalila (External Mfairs). Mdmes. B. Bermudez and A. Tria provided excellent support in the production of the report . 5. Comments are welcome and should be directed to Mr. Vinay Bhargava, Country Director, Philippines. the World Bank, 231F Taipan Place, Emerald Avenue. Ortigas Center, Pasig City. Comments may also be sent through e-mail addressed to VBhargava@worldbank.org or faxed to (63-2) 917-3050 . ••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••• PHILIPPINES - Restoring Stronger Growth and Greater Equity: What the Government Can Do and How the World Bank Can Help TABLE OF CONTENTS Page No. FOlreword ............................................................................................................................ i Overview (Main Paper) ...................................................................................................... ii Bniefing Note No. 1 The Economic Environment Facing the Philippines .................... 1 Briefing Note No.2 Public Sector Management ......................................................... .4 Briefing Note No.3 Financial and Corporate Sector .................................................... 8 Briefing Note No.4 Accelerating Implementation of Ongoing Poverty Alleviation Programs .................................................................. 11 Attachment 1: Status of FY98 Loan Portfolio Attachment 2: Status of Counte rpart Funding of Bank-Assisted Projects Briefing Note No.5 Alleviating Poverty and Reducing Inequality .............................. 17 Briefing Note No.6 Rural Development and Natural Resources ............................... 22 Briefing Note No.7 Socioeconomic Impact of the Crisis ............................................ 26 Briefing Note No.8 Education and Training .............................................................. 29 Briefing Note No.9 Health, Nutrition and Population ................................................ 32 Briefing Note No. 10 Reforming Housing Finance ....................................................... 36 Briefing Note No. 11 Water Supply, Sanitation and Solid Waste Management for the Urban Poor ........................................................................... 40 Briefing Note No. 12 Meeting the Challenges of Rapid Urbanization .......................... 45 Briefing Note No. 13 Energy Sector .............................................................................. 49 Briefing Note No. 14 Transport Sector .......................................................................... 52 Briefing Note No. 15 Private Participation in Infrastructure ......................................... 56 Briefing Note No. 16 Strengthening Governance and Preventing Corruption ............... 59 Briefing Note No. 17 World Bank Assistance Program for 1998-1999 ........................ 64 Bliefing Note No. 18 Summary of Country Assistance Review .................................... 71 . II • • • • • • • • • • • • • II • • • • • • • • • • • • • • • • • II • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • OVERVIEW  PHILIPPINES - Restorin Stron er Growth with Greater E uit : What the Government Can Do and How the World Bank Can Help I. Introduction welcome by the World Bank. We are ready to bring our global experience to support the 1. The prospects for the Philippines to government's poverty reduction efforts malw significant inroads against poverty through policy advice, technical assistance over the medium-term are promising given and financial assistance. the gains of the decade-long macroeconomic and structural reforms, and an economy that II. Strateg~ for Restoring Stronger has weathered the effects of the Asian Growth with Greater E{ uit\" financial crisis better than most of the region (see Table 1). Resuming stronger growth with greater equity is doable over the medium-term Table 1: GOP in Selected Countries (percent with the right policies and programs and n ' pnces, year on year) 'C hall2e a t const a t ' 1997 provided the external economic 1998 environment does not deteriorate too ~:~' .. Ql Actual recast*:' much. To initiate this process, the country Philippines 5.1 1.7 1.9** needs an economic recovery program that EA5*** 4.5 -4.2 -5.9 removes barriers to economic growth and Japan 0.5 -3.7 -0.5 poverty reduction, and restores investor Total Asia 2.8 -1.7 0.1 confidence at home and abroad. USA 3.8 3.8 3.2 EU 2.6 3.0 2. World 3.1 2.2 2.4 3. The recent gains in growth and poverty reduction, after getting stronger * Source: Consensus Forecast Inc., July 1998 with each passing year during the 1993­ ** Likely to be even lower due to greater than 97 period (see Figure 1), have come under expected decline in agricultural production in the threat in the late 1997-early 1998 due to first half of 1998. the impact of the Asian financial crisis. I***Indonesia, Korea, Malaysia, Philippines, Thaihmd Figure 1: GOP Growth in the Philippines, 1990­

2. The World Bank's! basic mission is 1998 (percent change at constant prices) 6%

to help reduce global poverty. As such, the Estrada administration's call for the restoration of stronger and sustainable 5%1 4% 3% gro~th with an improvement in distribution 2% of incomes and assets (equity) is most 1% 0%

! The World Bank is an international financial instiwtion owned by more than 181 member ~1% 90 91 92 93 94 95 96 97 1098 countries. The Philippines became a member of the World Bank in 1945 . 11  Philippines - Restoring Stronger Growth with Greater Equity Draft for Discussion ~he Government Can Do and How the World Bank Can Help 8/14/98 As the country seeks to intensify its fight equity for the Philippines should include the against poverty, the economy is confronted sets of policies and programs discussed in

with both an economic slowdown in the wake of the Asian financial crisis and EI the succeeding paragraphs. Nino, and a rise in income inequality. The 4. In the near-tenn, the Government external environment does not hold much should pursue an economic recovery promise, unfortunately, for the remainder of program to cushion the negative impacts

1998, and perhaps 1999, and on the of the Asia financial crisis and EI Nino. domestic side, demand is decelerating The Philippines should take advantage of sharply (see Figure 2 and refer to Note No. the lighter impact of the crisis to accelerate I which provides an overview of the policy reforms so that investors will look difficult external economic environment favorably upon the Philippines relative to facing the Philippines.) others in the region. Such program would

Figure 2: Recent Evolution of Domestic Demand involve measures to sustain domestic demand, to improve efficiency and (percent change at constant prices) transparency in government, to remain at the forefront of regional efforts to strengthen t2~, I _Privale the banking system, while adhering to a tO~, Consumption 8~, macroeconomic adjustment program which 6~, 4", _Governmenl Consumption is endorsed by the International Monetary 2'11, Fund (IMP). The suggested elements of an 0'\1, -2'11, = Investment economic recovery program are discussed -4% ,6% below: -Oomestic ·e." Demand Ql Q2 Q3 Q4 Qt 1997 1996 }o> Maintain macroeconomic stability which includes external balance, low inflation, and a stable peso, as a basis The government's own capacity to help is for lower interest rates. These policies constrained. As general economic are both pro-poor and pro-growth. conditions weaken, a widening fiscal deficit Recent achievements in this respect are is providing some support to domestic encouraging (see Figure 3). demand. But that fiscal deficit reflects

mainly involuntary revenue losses. In the meantime, Operation & Maintenance expenditure and public investment--already Figure 3: Interest Rates and Inflation

,----------:;0--,-14.,. low by any standard--are being squeezed. A 12% 10.,. more desirable strategy would involve an 8% 6.,. expansion of anti-poverty programs, funded 4% 2% through a combination of: (i) efficiency gains in government programs; (ii) increased revenue efforts; and (iii) broader JJ.LLWlWJJ.llJJJ.WWllJl Jan Apr Jut Ocl Jan Apr Jut Oct Jan Apr 1996 1997 1998 0% J I I

private sector participation in the delivery of public infrastructures and services. l_t==:::J D_Hf_ers_nc_e_ffh_SI_-C_P_lllh_SI_ _!, j-_ _91dT.billsilhsl _ _ _ - • -.-~ -.---­ .. . Strategies for economic recovery and for (Note: rhs =right-hand side; lhs =left-hand side)

resuming stronger growth with greater III  Philippines Restoring Stronger Growth with Greater Equity What the Government Can Do and How the World Bank Can Help Draft for Discussion 8/14/98 presents World Bank recommendations };1> Accelerate measures to strengthen the for strengthening national expenditure banking system and the corporate sector management and improving revenue in the light of the increasing incidence peiformance.) of non-performing loans (see Figure 4) and the possibility that another round of 5. Beyond that, many of the solutions devaluation due to external factors will to the regional crisis can only be found at cause further stress to the system . the regional level. The GOP should (Recommendations for such therefore actively engage its partners in the strengthening elaborated in the attached Association of Southeast Asian Nations Briefing Note No.3: Financial Sector) (ASEAN) and the Asia Pacific Economic Cooperation (APEC) in designing Figure 4 : Bank Non Performing Loans coordinated responses to macroeconomic (as percent of total loans) and structural challenges they all confront. 6. The Economic Recovery Program should be accompanied by measures to strengthen social safety nets and 6%'1'--_ _­ accelerate the implementation of those ongoing poverty alleviation projects! 6'~ programs that are judged to be effective, 4'''' t __- - - - ­ 2% +---1----+---+----+----1 on the basis of a rapid assessment, in Dec Mar Jun Sap Dec Mar delivering services to the poor. To 1996 1997 1996 accomplish this aim, actions will be necessary to: identify effective programs with beneficiaries' involvement; ensure adequate funding for identified programs in };1> Shore-up domestic demand by the 1998-1999 budgets; mobilize the sustammg public expenditures concerned implementing agencies to (particularly to protect social services intensify implementation efforts; and and to allow moderate investments for carryout regular monitoring and evaluation, future growth programs), allow a limited using participatory approaches. The cyclical budget deficit to persist in the projects/program which are judged to be short term and finance the budget deficit ineffective could be discontinued and largely through foreign borrowing. resources redeployed. It may be noted that the donor financed portfolio of ongoing };1> Offset any negative impact a budget projects alone totals more than $13 billion deficit might have on market confidence and a large component of it comprises by demonstrating that credible structural poverty alleviation projects. (Briefing Note ,efforts are under way on both the No.4: Accelerating Implementation of revenue and the expenditure side of the Ongoing Poverty Alleviation Programs budget to ensure fiscal sustainability provides specific suggestions in this area). over the medium-term. (Briefing Note No.2: Public Sector Management iv  Philippines - Restoring Stronger Growth with Greater Equity Draft for Discussion What the Government. Can Do and How the World Bank Can Help 8/14/98 7. Develop and implement a 1999­ 8. Accelerate environmentally 2004 action plan for alleviating poverty sustainable growth of agriculture (see and reducing income inequalities. While Figure 6) by making it internationally more the overall strategy pursued has competitive; accelerating agrarian reforms demonstrated success, a number of recent and promoting tenancy reforms and market developments indicate that a recalibration of assisted land reform; ensuring the essential interventions might be in order: investments in rural infrastructure, research (a) preliminary information from the 1997 and agricultural extension services; and

family income and expenditure survey targeting investments on least developed indicates that since 1994, a rising inequality areas and groups. (Briefing Note No.6: of incomes has hindered the decline in Rural Development presents our poverty incidence; (b) experience has recommendations. ) shown that high inequality will undermine poverty alleviation and may impede growth Figure 6: Agricultural Production and GOP by undermining social tension; (c) despite (value added at constant prices, 1990=100) considerable progress, the incidence of ' - -... poverty in the Philippines remains higher than in neighboring countries (see Figure 5); (d) there is persistent poverty in certain areas (e.g., Cordilleras) or among certain groups (e.g., indigenous people) which requires targeted measures; and (e) the 81 83 85 87 89 91 93 95 97 Asian financial crisis and EI Nino are Ag -GOP causing setbacks in poverty reduction. I i i (Briefing Note No. 5 provides suggestions

on what may be included in such an action­ plan.) 9. Lay the foundation for a prosperous 21st century by increasing Figure 5: Poverty Incidence in Selected investment in human capital and Countries (percent of population with income of addressing Year 2000 (Y2K) computer less than Sl/day) problem. Adequate funding and better targeting of social sector expenditures in the budget is needed to expand the country's human capital, to provide relief to those rendered unemployed due to the crisis, and to provide a safety net for the poorest. (See Briefing Note No.7: Socioeconomic Impact of the Crisis) The Y2K problem could put MOl Thai lndon Phil at risk government and business operations using computerized services, e.g. utilities, ~;s: =---­ transportation, telecommunications, financial systems, policy and security systems. It is recommended that the v Philippines - Restoring Stronger Growth with Greater Equity Draft for Discllssion What rhe Government Can Do and How the World Bank Can Help 8/14/98 Government implement a national Y2K children with disabilities) deserve special program. attention and targeted interventions. 10. Develop and implement a national Figure 7: Projected Population with Age urban development agenda to address the Distribution (in millions) challenges of urban poverty, scarcity of affordable urban housing and threats to environmental health in urban areas• The recommended measures include 80 : reforming the deteriorating housing finance 70 system (Briefing Note No. 10: Housing Finance for details); extending water and sanitation services; (Briefing Note No. 11: Water Supply, Sanitation and Solid Waste 30 Management for the Urban Poor); improving revenue mobilization and 1995 1996 1997 1996 1999 aooo 2001 2002 2003 2004 2005 financial management at the LGU level; and seeking greater private sector and 1101014 1151029 D30lo64 065+ I community participation in planning, financing and delivering urban services (Briefing Note No. 12: Meeting the In the face of a growing population (see Challenges of Rapid Urbanization). Figure 7), it is recommended that refonns in the education and health sectors be 11. Promote a public-private implemented as cornerstones for future partnership to undertake coordinated growth. In the education sector, refonns investments to overcome infrastructure may focus on improving the quality of and bottlenecks to stronger growth. In the access to basic education, improving power sector, this would involve efficiency and equity in the financing and restructuring and privatization of National perfonnance of the system, improving the Power Corporation rationalization of the skiUs of the labor force to underpin global distribution sector, strengthening of sector competitiveness and streamlining entities (Department of Energy, Energy management of the sector (Briefing Note Regulatory Board, and National No.8: Education). In the health sector, the Electrification Administration) and recommended focus of the refonns should enactment of legislative framework for be on strengthening the provision and sector refonns (Briefing Note No. 13: financing of primary health services in the Energy). In the transport sector, the refonn context of the devolution and better agenda comprises: reduced government management of population and intervention; increased commercialization environmental health issues (Briefing Note and private sector participation; clearer No.9: Health, Nutrition and Population). distinction between policy making, In both of these sectors, the problems of regulation and operation and inter-modal particularly vulnerable groups (children at integration (Briefing Note No. 14: risk, women, girls, out-of-school youth, Transport). The recommended measures to further attract private participation in vi  Philippines - Restoring Stronger Growth with Greater Equity Draft for Discussion ~he Government Can Do and How the WorM Bank Can Help 8//4/98 infrastructure comprise: improve the system III. How the ''''oriel Bank Can Hcl for issuing guarantees and contingent liability management; and enhance We are ready to enhance our partnership institutional capacity (at NG and LGU with the GOP in elforts to attain the goal levels) to identify, promote and negotiate of restoring stronger growth and greater projects; simplify and standardize the equity. We are ready to support the GOP's processes for soliciting, evaluating and efforts through analytical and advisory awarding projects; ensure complementarity services and substantial .financial between private and public investments as assistance. part of an overall plan (Briefing Note No. 15: Private Participation in Infrastructure 14. WB can help the government for more details on these carry out the strategy outlined in Section recommendations. ). II in the following ways: 12. Improve the environmental }o> Restructure the portfolio of ongoing sustainability of growth. The Asian crisis projects to support the recommended has deepened the environmental problems strategy. by threatening budgetary resources for environmental protection and by putting }o> Quickly process and approve, about more pressure on local natural resources to US$I.O billion in new loans in the boost exports. It is recommended that the pipeline for 1998-99. gove:rnment's efforts be focused on chaIllging relative prices in a way that is }o> Provide the GOP with analysis and more favorable to environment and to advice relevant for its economic protect rural and environmental expenses in recovery and poverty reduction budgets. Efforts should be continued to programs. work towards a full integration of environmental concerns into all sectors, }o> In close consultation with the GOP, supporting community-based environmental develop a revised Country Assistance initiatives. Strategy program, for the 1999-2001 13. Translate the political will to period, that is responsive to the medium­ prevent and reduce graft and corruption term plan being developed by the into a specific program of actions to government. increase transparency of information about public as well as corporate sector }o> Assist the GOP in strengthening its activities and improve governance at governance improvement program. national and local levels. (Briefing Note No. 16: Strengthening Governance and }o> Facilitate a dialogue between the GOP Preventing Corruption discusses how the and the donor through the WB' s WB can help if requested by the GOP). - chairmanship of the Consultative Group (CG) of donors for the Philippines. vii  Philippines Restoring Stronger Growth with Greater Equity Draft for Discussion ~Ile Government Can Do and How the World Bank Can Help 8/14/98 These are elaborated in paragraphs 15-21 and recommendations. Such work, in the below. next 12 months, would include a review of social expenditures under the GOP's budget, 15. Accelerate the Implementation of Ongoing WB-Assisted Projects: As of a review of the country's economic performance and medium-term prospects, June 30, 1998, there were 32 ongoing WB and studies for three specific sectors financed projects in the Philippines. Of the (poverty reduction, health and education). total WB loan portfolio of about $2.5 In addition, we have arranged about $2 billion, about $1.1 billion is still available million in special grants from Japan and for ultilization. About half of these projects European Union to: (a) provide technical are for rural and human development. We assistance to the Bangko Sentral, Philippine can restructure the portfolio, as needed, to Deposit Insurance Corporation and fit the current priorities and available Securities Exchange Commission to counterpart funding so that financing and strengthen Government capability to implementation of priority investment for supervise the banking system and handle restoration of growth can continue in a corporate bankruptcy filings; and (b) the timely manner. We would also be willing to National Statistics Office to help it carry out increase the share of our financing for the a program of annual poverty incidence priority projects. survey. (Briefing Note No. 17 provides details of these activities.) If requested, we 16. Approve About $1 billion of New can also assist efforts to address Y2K Loans in the Agreed Pipeline for 1998· problem either with funds from on-going 199~). As requested by the GOP, we operations or special grants or a new propose to provide $500 million for budget Technical Assistance loan. support through program loans linked to reforms in the banking system and public 18. Develop an Assistance Strategy sector management Another $300 million and Program for 1999·2001 Responsive is in the pipeline for credit lines (through to the Administration's Priorities. The Land Bank and DBP) to ensure availability WB's assistance program is governed by a of credit to farmers, small and medium Country Assistance Strategy (CAS) which enterprises and exporters. We will also was developed closely consultation with the provide some $230 million in WB loans for GOP in February 1996. In addition, the WB three projects which support water supply, and the GOP hold annual Programming transport and other municipal services. Discussions during which a three-year (Briefing Note No. 17: WB Assistance lending program and a l2-month program of Program for 1998 - 1999 contains a brief analytical studies is agreed (the latest description of these proposed loans under discussion took place in May 1998). This preparation based on agreements reached briefing paper is intended as a background with the GOP.) paper for starting the consultations with the GOP on a revised CAS for the 1999-2001 17. Provide Technical Assistance and period. The consultations with the GOP will Analytical/Advisory Services. As in the set the foundation for the CAS which is pas1t, we will carry-out several analytical scheduled for completion in March 1999. studies to provide the GOP policy advice The CAS will draw upon the lessons learned viii  Philippines - Restoring Stronger Growth with Greater EquiTy Draft for Discussion What the Government Can Do and How the World Bank Can Help 8/14/98 from the past WB assistance2 and the and for the donors, to provide their views on recommendations/proposals contained In the government's policies and programs. this document. (A summary of the The WB chairs the CG meetings. The last evaluation of past assistance is attached as CG meeting was held in Paris in December Briefing Note No. 18: Philippines: Country 1997 and the donors pledged about $3 Assistance Review.) billion in assistance for the Philippines. We propose that: (a) the GOP present its 19. Expand the WB assistance to GOP medium-term investment plan and financing for ilts efforts to Improve Governance and needs at the next CG; and (b) the next CG Prevent Corruption. At present, our meeting be organized in May 1999. Prior to assistance is this area comprises an ongoing the CG, we propose the following dialogue program with the Commission on Audit to events between the GOP and Manila-based prevent fraud and corruption in WB-assisted representatives of the CG members. projects. (Briefing Note No. 16 describes the ongoing assistance and suggestions of ~ A half-day session in early September expanding it.) If requested by the GOP, we 1998 to exchange views on the GOP will be wil1ing to expand our assistance to: policy priorities and development agenda. ~ Assist in the conduct of diagnostic surveys to develop an action plan . ~ In February/March 1999, a pre-CG meeting be held in Manila to inform the ~ Strengthen institutions with the mandate donors on the priority programs/projects to combat corruption . for which GOP would be seeking financing from donors. ~ Improve government budgeting, procurement and financial management processes. 20. Facilitate a dialogue between the GOP and the Consultative Group (CG) on the Philippines. The CG serves as a forum for GOP to present its plans and accomplishments to the donor community and to seek donor financing for its programs

2 The WB's Operations Evaluation Department, which is independent of the WB management, evaluated the WB's assistance to the Philippines since 1986 to establish accountability, derive lessons of experience and provide recommendations for action. Its report entitled "Philippines: Country Continuing the strong GOP· WB Partnership: President Joseph Estrada and Wife Lo; Ejercito accept congratulations from WB Philippines Country Director Vinay Bhargava and Wife Nimmi on Pres. Estrada's Assis.tance Review" was published on March 2, inauguration (June 30, 1998). 1998. Summary of the report's findings and recommendations is contained in Briefing ;..rote. No. 18. IX  PHILIPPINES - Restoring Stronger Growth with Greater Equity: What the Government Can Do and How the World Bank Can Help ­ Briefing Note No. 1:"1 The Economic Environment Facing the Philippines I Note: This briefing note is part of a larger World Bank (WB) document on "Restoring Stronger Growth with , Greater Equity: What the Government Can Do and How the World Bank Can Help," The document has been pre­ pared primarily for use ofthe Government ofthe Philippines (GOP) as an input into their policy-making activities, and as a background paper for consultations with the GOP on the World Bank's Country Assistance Strategy (CAS) in the context of the Government's development agenda, The consultations are scheduled to start in September 1998, 1. Across Asia, economies continue to be af­ Table 1: Gross Domestic Product in Selected fec':ed by the financial crisis. The prospects for Countries (percent change at constant

1998 appeared dim, while 1999 forecasts remain uncertain. For the first quarter of 1998, however, while most economies in East Asia already ex­ pertenced significant contractions in their na­ tional income, the Philippine economy contin­ ued to experience positive, if slower, growth (see Table J). And much of the observed slow­ down can be attributed to the impact of El Nifio. This year, the consensus forecast is for the Philippine economy to continue to post positive growth. nsensus Forecast Inc" July 1998 Likely to be even lower due to greater than 2. The relative resilience of the Philippine pected decline in agricultural production in the economy can be attributed mainly to the f'ol­ first half of 1998. *** Indonesia, Korea, Malaysia, Philippines, lowing factors: y A relatively stable banking sector, that de­ spite rising non-performing loans is still ,Fi~ure_1: Inte~E!lit Rates andl~!I!t~~ __ _ generally able to meet international stan· i 20% , - - - - - - - - - - - - - : : ; - - - - - , 14% dards of capitalization. A history of boom 15% .. ' .11,""·.. .._ 12% 10% and bust cycles has taught commercial banks 8% 10% and corporations to maintain prudent finan­ 6% 4% cial practice. This was supported by com­ 5% 2% paratively more conservative regulation of 0% 1l.U-1.LllJ.JU-U.L.u.w.u.LJ.IJ.J.L.LJ.LLJ.LU.Ull.LLI.LI.LI.u.u..u.w.I.LI.LI.LUl. 0% .. h Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr bank exposure to risk, thus, mItIgating t e 1996 1997 1998 urge to overborrow and overlend at the C::::=:==:::JI Difference Irhsl CPlllhs) height of the credit boom in East Asia. - 91d T· bills Ilhsl

This note was written in July 1998, The economic developments arc happening fast and the nllmbers here should be looked at >II with due caution since the situation may change rapidly. -1­  Philippines - Restoring Stronger GrolVth with Greater Equily Drafi/or Discussion !!!:.;If the Government Can Do and HolV the - World Bank Can Help 8/1./198 >- Moderate inflation and reduced real interest Table 2: Merchandise Exports Performance rates pressure, thanks to the authorities' success Comparison (annual percent change in inspiring confidence in the currency (see .~. ____~"J!,!~S$ terms1 Figure J). 1996 --1=-=9--97 1 st 1998-~ "a );> Stronger exports growth which help underpin Philippines 14 21 24 Thai/and -1 3 -3 aggregate demand and growth (see Table 2) Indonesia 9 7 1 The Philippine success in attracting multina­ Malaysia 6 1 tional corporations in the 1990s and the strong Hodg··tKon;','i~: " "-"" " __ ::1°",-"",>(:<,,_ structural link to export markets helped export­ ers withstand the exacerbation of international competition which the Asian crisis triggered. Being less dependent on commodity export, the Philippines was also less affected by the glut on world commodity markets . 3. But the regional and global situation is far from Figure 2: Merchandise Trade Trends getting better. Further external shocks, arising for (quarterly moving average, instance, from financial and currency development an l1 ual perc;ent chaI!.9~1_~ in Japan, China, Hong Kong or Russia, may affect markets globally. 30% 25% 4. A protracted recession on regional markets 20% ~ combined with a continued slowdown in the U.S. 15 % 10% economy following a flat second quarter in the 5 %. U.S.A. will cut exports growth and would undoubt­ 0% - - _.....- _ ..•- .. _--­ -5% edly dampen prospects for stronger GDP growth. - 10% .c At this stage, it appears inevitable that exports , , • , cr-­ fIliTl oiTl or-­ ceo film ~ !len ':0 "'"? -, .:( growth slow down from its previous peak of 22 to ...._ _.........= - - ­ 23% year-on-year growth, as the latest figures al­ -Exports _ _ Imports ready indicate (see Figure 2). 5. If the external environment does not hold much promise, unfortunately, so does the internal envi­ Figure 3: Recent Evolution of Domestic Demand (percent change at ronment. In the past seven months of 1998, we constant pric~ __ have the following unfolding: 12% ­ ~Prjva[e );> A sharp deceleration of domestic demand in the 10% Consumption first quarter of 1998 (see Figure 3), partly as a 8% " 6% _ Governmont result of high interest rates, is leading to a rise 4% Consumption 2% in unemployment and dampening business and 0% . c::=:::J Investment consumer confidence. Rising unemployment 2% .~ ·4% ­ has implication on social costs as the living ·6% -Domestic conditions of the poor deteriorate. -8% Oemand 01 02 03 04 01 1997 1998 -2­ - Philippines - Restoring Stronger Growth with Greater Equity Drolt/or Discussion - ~]t the Government Can Do and How the World Bank Can Help 8/1.//98 - };­ Pressures on interest rates may build up. A depressed demand from the private sector has so far helped stave off the pressure coming recovery. On the domestic side, a cycl ical growth could be tolerated to bolster domestic demand as long as private demand remains weak. It would from increased government requirements to be important, however, that this room for maneu­ finance its deficit. But pressures may inten­ vering be pursued, not to lower revenue efforts, sify as private demand revives or external ten­ but to protect-and expand where needed­ - sions redouble. 6. The continuing uncertainty in the economic essential social expenditures to protect vulnerable groups through the crisis (see Briefing Note No.7: environment, natural calamities like the EI Nino Figure 4 : Bank Non Performing Loans phenomenon, and decreasing aggregate demand (as percent of total loans) paints a gloomy picture for the business sector. - Rising non-performing loans are therefore ex­ pected and will continue to put more strain on the bar.king sector (see Figure 4). 16% 7. It is even possible that the Philippines may attain a much lower growth in 1998 than forecast. A worst case scenario, in this case, may have to involve three key factors, as follows: (a) further 2% ~- yen weakening and a deeper Japanese recession; Dec Mar Jun Sep Dec Mar 1996 1997 1998 (b) a devaluation in China and the lifting of the Commercial bank Hong Kong peg; and, (c) a sharper adjustment of -Thrifit)anks the Dow Jones precipitating a tailspin of the U.S. economy. Socioeconomic Impact of the Crisis). Markets 8. With the passage of time, the risk that will also need to be convinced that this relaxation mounting banking corporate sector strains degen­ of fiscal constraints does not signal a return to the erate into full-fledged crisis increase. The longer past laxity. Hence the need to redouble efforts the regional crisis persists, the greater the danger towards medium-term structural reforms, particll­ for the Philippines to become completely engulfed larly in public and financial sectors (see Brie.fing in i1:. Note No.2: Public Sector Management and Briefing Note No.3: Financial and Corporate 9. In this context, it would be unwise for the Sectors). authorities to expect too much support from the ext(:rnal environment to underpin the Philippines' This Briefing Note is an evolving document, and as such, is subject to change. -3­ - PHILIPPINES - Restoring Stronger Growth with Greater Equity: What the Government Can Do and How the World Bank Can Help - Briefing Note No.2: Public Sector Management - Note: This briefing note is part of a larger World Bank (WB) document on "Restoring Stronger Growth with Greater Equity: What the Government Can Do and How the World Bank Can Help". The document has been prepared primarily for use of the Government of the Philippines (GOP) as an input into their policy-making - actlvities, and as a background paper for consultations with the GOP on the World Bank's Country Assistance Strategy (CAS) in the context ofthe Government's development agenda. The consultations are scheduled to start in September 1998. - I. Introduction Maintenance (O&M) expenditure and public investment, which are already low by any 1. Public sector refonn has returned to the standard, are being squeezed, undercutting the top of the Philippines' policy agenda. Although capacity of government to provide basic services the problems faced are deeply rooted, the ongoing and infrastructure to the population, particularly Asia crisis has exacerbated them. Despite the poor. successive tax refonns, revenue mobilization is running out of steam. If internal tax revenues II. Recommendations on What have indeed grown steadily over the decade, Government Can Do overall revenues have only been inching up much more slowly and may well decline in 1998 as a 4. The National Government needs to lead pereentage of Gross Domestic Product (GOP). these efforts, through refonns in the following The picture is hardly more encouraging on the core machinery: expenditure side. Personnel expenditures have been drifting upward for most of the decade ~ Administration and Civil Service. The increasing from a quarter to two-fifth of the objectives stated in the "Streamlining the national government budget. And transfers to Bureaucracy" bill remain valid. If local governments may be embarking on a similar anything, the current drift in personnel trend. expenditure has made them more urgent. They should also be a corollary of the re­ 2. The impact of the Asia crisis has made focusing of government sectoral matters worse. Reflecting the currency interventions advocated below. As a new devaluation and high interest rates, the burden of administration articulates its own policy servicing government debt which had been on the agenda, one cannot but urge it to put civil dec] ine since 1994 has been ballooning again, service and administrative refonns among while the economic slowdown is cutting into its top concerns, and to chart a practical gov·ernment revenues . political course to that end. Expenditure Management. There is 3. To some extent, the resulting expansion considerable scope for improving the of the fiscal deficit reflects the nonnal operation efficiency of national government of automatic stabilizers of domestic demand expenditure, and thereby releasing during a downturn. The real concern is that the resources for expanding anti-poverty fiscal simulation is the result of involuntary interventions, or simply for making them revenue losses, while Operations and -4­  Philtj;pines - Restoring Stronger Growth with Greater Equily Draft/or Discllssion What the Government Can Do and How tire World Bank Can Help 8// c//98 more effective. Such gains in efficiency Roads: (a) depoliticizing road could be obtained by (a) focusing budget management, by establishing an programming and approval on strategic autonomous Highway Management decisions by formulating a Medium Term Authority, in charge of planning and Expenditure Framework (consisting of a managing the implementation of the consistent set of macroeconomic and National Road Network and a dedicated revenue projections, on the one hand, and Road Fund; (b) facilitating private sector forward estimates of existing programs financing, including by acquiring rights of for three-years, on the other); and by way for Build-Operate-Transfer projects rationalizing the Congressional approval ahead of actual needs; (c) integrating the process; (b) increasing managerial Department of Transportation and freedoms of agencies within this agreed Communication (DOTC) and Department strategy; (c) strengthening expenditure of Public Works and Highways (DPWH) evaluation mechanisms, both ex ante and ex post as a natural quid pro quo to the roles, and re-engineering road works management; (d) upgrading local road; and, increased automaticity and devolution of (e) streamlining road development within resource planning and management; and Metro Manila, particularly as regards the (d) reinforcing internal management role of Metro Manila Development systems within agencies, and Authority . accountability mechanisms. The actual pace of this will need to take into Ports: restructuring the Philippines Port consideration the readiness and technical Authority (PPA), by converting major ports capacity of agencies. into autonomous authorities, and privatIZIng their operations wherever possible, and focusing the remainder of A more desirable scenario would involve PPA towards regulation (as different from an expansion ofanti-poverty programs, operation) of private and public ports. funded through a combination of: (i) Rail: (a) concessioning the Philippines efficiency gains in government programs; National Railways (PNR), and (U) increased revenue efforts; and (iii) (b) integrating both physical (transfers broader private sector participation in the between lines and road based modes) and delivery ofpublic infrastructure and policy -aspects (fares, services, supply services. characteristics, environmental and safety) of public rail (particularly, with the LRT lines) . 5. The search for efficiency gains needs to Water: (a) reassessing sectoral financing be further pursued at the sectoral level. In the arrangements, particularly in the light of the 1990s, the Philippines wholeheartedly embraced Local Water Utilities Administration's past private sector participation and competition in performance, and the good prospects of many sectors (such as transport, power, and private sector participation; and water; food being the exception) which were until (b) developing an effective and credible not so long ago subject to public monopolies. regulatory framework water management, This strategy needs to be reinvigorated. Its also distinguishing two functions of economic requires revamping public structures and practices regulation and resource management, and accJrdingly. Priorities in this context appear as follows. assigning each of them to a separate agency_ -5­ - Phiiippines - ReslOring Stronger Growth with Greater Equity What the Government Can Do and How the World Bank Can Help Draft Jar Discllssion 81f.1198 - ? Power: (a) preparing for National Power framework of the Philippine Economic Zone - Corporation (NPC) privatization unbundling--and incorporating separately-­ transmission and generation assets, as well by Authority (PEZA) and Bureau of Investments (BOl) and repealing them wherever possible; and (b) shifting away from targeted tax incentives for as tariffs, and developing competitive investments extended under various schemes and electricity markets; (b) towards universal ones (e.g., accelerated restructuring NPC's finances, including depreciation, net operating loss, investment and - through refinancing short-term debts; scaling down its investment program; and implementing the (overdue) automatic tariff reinvestment allowance, duty-free importation of capital equipment and machinery) available through the tax code. - increase; (c) reviewing the roles and functions of the National Electrification Administration (NEA) and other 8. But the National Government cannot succeed on its own. Indeed, the Local distribution entities with a view to improve Government Code of 1991 put local governments distribution efficiency; and at the forefront of the fight against poverty. They (d) strengthening organizational capacity of should be encouraged and helped to do this job the Energy Regulatory Board. more effectively. Priorities in this respect include: (a) reassessing the scope of devolved ? Food: (a) liberalizing the trade regime for services against the actual performance of local food items, including by accelerating the governments; (b) reviewing the Internal Revenue reduction in tariffs on com, sugar, livestock Allotment (IRA) formula with a view to improve and livestock products, and replacing its equity, incentives for local revenue quantitative restriction on rice with tariffs mobilization, as well as its overall fiscal (to be subsequently reduced); and (b) sustainability; (c) redirecting local government revamping the structures and operations of financing toward commercial and private sources, the National Food Authority (NF A) to articulating a judicious policy towards sovereign attain a more cost-effective food security and sub-sovereign guarantees, and focusing program. government on poorer entities and activities with strong public goods characteristics; (d) improving 6. In many cases, the success of this strategy local government accountability by developing will depend on the establishment within the appropriate accounting and reporting standards, national government level of a capacity to together with. public disclosure requirements, a actively solicit private sector participation credit scoring system and enhancing fiscal (rather than sift through unsolicited proposals) information and performance monitoring system and to deploy credit enhancement instruments by national authorities. Furthermore, the judiciously. Clear policies (including as to the introduction of annual poverty incidence pricing of guarantees) will need to be enforced in indicators at the provincial level should allow to this respect, and tracking systems put in place, assess poverty reduction performance against - par:icularly as concerns performance guarantees. 7. Efficiency gains on their own are unlikely targets on an annual basis. III. How the World Bank Can Help to be enough; national government revenues will also need to rise. Short of raising tax revenues this could be attained by stepping up efforts in the 9. A number of operations have been field of tax administration and by broadening the proposed or are at various stage, of preparation to revl;nue base. There are two priorities in this latter support renewed efforts at public sector reform. respect: (a) putting a stop to the spread of special A Public Sector Reform Loan (PSRL) has been privileges, extended by law, outside the proposed to support substantial actions towards: -6­ Philippines - Restoring Stronger Growth with Greater Equity Draftfor Discussion What the Government Can Do and How the World Bank Can Help 8/J.I/98 (a) strengthening national expenditure administration, monitored under the standby management in the pursuit of greater allocative arrangement with the IMF, are also supported by and operational efficiency; (b) improving revenue a Tax Computerization Project financed by the performance by streamlining tax incentives and World Bank. Furthermore, a proposed Local privileges and strengthening tax administration; as Government Finance and Development Project well as (c) addressing other sectoral/institutional will seek to strengthen the financing channels for issues which have a significant fiscal impact at the local development projects (particularly through a aggregate level. A report has been provided to reform of the Municipal Development Fund) as Government on the indicative reforms in areas of well as to enhance the transparency and public adm inistration, civil service and public accountability of local bodies to their expenditure management, including in the specific constituency, national agencies, and financial sub-sectors of roads, ports, rail, water, power and markets and institutions. food. Processing of the PSRL depends on the Government's feedback to the report. (Note: The 11. Finally, a range of sectoral interventions Government priorities should take into account should help foster the agenda outlined above at another proposed program loan from the Bank for the sectoral level, including in water (proposed the housing and contractual savings sectors. LGU Urban and Water Sanitation project), Both loans were included in the Bank's $1.0 sanitation (proposed solid waste management billion package of assistance, with an indication project), roads (proposed second highway that only one of the two loans would be pursued management project), urban transport (proposed by Government) Metro Manila Urban Transport project). For its part, the Asian Development Bank is preparing to 10. In parallel, a WB grant has been recently support the above reform agenda in the power and approved to finance technical assistance for grain sectors. budget reform. Efforts at strengthening tax IV. Recent Relevant World Bank Studies/Documents Forfurther information, please contact Ms. Leonora Gonzales or Ms. Charito Sanalila ofthe World Bank at 637-5855. Or you may visit the Bank's Public Information Center at the 23rd Floor, Taipan Place, Emerald Ave. Ortigas Center, Pasig City. 1. Directions in Public Sector Reform: Menu for a Possible Public Sector Reform Loan, World Bank, luly 1998 . 2. Public Expenditure Management for Sustained and Equitable Growth, World Bank, September 1995 . This Briefing Note is an evolving document, and as such, is subject to change . -7­  PHILIPPINES - Restoring Stronger Growth with Greater Equity:­ What the Government Can Do and How the World Bank Can Help Briefing Note No.3: Financial and Corporate Sectors Note. This briefing note is part of a larger World Bank (WB) document on "Restoring Stronger Growth with Greater Equity· What the Government Can Do and How the World Bank Can Help ". The document has been prepared primarily for use of the Government of the Philippines (GOP) as an input into their policy-making activities, and as a background paper for consultations with the GOP on the World Bank's Country Assistance Strategy (CAS) in the context ofthe Government's development agenda. The consultations are scheduled to start in Seplember 1998. I. Introduction II. Recommendations on What Government Can Do and How the World Bank Can Help The Banking System 1. In recent months, the WB has provided a number of recommendations for strengthening the Philippine banking system in the context of a comprehensive banking reform program, which indeed has been initiated. This program includes actions to: (a) strengthen the prudential framework and supervisory effectiveness; (b) adapt the intervention and resolution strategy for troubled banks to the emerging situation; (c) strengthen government-owned/controlled L The Philippine banking and corporate banks; and (d) reduce financial intermediation sectors have withstood the financial market costs and the incentives for regulatory arbitrage. turbulence of the past year better than most Legal reforms and legislative action are essential neighboring economies. Nevertheless, these to the success of the program, including inter alia seclOrs have been weakened and the full to: protect Bangko Sentral ng PilipinaslPhilippine repercussions from the regional crisis have not yet Deposit Insurance Corporation (BSP/PDIC) been felt which further regional shocks cannot be employees from litigation arising from the ruled out. Strengthening these sectors is therefore conduct of their responsibilities as supervisors; extremely important. At the same time, building a enhance the supervisory and enforcement powers stronger capital market, including through the of BSP/PDIC; and augment the legal authority of development of the contractual savings system, these institutions to resolve insolvent banks. The will be important to reduce over-reliance on the recommendations are detailed in recent reports; banking system to intermediate long-term savings. the rationale for urgently pursuing banking The policy priorities within the financial sector, reforms is reiterated below. basled on recent and ongoing work by the World Bank (WB), are related to banking, corporate 2. The current regional crisis highlights the seClor, and contractual savings. vulnerability of small open economies to capital -8­ Phil(opines ­ Restoring Stronger Growth with Greater Equity Draft/or Discllssion What the Government Can Do and How the World Bank Can Help 8114198 flow shocks such as observed over the past year. with liquidity and non-performing loan problems. Given an environment of globally integrating Two alternative models to address this problem capital markets and the dom inance of the banking are to encourage healthy commercial banks to system in intermediating financial flows within acquire such banks, or to encourage more mergers the Philippines, raising banking standards towards between existing rural banks. international best practices is among the important policy responses the Philippines can adopt in The Corporate Sector response to the crisis. First, the banking system would benefit from an enhanced prudential 5. The relatively low level of corporate framework-with its improved incentives for indebtedness has spared the Philippines from the owners, the market and supervisors-to exercise worst of the corporate distress/bankruptcy that is the appropriate degree of oversight in affecting other East Asian countries, although intermediating large capital flows in the future . further weakness in markets may yet lead to Second, market perception that banking reforms greater distress. The current shock has, however, are being addressed in a fundamental and highlighted the need to revisit the institutional comprehensive manner can itself be important for issues involved in dealing with corporate distress. generating greater investor confidence. Finally, In particular, the government needs to examine since the damage to neighboring country banking the adequacy of current bankruptcy legislation systems appear to be greater, it can be expected and the efficacy of the judicial process for that these countries will implement fundamental handling corporate bankruptcies. In the short run, banking reforms that will strengthen their systems the SEC's capability to handle its larger caseload significantly over the medium term. Under this of corporate debt restructuring needs to be scenario, it would benefit the Philippines to strengthened; in the long run, the Government remain ahead on the reform agenda, even in the needs to examine whether the SEC is the abs(~nce of a major crisis. appropriate institution to manage this task. To help prepare measures to assist the corporate 3. The WB is currently preparing a Banking sector in coping with the crisis, we are conducting System Reform Loan (BSRL) to support the a corporate survey for East Asian countries, banking reform program. Assuming a strong including the Philippines. The survey will reform program can be agreed upon between the provide important information regarding the Philippine authorities and the Bank, we would be impact of the crisis at the firm level. willing (in coordination with the authorities) to endorse the program publicly to enhance market The Contractual Savings System confidence. In addition, we are coordinating a Japanese-financed technical assistance program 6. The regional financial crisis was driven in Policy and Human Resources Development great measure by over-reliance on foreign as (PHRD) for the financial sector, aimed at training opposed to domestic financing, excessive term and building capacity within the BSP, PDIC and transformation undertaken by banks, and Securities and Exchange Commission (SEC). excessive dependence of enterprises on short-term Fur:her funding for the same purpose may be debt as opposed to long- term debt and equity available from a second PHRD and/or resources finance. Contractual savings institutions (e.g., from the European-financed ASEM fund. pension funds, pre-need and life insurance companies), by mobilizing and allocating 4. One topic not covered within the BSRL is domestic long-term savings, contribute to the consequences of the greater stress among rural reducing a country's vulnerability to these risks; and thrift banks witnessed currently, and hence to macroeconomic and financial stability. particularly the consequences for their clients if a At just 20 percent of Gross Domestic Product significant number of rural banks cannot cope (GOP) in 1997, there is considerable scope for -9­ Philippines - Res!oring S!ronger Grow!h wUh Grea!er Equity Draft/or DisCllssion ~' !he Govemmelll Can Do and How !he World Hank Can Help 8/1.//98 expanding the pool of contractual savings and reform loan that has been presented for turning it into a vehicle in support of capital Government consideration. (Briefing Note No. 10: market development. Reforming Housing Finance also presents closely­ related reforms proposed for the housing finance 7. The GOP has taken important steps to sector.) Reform measures would aim to develop a beg.n to strengthen the financial status of the more equitable and efficient retirement income public pension agencies, notably the passage of system; improve compliance and collections at revised laws in 1997 governing Social Security SSS, GSIS and Pag-IBIG; reduce Government Sys':em (SSS) and Government Service Insurance contingent liabilities related to these institutions; SysTem (GSIS), and has called for the strengthen the legal foundations and supervision establishment of a provident fund to further of private occupational pension plans, and ensure strengthen the contractual savings sector. Further that these plans are adequately funded; improve meE.sures to improve the system's structure, consumer protection and solvency of pre-need finances and macro-economic impact were plans; and create a level playing field in terms of suggested in earlier WB technical work on the laws, regulations and taxes to ensure a more contractual savings sector, and in a proposal for a dynamic and competitive life insurance sector. possible housing finance and contractual savings III. Recent Relevant World Bank Studies/Documents Forfurther information, please contact Ms. Leonora Gonzales or Ms. Charita Sanalila afthe World Bank at 637··5855. Or you may visit the Bank's Public Information Center at the 23rd Floor, Taipan Place, Emerald Ave. Ortigas Center, Pasig City. 1. Economic Report - Philippines: Strengthening Economic Resiliency, November 1996. 2. Philippines: An Agenda for the Reform of the Social Security Institutions, September 29, 1995. This Briefing Note is an evolving document, and as such, is subject to change. -10­  PHILIPPINES - Restoring Stronger Growth with Greater Equity:­ What the Government Can Do and How the World Bank Can Help Briefing Note No.4: Accelerating Inlplenlentation of Ongoing Poverty Alleviation Programs Note: This briefing note is part of a larger World Bank (WB) document on "Restoring Stronger Growth with Greater Equity: What the Gmernment Can Do and How the World Bank Can Help." The document has been prepared primarily for use of the Government of the Philippines (GOP) as an input into their policy-making activities, and as a background paper for consultations with the GOP on the World Bank's Country Assistance Strategy (CAS) in the context ofthe Government's development agenda. The consultations are scheduled to start in September 1998. I. Many Donor Financed Projects current economic environment. These should Aim at Poverty Reduction be considered for restructuring or cancellation. Billions of dollars are available to the Philippines undler ongoing Overseas Development Assistance ;.. Ensure sufficient counterpart funding in 1998­ (ODA)-financed poverty alleviation and other 99 budgets for the identified poverty lonl~-term investment projects. Many of these projectsa. The pay-off from these funds would projects require counterpart funding from the be large because, on average, ODA finances budlget. On average, the ratio between counterpart 60-70% of project cost. Thus, for every one funds and the aDA funding is 1:3. Thus, every $1 peso allocation from budget, the total counterpart funding generates about $4 worth of investment impact would be worth 3-4 pesos. investment for future growth and employment creation. Without adequate counterpart funding, the aDA projects either slow down or come to a ;.. Increase the leveraging effect of counterpart halt. Such an outcome is counter productive to the funds by asking ODA partners to increase obj,~ctives of the aDA and the GOP. their share of project cost financing to 80-90% for poverty alleviation projects to 1. As of end 1997, the ODA loans portfolio help the government cope with the effects of consisted of 187 programs and projects with a net the Asian financial crisis . commitment of $11.4 billion (52% from Japanese Government and OECF, 23% from the World ;.. Seek partial or full cancellation of those ODA Bank (WB), 22% from the ADB, and 3% others) . loans which cannot be supported by In addition, ODA grants supported 237 projects counterpart funding in 1998-1999. This would involving $1.23 billion. In terms of sectors, save the government commitment charges on transport, energy and water resources comprised undisbursed portion of loans. 29%, 28% and 16% of the total. The specific actions recommended to improve utilization of ;.. Issue a directive to all concerned ODA funds are: government departments to accelerate ;.. Identify the ODA projects with potentially high impact on poverty reduction. Some ODA projects may no longer be high priority in the a Only about 50% of the ODA-fmanced projects require budget funding . -1 1­  Philippines - Restoring Stronger Growth with Greater Eqllity Draftfor DisclIssion What the Government Can Do and How the World Bank Can Help 8/{.//98 implementation of the identified priority Figure 1: FY 98 PORTFOLIO DISTRIBUTION ($Million) projects. Ask NEDA-PMS and CCPApb to monitor Others and disseminate progress in implementation Rural (63.CO 2% Energy Development (858.eQ 33% and results, for the priority projects, within (B39.n 33%~--- the government and to the public . II. How the World Bank Can Help Infrastrucwre 2. The World Bank (WB) is ready to Social Sector (422eQ 17% (387.50 15% restructure the portfolio of on-going projects in response to budget realities. With this in mind, this note (a) outlines the main features of the on­ 4. Disbursements. Actual disbursements as going portfolio of WB-assisted projects; (b) of June 30, 1998 amounted to US$310 million analyzes the impact of the Asian financial crisis compared with US$313 million during the on these projects; and (c) outlines the measures corresponding period in 1997. Table I on the jointly designed by GOP and WB staff to ensure next page shows a list of projects--over five the continued attainment of the development years--with large undisbursed balances. The main objectives of those WB-assisted projects that are reasons for these large undisbursed balances judged to be priority. include lack of realistic procurement plans and actions; late release of counterpart funding Main Features of the Ongoing Portfolio of allocations; low utilization of released funds; and 32WB-Assisted Projects rights of way problems. 3. Size. The Philippines portfolio as of 5. About US$134 million in loan proceeds June 30, 1998 comprises 29 projects with have been cancelled to date, leaving an overall commitments totaling US$2.5 billion compared undisbursed balance of US$l.l billion. with 28 projects worth US$2.6 billion in 1997 . There are also two Global Environment Facilities Assessing the Impact of the Crisis on the financed projects (Conservation of Priority Portfolio Protected Areas and the Leyte-Luzon project) with total commitments ofUS$48 million and one 6. GOP Economy Measures. In response to Ozone Depletion Substance Phase Out project of the East Asian financial crisis, Administrative US~515 million. Figure I illustrates the sectoral Order 372 titled: "Adoption of Economy distribution ofthese projects (see Attachment 1 for Measures in Government for FY 1998" was further details). issued, effective January I, 1998. A.O. 372 requires all government agencies to identify and implement measures in 1998 that will reduce total expenditures for the year by, at least, 25 percent of authorized regular appropriations for non­ b Coordinating Council of the Philippines Assistance personal services items. Agencies were given the Program (CCPAP) was set up under the Office of the flexibility to identify the specific sources of cost­ Pre~,ident to assist and monitor implementation of the - foreign-assisted projects . -12­  Philiopilles - l?eSi()rillg Stronger Growth with Greater E<jlliiV Draft/or Discussion ~' the GUI'emllle"i Can Do all" flow the World Bank CLm Help 8/J-t/98 .J Projects with Large Undisbursed Balance ~l .EFFECTIVENESS NET UNDISBURSED.dJ PRO~IECT DATE COMMITMENTS "BALANCE,' ,c·",,;;~ (as' of6/30j~~):~~~jz~1 saving provided they comply with the 25 percent the 25 percent GOP budget reduction translates to minimum savings, Pesos 408 million in 1998. 7. In April 1998, the Department of Budget 9. The projects most affected by the and Management (DBM) warned of a budget budget reduction included five in the Social constraint more severe than originally envisaged. Sector and all the nine projects in the Rural In the absence of improvements in revenue Development Sector (see Attachment 2). In collection, financing of the magnitudes involved discussions with the agencies concerned, it was is unlikely without adverse impact on the fiscal noted that some agencies had carryovers of funds targets for the year. Under the circumstances, from their 1997 counterpart fund allocations, with respect to the WB portfolio, the GOP has amounting to a total of about Pesos 360 million. indicated its intention to: Others had alternative sources of funds and were able to absorb the balance of the budget reduction. :>- devote its limited budgetary resources to priority projects in the lending program; Projects Facing Problems in Counterpart :>- revamp,. restructure and cancel existing Funding in 1998-1999 projects or components that are no longer relevant in the light of the funding shortfall; 10. These discussions with the implementing and agencies also revealed that several factors, as :>- reduce payments of commitment fees on the discussed below, principally are constraining huge undisbursed balance of over US$I.1 project implementation in 1998: billion in the portfolio. ,. Projects with no allocation of counterpart 8. To meet these objectives, the GOP's funds in 1998. Three of the projects in the oversight agencies (DOF, NEDA, CCPAP, portfolio--Early Childhood Development, DBM), implementing agencies and the WB Community Based Resource Management and held a series of meetings to ascertain the extent the SZOPAD Social Fund--had no counterpart of the shortfall in counterpart funds. It was allocations for 1998. In the absence of any found that of the 17 projects in the portfolio actions to remedy the situation, these projects implemented by national agencies (excluding the faced difficulties getting off the ground . government owned and controlled corporations), However, in the case of the Community Based Resource Management project, the -13­  Philippines - Restoring Stronger Growth wilh Greater Equity Draftfor Discussion What the Government Can Do and How the World Bank Can Help 811+198 DOF ensured that the 1998 counterpart fund development, Pesos 198 million (Attachment 2). requirement was made available from the In the infrastructure sector, the budget reduction is Municipal Development Fund. For the not expected to unduly affect project SZOPAD Social Fund, DBM recently implementation in 1999 as the Third Municipal released about Pesos 22 million from the 1998 Development Project has alternative sources of FAPS Support Fund. As regards the Early funds--unutilized cash allotment and the re-flows Childhood Development projects, Pesos 5 from the Second Municipal Development Project. million was approved from the F APS Support And for DPWH also, the 1999 budget reduction in Fund but not released due to inadequate counterpart fund for the Highway Management documentation by the implementing agency. Project will be absorbed by the Department's We would recommend that the DSWD should proposal to cancel the Zamboanga-Pagadian Road submit the necessary documents to the DBM contract. As shown in Attachment 2, the shortfall to facilitate the release of the approved in counterpart funding is greater in 1999 amount. compared to 1998, particularly for the Early Childhood Development, Small Coconut Farms, , Late release of cash allocation. Prior to the Water Resources Development, Environmental Asian crisis, DBM released funds to project and Natural Resources-SECAL and the implementing agencies on an annual basis. As Community Based Resource Management part of its effort to control the burgeoning projects. These projects aim to reduce poverty budget deficit this year, DBM now releases through: promoting the physical and mental cash allocations to agencies on a monthly development of vulnerable children; increasing basis depending on revenue availability. agricultural production and the incomes of Most agencies have not adjusted their funding smallholders; enhancing the capacity of low~ request to the new monthly system, thus income rural communttIes; and supporting slowing down the pace of project community-based resource management. We implementation, particular in the case of the would, therefore, recommend that these priority Water Resources Development and the projects be given adequate allocations of Environmental and Natural Resources­ counterpart funds for 1999. SECAL projects. 12. In the absence of any actions to remedy )I' Low utilization ofreleased funds. This is the the situation, lack of counterpart funds could have third factor constraInIng project a significant negative impact on the GOP's core implementation; at about 60 percent, average objective of poverty alleviation and employment utilization is low for those projects with funds already released. The utilization rate is generation in the rural areas. This negative impact could be largely prevented by having the extremely low for projects in the Social budget reduction amount for 1999 absorbed by Sector, particularly Women's Health and Safe the WB through an increase in the disbursement Motherhood, Urban Health and Nutrition, and ratio from 70:30 to 80:20 (70 and 80 being the the Third Elementary Education projects, WB's contribution). reflecting the weak implementation capacity of the agencies involved and the lack of 13. In addition, the WB would be willing to realistic procurement plans and actions. consider, if requested by the GOP, a further increase in the disbursement ratio to 90: 1O. This 11. In 1999, the budget reduction in proposal would assure that GOP budget counterpart funds amounts to Pesos 350 million, reductions are adequately absorbed by the WB, of which infrastructure accounts for Pesos 83 thus providing a welcome relief to the fiscal million, social sector, Pesos 69 million, and rural situation, by easing the burden of borrowing from -14~  Philipoines - Restoring Stronger Growth with Greater Equity What the Government Can Do and How the World Bank Can Help Draft/or Discllssion 8/1-1/98 the domestic market at high interest rates. It will between project implementing agencies also facilitate timely implementation, assuring that and the DBM. the development objectives of these projects are met. (b) Ensure that priority projects are given adequate allocations of counterpart funds 14. Finally, the WB proposes that GOP such as Early Childhood Development, agencies should undertake extensive restructuring Small Coconut Farms, Water Resources of project designs and implementation plans to Development, Environmental and Natural determine the high priorities for the GOP in the Resources-SECAL and the Community current economic environment. Already, the Based Resource Management projects for Second Vocational Training project is being 1999 . restfLlctured. Other projects for restructuring include the Urban Health and Nutrition, Women's (c) Issue directives to all concerned agencies Health and Safe Motherhood, Small Coconut (see paragraph 14) to undertake extensive Farms, the Environment and Natural Resources­ restructuring of the projects in the SECAL, and the Conservation of Priority portfolio and to accelerate implementation Protected Areas projects. Projects or components of identified priority projects . thereof that are not included in the GOP's priority list of activities or have inadequate counterpart (d) Send a formal list to the WB, indicating funding will be earmarked for cancellation in projects that merit increases in consultation with the GOP. disbursement ratios and those for partial cancellation of Joan funds. 15. About US$52 million has been earmarked for Gancellation so far this year, including the WBto: US$9 million savings from the restructuring of the Manila Second Sewerage Project following the (a) If requested by the GOP, the WB would privatization of the implementing agency be willing to address the impact of the (MWSS). A further US$10 million will be financial cnsls by ralsll1g the cancelled from the Highway Management Project. disbursement ratio for the following When the proposed restructuring of the projects in projects: SZOPAD Social Fund, Third the portfolio is completed, the total amounts for Elementary Education, Early Childhood cancellation would be much higher than the Development, Water Resources US$62 million indicated. This would save the Development, Community Based GOP commitment charges on undisbursed Resource Management, Agrarian Reform portions of loans. Communities and the Third Municipal Development. The percentage of III. Actions for Improved Portfolio expenditures financed by the WB in these Performance projects could go as high as 90% (net of taxes and duties) subject to specific project circumstances. Provided (i) the 16. The following are the key GOP assures appropriate and timely recommendations proposed: release of counterpart funds to support the project expenditures; (ii) the GOP to: implementing agencies take actions to overcome institutional problems. (a) Facilitate the release of allocated funds for the Early Child Development Project in 1998 and assure more coordination -15­ Philippines - Restoring Stronger Growth with Greater Equity Draftlor Discussion What the Government Can Do and How the World Bank Can Help 8114198 - (b) Work closely with GOP agencies in 17. The above proposals will be closely restructuring the Second Vocational monitored by NEDA-PMS and CCPAP in Training, Women's Health and Safe conjunction with the WB. Further progress will Motherhood, Urban Health and Nutrition, be assessed as part of the Country Portfolio Small Coconut Farms, Environment and Performance Review (CPPR) planned for Natural Resources SECAL, and the November 1998. Conservation of Priority Protected Areas projects. -16­  " " PHILIPPINES Page 1 of 3 STATUS OF FY98 LOAN PORTFOLIO Attachment 1 Project Name 3242 06/28/901 07/09/901 01/15/91 44.711 00.00 3261 ICommunallrrigation Dev 10104/901 11/08/901 01/11/91 27.571 00.00  " PHILIPPINES Page 2 of 3 STATUS OF FY98 LOAN PORTFOLIO Attachment 1 " • PHILIPPINES Page 3 of 3 STATUS OF FY98 LOAN PORTFOLIO Attachment 1 Fund Name  • • • • Status of Counterpart Funding of Bank-Assisted Projects Page 1 of 2 (In Thousand Pesos) Attachment 2 .. 1. ___ ......... L_. ... 1_. 1 I DA TE 1999 PROJECT REQUIREMENT 1999 BUDGET PROPOSAL 1999 FUNDING SHORTFALL PROJECT TITLE AGENCY START I FINISH Counteroart TOTAL Proceeds Proceeds 5.866.637 8.418)85 2,201.891 4,569,360 6,771 ,251 -1.647,534 DOlE- TES[)A~GATt Fr'lninppnnn and Science Education DECS-OSEC 1992·1998 DOST·OSEC-GATi Hi92.1998 I Third Elementary Education Project 3 I (TEEP) 564.674 437,538 1,002,212 512.417 859,820 1,372,237 (52.257) 422.282 370,025 I ALGU-MDF DECS-OSEC 1997-2003 1997-2003 !14,940 397,477 459,761 DOF-BLGF 9!2,477 I 1997·2003 i Early Childhood Development I 4 Project (ECDP) 69.484 271,894 341.378 61,643 (34,629) DOF-BLGF 1998-2003 §8.652 i ALGU-MDF 1998-2003 DOF~BLGF-[)ECS .. 1998=2003 DOF-BLGF-bOH 1998-2003 DOF-BLGF-DSwD -1998-2003 Health and Safe 5 Mothf'rhood Project DOH-OSEC 1995-2000 567 32, 1 ~89'1991 23,763 191, 729 1 215.492 (73.707) 6 37,981 300,000 37.98i 262.019 DOF-BLGF 33.526 210.299 DOH-MDF 4,455 51,720 II. Development I DA-OSEC-GATT 1991-1998 361,000 1,313,0001 270.181 _597.951 868.132" (90,819) (354,049)1 (444,868) J Second Communal Irngatloo Dev'l 8 DA-NIA-GATT 1991-1998 89,6,08 257.7531 89,608 H38,145 257,753 Operations Support 9 DA-NIA-GATT 1993·1998 32,596 32,596 314,112 346,708 Water Resources Development 1 10 ;Project . 139,250 I DA-NIA-GATT 1997;2001 120,000 I DENR-cisEC-cjAff 1997-2061 -16,216 DPWH-NWRB 199i-2001 3.034 ~ Environment and Natural Resources 11 iSector Adjustment Loan DENR-OSEC 1991·1999 91.163 ; 573 44.649 91,163 135.812 I . 159. 1 (23,761) Conservation of Priority Protected 11 a •Areas Project DENR-OSEC 1994-2001 16.433 16,433 16,433  • • • Status of Counterpart Funding of Bank-Assisted Projects Page 2 of 2 (In Thousand Pesos) Attachment 2 DATE 1999 PROJECT TITLE START I FiNISH r-(c:<o;Uurrntiee;:;rp;;;a~rt---!T":":';~:t.i;;:.:==r'!.-lT'(O)jTriAG:L~-IGo,Jntim;:art;':r·::::~ ':"c<~=::Y-Tcm~--tc:Ouinteimartt--TOan--t-T(w\L-l - Fund !Communitv Based Resource Dev't 12 (75.661) 1 (553.372) 1 (629,033)1 1998-2002 I I 1998-2002 1998-2002 Reform Communities Dev'!, 13 75,054 1 £,,£,v'' 1 '}OI,'LII lUL.U.~41 A s,:;n 277,6051 ?t:.A not;. 379,6891 ")~&:: 'lkk 27.030 I 12,562 14 OP-PO «(366) ilL ilnlrastruc!ure 15 I Third Municipal Development 170,460 (120.000) (120,000) DOF-BLGF 45,300 .AiGU-MDF DPWH:OSEC J120,000) 125.160 I 16 :Highway Management Project ~i;A ADa! anl1 7110,105 1,181214 ."'v .... ""! "v,vOt} .- - f:l-OSEC-HIGHII 554,699 554.6991 885.1021 1.439,801 7no,105 1101 ryiA 1,18~,214 OTI-CIAP IV. Administration Computerization 17 :Project 184, 742 1 184,742 . ltio,/j~!J I 165.898 . 350,640 350.640 I 2 ? I ! (175.102 (175.702)! )1 (175.700)1 (175,700)  PHILIPPINES - Restoring Stronger Growth with Greater Equity:­ What the Government Can Do and How the World Bank Can Help Briefing Note No.5: Alleviating Poverty and Reducing Inequality I ote: N This briefing note is part of a larger World Bank (WB) document on "Restoring Stronger Growth with Greater Equity: What the Government Can Do and How the World Bank Can Help". The document has been prepared primarily for use of the Government of the Philippines (GOP) as an input into their policy-making activities, and as a background paper for consultations with the GOP on the World Bank's Country Assistance Strategy (CAS) in the context ofthe Government's development agenda. The consultations are scheduled to start in September 1998. I. Introduction inequality. Not only do inequalities complicate the task of poverty alleviation, 1. Over a decade of gains in reducing there is also growing evidence that, by poverty incidence in the Philippines may get undermining social cohesion, they can impede stailled if the growth engine chokes and growth as well. inequalities continue to increase. Most available >­ Most households in the Philippines, like in indicators on poverty incidence show that the other East Asian countries, have few formal inc.dence of poverty in the Philippines has mechanisms to protect them from risks declined during the last 10 years. This reflect in associated with job losses, disability and part the fact that the country has enjoyed good aging. As the society becomes more urban growth rates during the last 6 years. While the and more formal, it would put pressure on overall strategy pursued has demonstrated informal family based mechanisms of success, a number of recent developments household protection and increase demand for indicate that a recalibration of interventions might formal government mandated schemes. be in order: >­ The household insecurity has sharply >- The Philippines is the only large country in increased as a result of the Asia financial East Asia where the absolute number of crisis and·EI Nino. people living on less than $1 a day did not show a decline over the 1985-1995 period. 2. The challenge of alleviating poverty, Thus, there seems to be a core of long-term never an easy task, has become even more poor where poverty is persistent. These long­ difficult in view of the recent slowdown of the term poor appear concentrated in certain growth in the Philippines and the prospects of geographical areas (e.g., Cordilleras) as well weak export demand in the region. If there is as in certain groups (e.g., indigenous people). zero aggregate growth in consumption or income To address the concerns of these long-term between 1997 and 2000. the incidence of poverty poor, specific measures and policies will be would likely rise compared to pre-1997 levels, necessary. and even more sharply so if income inequality continues to grow, as it has during 1994-97. This >- The preliminary information from the 1997 illustrates the need for public policy and action family income and expenditure survey focusing on: (a) generating stronger growth; and indicates that the pace of poverty reduction, (b) reducing income inequalities if the overall although still impressive, would have slowed poverty incidence is to be reduced in the down since 1994 due to rising income Philippines. Generating stronger growth is -17­ 0  Philippines - RestOl'ing Stronger (Jrml'th with Greater Equity Draft for Discussion ~'t the Government Can Do (/1/(1 flow the IVorld Bank Can Help 8/1·1198 extremely important given that research has y Setting readily understandable and shown that overall growth does reduce the monitorable goals along with a incidence of poverty and given that the stronger monitoring/reporting mechanism for progress growth wi II he Ip generate the resources which are towards the goals; needed to reduce inequalities. y Sustained overall economic growth by deepening market based reform, opening up II. Recommendations on What the economy and furthering private sector Government Can Do participation; 3. It is recommended that the GOP develop and implement a medium term (1999­ y Enhancing pro-poor bias in the incentives 20(4) action plan for alleviating poverty and framework: Macro policies affect the poor red ucing income inequalities. The action plan and understanding these effects may help may adopt a partnership approach involving a enhance those policies that help the poor. For joint effort by government (national and LGUs), example, measures that moderate inflation can be pro-poor. Real exchange rate devaluation "We share the same world, can be pro-poor if it brings benefits to households (including farmers) engaged in the production of tradable goods and by encouraging more labor-intensive activities. Higher interest rates could have mixed effects. On the plus side, they moderate inflation and encourage more labor-intensive new investment but they can also accelerate corporate lay-offs; and we share the same challenge. The fight y Broadening access to assets and markets against poverty is the fight for peace, security, through such actions as completing the land and growth for all of us." reform, invigorating agrarian reform Excerptsjrom: "The Challenge ofInclusion ", communities, securing land tenure in both J. D. WolJensohn, President, World Bank urban and rural areas, enforcing the rights of vulnerable groups (e.g., indigenous NGOs, private business, donors, labor populations, fisherfolks, slum dweller), representatives and academe. The National Anti­ expanding access to communal irrigation, Poverty Commission (RA 8425) could be the refocusing housing policy towards the poor, consultative body tasked to bring all parties and upgrading local and farm to market roads; together and serve as coordinating, monitoring and advisory body. Building a partnership would y Targeted development programs focused on req uire time, but it would be time well spent and certain areas or groups with suffering from will enable the government's resources to be persistent poverty. The focus of such combined with other resources. The goal should programs should be on investments that be to prepare such a plan in 12-15 months. expand the capabilities of the individuals to puIl themselves out of poverty. Such 4. Global experience indicates that an interventions may include: compensating the action plan for alleviating poverty and poor households for the direct and indirect inequality needs to include the following (opportunity) costs of educating their priority elements: children; providing basic health services; creating links to markets as outlets for farm -18­  Philippines - Restoring Stronger Growth with Greater Equity Draft/or Discllssion What the Government Can Do and How the World Bank Can Help 8/1.f./98 productions; reduce travel time to off-farm private savings, informal support systems and jobs and schools; and well designed micro employer obligations. The action plan will credit schemes; need to include these mechanisms. >- Easing skills differentials. Very often, The following table is a useful reference for inequality is largely driven by overall skills public policy options to reduce poverty. differentials among the poor and the non­ 5. A note of caution is necessary. There poor. Educational reforms that aim to help are many on-going GOP programs which will fit people climb up the skills ladder and enhance the elements described in para 4 above and a large their life-time earnings potential should be amount of resources are currently devoted to included in the proposed action plan. The them. The Social Reform Agenda pursued by the goal should be to achieve broader and more previous administration encompasses many equal access to secondary schooling. This flagship programs for poverty alleviation. What may require scholarships for poorer students. is really necessary is to reevaluate the efficacy of It will also require focused efforts to ensure each of these programs in delivering services to that a good supply of highly skilled, the poor and to improve targeting and efficiency. particularly in science and technology, labor Therefore, the first step in developing this action force, is available to support globally plan should be to assess what works and to scale integrated economy; and up the effective programs. The programs judged >- Instituting programs to help households to be ineffective or of lower priority/impact manage insecurity. Unemployment, disability should be discontinued and resources reallocated. and old age are all important causes of New programs may be started to fill gaps. poverty in industrial and developing countries Involvement of intended beneficiaries m alike, and of deeper poverty for people who improving design, monitoring and evaluation of are already poor. The mechanisms for coping on-going programs should be actively sought. with insecurity involve some combination of Public action to reduce vulnerability and poverty in the short to Short term fot;. Long

drought-affectt!d ~term: xx xx xx xx xx xx xx x xx xx x x XX -19­  Philippines - Restoring Stronger Growth with Greater Equity Draft/or Discllssion Whc:t the Government Can Do and How the World Bank Can Help 8/1.//98

6. The proposed Medium Term Action III. How the World Bank Can Help ­ Plan for alleviating poverty and income inequality should be accompanied by measures 8. We are ready to assist the GOP in to control unfair wealth accumulation. designing and implementing the recommended Perceptions of ill-gotten wealth are widespread Medium Term Action Plan. Ongoing and among East Asian countries and the Philippines is proposed WB assistance for poverty reduction is not insulated from that. Such wealth typically discussed in paras 9-14 below. comes from economic rents from the exercise of monopoly rights and access to inside information. 9. Helping the GOP Protect Public Effective anti-corruption policies need to be Expenditures for Social Services: At the GOP adopted to prevent such unfair wealth request, we are going to carry out a Social accumulation. To be effective, anti-corruption Expenditure Review. This activity will assess how policies need to emphasize improved deregulation social expenditure priorities are being met in the of financial markets and increased transparency in present context of fiscal austerity, and develop government enterprise relations and in public recommendations in this respect. This review will procurement. The government has already given build upon the work already done as part of the top priority to it and the fight against graft and recent WB study entitled "The Socio-Economic corruption should be seen as an essential element Impact of the Financial Crisis in the Philippines. " of the strategy to alleviate poverty and inequality. The result will be recommendations, as need be, on the level of funding required to meet social 7. Increasing Monitoring, Diagnosis and priorities, as well as on possible ways to improve PuliJlic Information. Effectiveness of the action the inter- or intra-departmental allocation of plan for alleviating poverty and inequality can be resources. If necessary, we would be willing to greatly enhanced by a public debate on the design provide program loans to support the needed and. effects of the programs. This in turn requires expenditures. The review is scheduled to be collecting and making information publicly conducted by the Bank in September 1998. available. Two specific actions are recommended in this area: (a) general monitoring of progress in 10. Defining an Agenda to Accelerate poverty alleviation should include regular surveys Poverty Reduction. As a contribution to the of living conditions and vulnerability. This will Medium Term action plan suggested above, a WB be made possible with the institutionalization of study would: (a) assess what progress has been an Annual Poverty Incidence Survey by the NSO, achieved since the last WB report ( 1995); (b) initiated this year to complement the three-year evaluate the effectiveness, in terms of impact on household income and expenditure survey; (b) poverty reduction, of overall macroeconomic monitoring and evaluation of public action is policies, on the one hand, and targeted poverty important to ensure that intended actions reach reduction interventions, on the other hand; (c) targeted goals and to redesign programs. This may recommend measures to improve the outreach and be accomplished by combining quantitative and implementation of poverty reduction interventions participatory monitoring. Participatory monitoring which are assessed to be particularly effective; is of particular value both to make actions more and (d) provide recommendations for the effective by . strengthening community incoming administration, as well as donors on development and involvement and as a check on poverty reduction policies and programs to the uses and allocation of funds which is support. accomplished by making information public. II. Better Monitoring of Progress. We will support the introduction of an Annual Poverty Incidence Survey, through a grant under the Asia -20­  Phiiippines Restoring Stronger Growth with Greater Eqmty Draft for Discussion What the Government Can Do and How the World Bank Can Help 811-1/98 ---,--------------------------------------~--------------------------------------- Europe Meeting (ASEM) Trust Fund, financed by and NGOs. All these projects address improved the European Union . delivery of social services for the rural popUlation, where most of the poor can be found. 12. Focllsing Ongoing Human Development Projects on Poverty Reduction. 14. Sustaining and Increasing Jobs in the Our portfolio of ongoing projects includes seven Private Sectors. Two lines of credit (total of on-going projects in the health, education, and about $300 million) are being processed by the social services sectors which focus on the poorest Bank for negotiation in August 1998--the Third prcvinces. The projects total approximately $388 Rural Finance (RFIII) and the Private Enterprise miJiion and address basic education needs, early Credit Support (PECSP) projects. Both projects, childhood development, women's health, health by ensuring access to credit for firms in the development and technical and vocational private sector, will help keep firms to education. The latter project is proposed for continue/expand operations and keep workers restructuring to support training of workers employed, as well as create new job opportunities. rendered unemployed due to the crisis. The WB The RFIII will provide long-term credit to farmers is open to restructuring these projects to support and agri-business firms that remain economically the action plan. viable but face financially-related problems brought about by the regional financial crisis. It 13. Targeted Assistance to Mindanao. A will include a $5 million micro-finance ~~cial Zone of Peace and Development component to address unfulfilled demand for ~:OPAD) Social Fund recently became credit by micro- and small-scale enterprises. The ef£~ctive. This $10 million project will fund PECSP will provide credit to industries, rehabilitation of economic and social particularly small- and medium-sized enterprises inu'astructure in SZOPAD through the financing to help implement their expansion and of subprojects generated, prepared and modernization plans, to undertake new projects implemented by local government, communities and to finance permanent working capital. IV. Recent Relevant World Bank Studies/Documents Forfurther information. please contact Ms. Leonora Gonzales or Ms. Char ito Sanalila ofthe World Bank at 637-5855. Or you may visit the Bank's Public Information Center at the 23rd Floor. Taipan Place. Emerald Ave. Ortigas Center. Pasig City. I. Socio-Economic Impact of the Financial Crisis in the Philippines, 1998. 2. Philippines: Promoting Equitable Rural Growth, 1998. 3. Everyone's Miracle? Revisiting Poverty and Inequality in East Asia: Directions in Development, Vinod Ahuja, Benu Bidani, Franscisco Ferreira and Michael Walton, 1997. 4. A Strategy to Fight Poverty, 1996

This is an evolving document, and as such, is subject to change • -21­  PHILIPPINES - Restoring Stronger Growth with Greater Equity:­ What the Government Can Do and How the World Bank Can Help

Briefing Note No.6: Rural Developnlent and Natural Resources !Note: This briefing note is part of a larger World Bank (WB) document on "Restoring Stronger Growth with I Greater Equity: What the Government Can Do and How the World Bank Can Help ". The document has been !prepared primarily for use of the Government of the Philippines (GOP) as an input into their policy-making ! activities, and as a background paper for consultations with the GOP on the World Bank's Country Assistance i Strategy (CAS) in the context ofthe Government's development agenda. The consultatIOns are scheduled to start in . September 1998. I. Introduction II. Recommendations on What Government Can Do 1. Since 1996, the World Bank has been working with Government in articulating a rural 2. Policy Reform. This is needed to development strategy, specifically for the enhance the sector's international agnculture and natural resource sectors. A Rural competitiveness, respond to the ongoing crises, Development Steering Committee, chaired by and rebuild investor confidence. The key areas NEDA and including representatives from the needing attention include: (i) trade policy as it Departments of Finance, Budget Management, relates to rice, com (including the role of NFA), Agriculture, Environment and Natural Resources, sugar, livestock and livestock products, banana, and Agrarian Reform, coordinated the work. The etc."/ (ii) expediting implementation of, and full report titled: "Philippines: Promoting making agrarian reform more effective; (iii) Equitable Rural Growth" has been discussed with expanding the outreach of formal lending to the a variety of stakeholders, including government, agriculture sector; (iv) developing effective non-government organizations (NGOs), people's mechanisms for financing perennial crops organizations (POs), farmer groups, businesses, development; and (iv) reinforcing programs for academics and local government units (LGUs). It improving the management of natural resources. focuses on the declining agriculture sector growth (from an annual average of nearly 6% in the Public Investment for Rural 1970s to just over 2% in the first half of the Development. The mediocre performance of the 1990s); and the nation's natural resource base, agriculture sector since the early 1980s is, to a both in the uplands and the coastal areas, which large measure, the result of inadequate private and are threatened from over-exploitation. These two public investment in rural areas. Taking issues, together with the Government's concerns affordability and implementation capacity into on poverty, two-thirds of which lies in the rural account, we recommend that public expenditures areas, provide the basic themes underpinning the (capital outlay) on rural development be doubled report. It highlights the untapped sources for by 1998. The major thrust of the increased grmvth in the agriculture sector, on which such allocations should be on rural infrastructure, rund growth and poverty alleviation can be based. aJ The NGOs/POs raised various issues, including opposition to across the board tarrijlcaiton and any measures which may dilute the Goverment 's commitment to CARP .

-22­ Phi/ippines Restoring Stronger Growth with Greater Equity Draft for DiSCllSS ion What the Government Can Do and How the World Bank Can Help 811-1198 particularly barangay/rural roads and irrigation, government-sponsored rural development and on upland resources management. While the programs to provinces. Medium Tenn Agricultural Development Plan (MTADP) strategy based on comparative III. How the World Bank Can Help advantage is appropriate, its main implementation weaknesses are the lack of involvement of the Ongoing Program of Assistance maior stakeholders and weaknesses in the imj)lementing agencies. These need to be tackled 5. The WB presently has 10 finances to realize the expected impact from increased ongoing projects which support rural budgetary outlays. development. These make up the largest component of our total ongoing portfolio of 32 4. Institutional Reform Agenda. projects in the Philippines. Together these Improving public sector management and represent total lending (and GEF grant) of stn:ngthening the process of devolution needs to US$777.91 million of which $314 million remain be a critical part of the program for supporting undisbursed as of August 3, 1998. The largest rural development. The key issues are the proportion is for the environment and natural following: (i) LGU capacity building, since most resources sector with 45 percent of the total in rural development activities have been devolved four projects; lending for irrigation development to LGUs, and clearly defining the role of NGOs represents 13 percent in two projects; targeted and how they can support LGUs; (ii) rationalizing programs (for coconut fanners, agrarian refonn, the respective roles and responsibilities between and the SZOPAD) represent 23 percent in three DA, DAR and DENR, since at the nationalleve!, projects, and there is one rural finance project there is overlapping and fragmentation of representing the remainder. The continued responsibilities; (iii) under-investment by most implementation of these projects is dependent on LGUs in devolved rural development services availability of counterpart funding. We are over the last five years is a major issue; in the prepared to increase the current ratio of 1 to 3 poorer rural provinces and municipalities, the between counterpart funding and the loan so that channeling of additional resources from the projects may move more quickly on the ground. natJ.onal government for the devolved rural The list of projects, with loan amount and development activities; and (iv) expanding and undisbursed balances, is shown in Table 1. deepening the partnership with NGOs in 5.15 27.57 209.95 3.28 0.00 0.00 1.61 466.68 -23­ Philippines - Restoring Stronger Growth with Greater Equity Dra)t jiJr Discllssion !!2:.:1t the Government Can Do and How the World Bank Can Help 8 f.J 98 Activities in the Pipeline for Completion in 1998-1999 6. The following new activities are underway in agreement with the concerned GOP agencies: .,. A draft report titled "Improved Land Management and Administration" has been prepared and provided to government. .,. A paper on "Options for Perennial Crops Financing" is being prepared to address how to overcome financing constraint to diversifying smallholder agriculture. New Proposals for WB Assistance in .,. A Third Rural Finance Project is ready for 1999-2001 Period negotiations. With the assistance of a US$150 million loan to the Land Bank, this 7. We have prepared and submitted to the project will assist private sector enterprises, GOP a draft Sector Assistance Strategy Note, particularly small and medium sized firms which draws upon discussions with various operating in the rural areas which are stakeholders, and the overall Rural economically viable, but are facing financial Development Strategy. For the next six years, problems due to the regional crisis. The we propose that the overarching objectives for proposed project will also help to implement the WB's program in the agriculture and the firms' expansion and modernization plans, natural resources sectors be: (a) promoting undertake new sub-projects, and finance improvements in small farmer productivity, working capital requirements. It will also have and increased agricultural production, for a US$7 million microfinance component securing broad based rural development and which will address the increasing demand for poverty alleviation; (b) improving natural credit by micro- and small-scale enterprises. resources management and environmental These funds will be channeled through the protection; and (c) supporting devolution and People's Credit and Finance Corporation. strengthening program implementation, to .,. Work is underway to prepare the ensure a better development impact and Mindanao Rural Development Program. effective results on the ground. Based on the This program is being designed as a 10-12­ Rural Development Strategy, below are new year targeted poverty reduction program that project proposals for consideration. These are will increase agricultural production and grouped around the three broad themes agricultural productivity of small farmers and mentioned above. The number of activities fishermen in all participating provirices in proposed exceeds what can be included in the Mindanao. Around US$30-40 million is overall country assistance program. being considered for the first phase of this Consequently, selectivity will need to be long-term program. Further loans will follow exercised. after the mutually-agreed performance benchmarks have been accomplished . > Targeted Rural Development Programs. We propose that we support targeted long­ term poverty reduction programs for the rural poor and indigenous communities of the country. Two proposals are included -24­ Philippmes - Restoring Stronger Growth with Grealer Equity Draft for DisclIssion !!:!:.2tthe Government Can Do and How the World Bank Can Help 8114198 (in addition to the Mindanao Rural > Improved Natural Resources Development Program): (a) Cordilleras ­ Management. Within this category, we Indigenous Peoples Poverty Alleviation propose that we continue to support Program; and (b) Agrarian Reform initiatives aimed at better managing the Communities Development Project II, as a threatened natural resource base of the follow-up to the ongoing project. country, and ensuring a better life for the poor rural people who are directly dependent on these resources for their ~ Smallholder Farmer Support Program­ livelihood_ We propose the following Complementing the targeted interventions programs are proposed: (a) River Basin above, specific sub-sectoral issues and Development Program; (b) Watershed potentials need to be addressed in support of Management Program; (c) Coastall1vlarine smallholder farmers. We propose the Resources Management Project; following: (in addition to Rural Finance III): (d) Comm unity Based Resource (a) Communal Irrigation Development Project Management Program (CBRM II). III; (b) Smallholder Commercial Crops; and (c) Agricultural Research and Extension Project IV. Recent Relevant World Bank Studies/Documents Forfurther information, please contact Ms. Leonora Gonzales or Ms. Charito Sanalila ofthe World Bank at 637-5855. Or you may visit the Bank's Public Information Center at the 23rd Floor, Taipan Place. Emerald Ave. Ortigas Center, Pasig City. 1. Promoting Equitable Rural Growth, 1998. 2. Philippine Land Management and Administration, 1998. 3. Water Supply and Sewerage Sanitation Project, (ICR) 1998. 4. Intersectoral Resource Allocation and its Impact on Economic Development in the Philippines, 1998. 5. The Greening of Economic Policy Reform, 1997. 6. Targeting, Cost-Effectiveness and Options for Reform, 1996. 7. A Strategy to Fight Poverty, 1996. 8. Decentralization and Biodiversity Conservation, A WB Symposium, 1996. 9. Second Rural Roads Improvement Project, (ICR) 1996. This Briefing Note is an evolving document, and as such, is subject to change • -25­  PHILIPPINES - Restoring Stronger Growth with Greater Equity:­ What the Government Can Do and How the World Bank Can Help Briefing Note No.7: Socioeconomic Impact of the Crisis This briefing note is part of a larger World Bank (WB) document on "Restoring Stronger Growth with Greater Equity What the Government Can Do and How the World Bank Can Help." The document has been prepared primarily for use of the Government of the Philippines (GOP) as an input into their policy-making! activities, and as a background paper for consultations with the GOP on the World Bank's Country Assistance Strategy (CAS) in the context olthe Government's development agenda. The consultations are scheduled to start in I. Introduction II. General Findings 1. Unlike Thailand, Korea or Indonesia, the 2. The team's general findings are: impacts of the financial crisis in the Philippines have not been sudden and dramatic, A >- The social impacts are more pronounced in combination of policies and circumstances has areas outside the National Capital Region protected the Philippines relative to other (NCR), largely because of the compounding countries in the region. However, this picture is factor of the EI Nino, particularly in rice­ complicated by several factors: First, for various growing areas and fishing communities. reasons the social impacts have been delayed, >- The impact of the currency crisis has been though they are becoming more apparent as time compounded by a significant EI Nino effect, passes. Second, the country is being affected by particularly in rice-growing areas and fishing drought conditions caused by the EI Nino weather communities. phenomenon, Third, the country is still carrying the burden of the debt crisis of the 1980s, which is .,. [t is likely that a number of factors are contributing to internal vulnerability. delaying and reducing the impact of the crisis, -26­  Philippines - Restoring Stronger Growth with Greater Equity Draftlor Discussion What the Government Can Do and How the World Bank Can Help 8//·1/98 though they will not prevent the impacts over example, lower levels of services, such as the medium to long term. These factors basic education, rather than higher ones; basic include: public health facilities, rather than urban­ based hospital care). Within any sector, (a) The fact that sellers are still drawing protect key inputs such as textbooks, some down inventories in order to protect important drugs that are used more by the their market share from competitive poor than by others (in particular restore imports (as well as government funding for immunization programs to 100 encouragement to keep prices down percent), rural infrastructure, irrigation, and as long as inventories are being run livelihood and employment generation down). programs. (b) A delay in the possible impacts of a ~ Ensure the mobility of labor across activities. reduction in overseas contract workers (OCWs) working 10 other Programs for training and retraining should be East Asian countries affected by the much more closely aligned with emerging labor market needs. For this purpose, the crisis. government may, with the assistance of civil (c) Government price supports for basic society, identify those programs of the commodities which may last only for Technical Education and Skills Development the short or medium term (although Authority (TESDA) that could be expanded or this is minimal). intensified. Programs should be monitored (d) A delay in the impact of lower than carefully to ensure effectiveness. normal levels of planting of rice and ~ Evaluate the variety of ongoing income and other crops in January and February. employment generation programs now ~ The moderate effects of the CrISIS operating in the Philippines to identify those notwithstanding, the Philippines continues to that are most effective. A team consisting of be challenged by medium- to long-term issues representatives from civil society, in reducing poverty substantially. government, and the private sector could be formed. It would examine income generation programs and other social protection III. Recommendations programs and recommend programs suitable for rapid scaling up to alleviate the impacts of 3. The team recommends the following the crisis. short-term strategies: ~ Review coping mechanisms developed in ~ Target intervention toward asset-less poor in response to the crisis and design programs rural areas, who are unlikely to benefit from with the aim of supporting the coping any production impetus caused by higher mechanisms identified as effective among the agricultural prices and are hurt by higher consumer prices. Areas where the effects of poor. Improve monitoring, combining quantitative with qualitative techniques to the crisis are compounded by weather-related help develop quick-response capability. problems caused by El Nino should also be given special attention. 4. The team recommends the following ~ Protect health, education, and other social medium- to long-term strategies: sectors from budget cuts relative to other ~ A key to long-term reduction of poverty and sectors. Across these sectors, identify and equity for the poorest in rural areas is protect the most effective programs and those streamlining and improvement of the land that the poor use disproportionately (for -27­  Philippines Restoring Stronger Growth with Greater Equity Draftfor Discllssion What the Government Can Do and How the World Bank Can Help 811-1198 reform program. This hinges crucially on a for entrepreneurial and self-employment, realistic assessment of land values and some aspects of the curriculum in basic, effective and enforceable collection of technical/vocational and higher education property tax as steps toward the creation of a could be developed. This should be genuine market for land. coordinated with livelihood and microcredit programs . >- A long-term commitment to quality improvement 10 the agricultural sector, );> An expansion of the best microcredit schemes including extension servIces and rural to substitute for the traditional usurious credit. infrastructure . Potential existing programs for expansion could include the Department of Social );> A consolidation of the large variety of Welfare (Self-Employment Assistance government programs to alleviate poverty and Program) and those ofNGOs. improvement 10 the targeting of such programs. );> The creation of a system, building on existing statistical and community-level research );> Steady increases in the budgetary allocations programs, to regularly monitor poverty for health and education, with an emphasis on alleviation programs and give a clearer picture reaching people in rural areas. In education of poverty trends. technical/vocational and higher education should be more closely linked with industry. In addition, in order to gear human resources IV. Recent Relevant World Bank Studies/Documents For further information, please contact Ms. Leonora Gonzales or Ms. Charita Sanalila of the World Bank at 637-5855. Or you may visit the Bank's Public Information Center at the 23rd Floor, Taipan Place, Emerald Ave. Ort,gas Center, Pasig City. 1. The East Asian Social Model After the Crisis (Draft paper prepared for the Asian Development Forum held in Manila in March 1998), Tamar Manuelyan and Michael Walton, April 1998. 2. Everyone's Miracle?: Revisiting Poverty and Inequality in East Asia: Directions in Development, Vinod Ahuja, Benu Bidani, Franscisco Ferreira, and Michael Walton, The World Bank, Washington D.C., 1997. 3. A Strategy to Fight Poverty, World Bank, 1996. This Briefing Note is an evolving document, and as such, is subject to change . -28­  PHILIPPINES - Restoring Stronger Growth with Greater Equity: What the Government Can Do and How the World Bank Can Help Briefing Note No.8: Education and Training NOIe: This briefing note is part of a larger World Bank (WB) document on "Restoring Stronger Growth with Greater Equity: What the Government Can Do and How the World Bank Can Help." The document has been preoared primarily for use of the Government of the Philippines (GOP) as an input into their policy-making act.ivities, and as a background paper for consultations with the GOP on the World Bank's Country Assistance Strategy (CAS) in the context ofthe Government's development agenda. The consultations are scheduled to start in September f 998. I. Introduction ~ Lack of information on emergmg skill shortages and training needs. 1. Education in the Philippines has historically had a number of strengths: access to II. Recommendations on What basic education has improved; investment in Government Can Do education has been quite high resulting in a strong base of education infrastructure, both public and private; and the quality of education in the best schools is of international standards. Our thrust is to reform education as a cornerstone 2. Despite these strengths, a number of for a prosperous 21st century. issues need to be addressed to provide the basis for social cohesion and economic growth: 3. Improve Access to Basic Education. About I million children do not enter school and ~ High overall enrollment is offset by the fact another 3 million do not complete grade VI. that nearly one million children do not enroll There are wide regional disparities with respect to in school and 30% of children who do enroll access and cohort completion rates. For example, drop out before reaching grade VI. four out of five students complete grade VI in ~ The average quality of education across the Luzon, whereas only two out of five do so in system is too low, particularly in math, Mindanao. Reasons most often cited by families science and language, as evidenced by low with out-of- school children include direct and scores in achievement tests. opportunity costs of schooling, distance from schools, lack of interest in school work and a ~ While the system was appropriately financed perception that teachers are indifferent. Parents of in the past, the trends in financing are not "children at risk", are likely to be school dropouts encouraging: the share of elementary themselves, have incomes of less than P12,000 a education of the E&T budget has fallen in the year, and do unskilled work. Possible recent past and the rapid expansion of State interventions to improve access include the Universities and Colleges (SUCs) and free selective expansIon of schools in remote public secondary education may have begun barangays, alternative schooling models, local to "crowd out" private education. adjustments to the school calendar, pre-school and -29­  Phi/'P{JIIIC'.Y ~ /?.!Siorlllg Stronger Growth with Greater Eqllilv Whot tire (j()ncrnJl!I!IIt Cun Do and /low the World [jank Can Help Draft /01' Disclission 8//·//98 to tertiary education has increased mainly as a

result of the proliferation of secs, many of them of indifferent quality. Within each sub-sector there are similar issues of efficiency and equity in the allocation of resources. For example, there are opportunities to reallocate resources within Technical Education and Skills Development Authority (TESDA) from the management of vocational training institutions to policy, equity and information activities which may be under­ resourced. Deregulation of the curricula and other policies that increase the autonomy of public and demand-side interventions such as scholarships private universities would allow them to be more and vouchers. responsive to changing skill needs. Within each subsector, public resources could be better 4. Improve the Quality of Basic targeted to low income families with a view to Education. The performance of elementary promoting equity. school students in the student achievement tests administered by Department of Education, 6. Streamline Management of the Sector. Culture and Sports (DECS) has been declining Key issues related to the management of the with fewer students passing the test between 1994 sector include decentralization, intra-sectoral and 1996. In the international curriculum-based budget allocation and linkages between the math and science achievement test (TIMMS), the different levels and agencies dealing with Philippines scored close to the bottom of the education. The WB is already supporting GOP participating countries and the average score was efforts at eventual decentralization and school­ one full standard deviation below the international based management through the Third Elementary average. The key inputs required for improving Education Project (TEEP). The pace at which the quality of education in the Philippines are: (a) devolution should occur and the building up of improved teacher performance; (b) sufficient and capacity at lower levels of the system are issues appropriate textbooks (and instructional that must be carefully considered. Agencies ma:erials); and (c) a simplified curriculum with a sometimes have overlapping mandates (e,g. non­ focus on language, mathematics and science, A formal training is dealt with both in TESDA and number of issues related to the qualifications, in DECS) requiring better coordination than training, deployment and salary and incentive currently exists. The lack of coordination across structure for teachers remain to be addressed. For the tri-focalizated sector is an important issue. example, any future salary increases should re~ard teachers in scarce skilled areas and those - who are willing to teach where teachers are most needed. The provision of a set of core textbooks for every other student in elementary schools in III. How the World Bank Can Help On-going Projects the Philippines requires, at a minimum, $200 million over the next 5 years. Less than $50 7. Following are the WB's ongoing million is currently expected to be available. projects in Education and Training: - 5. Improve Efficiency and Equity in the Financing and Performance of the system. (a) Third Elementary Education Project (TEEP) (1996-2004) is designed to improve the Intra-sectoral allocation sti II favors elementary edtcation. but the share of public financing going -30­ - 

Phiilppines Restoring Stronger Growth with Greater Equity What the Government Can Do and How the World Bank Can Help Draft/or Discussion 8/1.//98 acc(~ss and quality of education in the most 8. The WB would be willing to support disadvantaged schools of 26 poor provinces. basic education and investments aimed at improving efficiency and equity of the sector as a (b) Second Vocational Training Project whole. In the immediate future, protecting (VTP II) (1992-1998) is scheduled to c lose in expenditures on basic education in the aftermath December 1998, but the WB is considering the of the financial crisis is a priority. Later, an agency's request to reassign the unspent balance expansion of TEEP is possible, if the project ($6 million) to meet the training needs of proves successful. A Teacher Development displaced overseas workers and unemployed Project is in the pipeline, and follow-on projects youth with a view to mitigating the social impact for skills development and science and of be East Asia financial crisis. engineering education have been proposed by the agencies. Also under consideration are pilot (c) Education Sector Study is under initiatives for children and young adults at-risk. preparation jointly with the GOP and will be At the request of NEDA, we have begun an completed by December 1998. Education Sector Study to analyze and make recommendations with regard to key issues in the New Proposals for WB Assistance in 1999­ sector amenable to action by the incoming 2001 Period administration. IV. Recent Relevant World Bank Studies/Documents For further information, please contact Ms. Leonora Gonzales or Ms. Charito Sanalila of the World Bank at 637-5855. Or you may visit the Bank's Public Information Center at the 23rd Floor, Taipan Place, Emerald Ave. art/gas Center, Pasig City.

1. Socioeconomic Impact of the Financial Crisis, 1998. 2. Education Financing & Social Equity: A Reform Agenda, 1996. 3. A Strategy to Fight Poverty, 1996. 4. Education Sector Study, 1988. - This Briefing Note is an evolving document, and as such, is subject to change . -31­  PHILIPPINES - Restoring Stronger Growth with Greater Equity:-­ What the Government Can Do and How the World Bank Can Help Briefing Note No.9: Health, Nutrition and Population Note: This briejing note is part of a larger World Bank ({VB) document on "Restoring Stronger Growth with Greater Equity: What the Government Can Do and How the World Bank Can Help." The document has been prepared primaril.v jiJr use of the Government of the Philippines (GOP) as an input into their policy-making activities, and as a background paper for consultations with the GOP on the World Bank's Country ,lssistance Str'.ltegy (CAS) in the context of the Government's development agenda. The consultations are scheduled to start in September 1998. I. Introduction responses to emerging health risks such as those resulting from environmental degradation. 1. Sustainable economic growth and poverty reduction in the Philippines, as in other countries, 3. The Local Government Code of 1991 necessitates investing in people to produce a transferred the delivery and financing of primary healthy, well-educated workforce. Investments in preventive and public health care services from health, nutrition and population (HNP) sector are the Department of Health (DOH) to cities and essential to workforce quality by maximizing the municipalities, and of basic hospital services to rerJms from education and the productivity of provinces. The DOH still retains the mandate for labor. (a) policy setting in the HNP sector; (b) improving levels and allocations of government 2. While mortality and morbidity are on a health spending in accordance with country health general downtrend, wide differentials among priorities; and (c) establishing a suitable provinces and regions still exist. Large regulatory framework. Devolution has rightly differentials in health status are also observed moved the articulation of health needs to the local level. However, effective partnerships between between urban and rural residents and among socio-economic groups. There is a threat of the central and local levels of health care are resurgence of important diseases such as still evolving and need to be strengthened. tuberculosis (TB) and measles, and program -32­  Phiiippines - Restoring Stronger Growth with Greater Equity Draft/or Discussion !!2:.11 the Government Can Do and How the World Bank Can Help 8/1-!/98 4. There is also strong concern that income families and this is the network financing of personal health services continues to needed for public health care programs to rely on individual out-of-pocket spending which effectively operate. Another aspect of the is considered highly inequitable. Accelerating public health care system that has suffered the pace and improving the quality of over the last decade is the functioning of the implementation of the National Health devolved hospitals (first referral care). Insurance program is an urgent priority. Rationalization of this level of hospital care to Close attention needs to be paid to financing improve their efficiency would need to issIlles given the expected adverse impact of the address issues concerning the management financial crisis on health outcomes. and financing of these hospitals. II. Recommendations on What );- Strengthen DOH through re-organization. Government Can Do This is essential for improving HNP outcomes and enhancing the performance of health care 5. To address the above issues, and in systems, particularly under a largely devolved keeping with the Bank's HNP sector strategy, the system. Capacity building is needed in areas following strategies have been identified in such as health information, regulation and discussions with the Government policy development in order to support LGUs in achieving national health objectives. These changes are not only necessary to improve the );- Improve the health, nutrition and performance of the public health system, but population outcomes for the poor. The also to allow DOH to assume an active role in agenda of addressing public health delivery promoting an effective and competitive (including nutrition and reproductive health) private health delivery sector. and providing affordable personal health care services to the poor under the devolved set-up still remams a priority. Analysis of the );- Secure sustainable health care financing. burden of disease pattern and the health care Serious efforts are needed to reallocate utilization patterns of the poor, indicates that limited public funds toward public health much more progress is needed to improve the priorities. In addition, government needs to health status of the lower socio-economic better target public investments in personal groups. Furthermore, the economic crisis will health at. the poor through the use of the mean that fewer resources will be available instruments such as national direct subsidies, for health. Hence, the appropriate response local direct subsidies, and indirect subsidies would be to ensure that whatever remains is through social insurance. Mechanisms to spent in a more efficient and effective manner reallocate public subsidies going to retained and is more focused on the poor. hospitals such as socialized pricing and privatization also need to be explored. The );- Enhance the performance of health care expansion of the indigent program through systems. The devolution of health services LGUs needs to be properly integrated with the has threatened the technical integrity of revamping of the devolved health delivery centrally-run public health programs and systems. supervision of the delivery of primary and first referral care services. There is an urgent need to integrate local primary health care delivery systems and build up their capacities, especially since the primary public health facilities continue to provide access to low­ -33­ Philippines - Restoring Stronger Growth with Grealer Equity Draft/or Discllssion What the Government Can Do and How the World Bank Can Help 8/J.J/98 III. How the World Bank Can Help central and local levels, as well as the private sector and NGOs would be involved in the review process. Background studies will serve as inputs Ongoing Program of Assistance to the health sector review. The study is expected to recommend strategies that address: 6. Important lessons learned from past WB and other donor activities in the health sector include the need to (a) anchor projects in a clear )i> inherited problems of the devolved public sector policy framework.; (b) adequate health delivery system (such as IRA mismatch supervision of Bank projects; (c) ensure and pre-devolution backlog); consistency of donor priorities; and (d) ensure effective donor coordination. These lessons )i> inherent problems of a devolved public health should be applied to both on-going and new delivery system (such as the formation of activities planned in the sector. local health care delivery and financing networks through inter-LGU cooperation; 7. Ongoing Projects. The WB is maintaining the technical integrity of national cUITently financing two projects in the health programs; rationalization of devolved sector -- the Urban Health and Nutrition Project hospitals and exploration of various hospital and the Women's Health and Safe Motherhood management and financing options); Project. These two ongoing projects are both )i> DOH capacity in regulation (including the rated by the Bank as "problem projects", development of a regulatory framework that having slow disbursements and minimal progress promotes greater competition in the private in implementation. A third project, the Early sector); Childhood Development, is awaiting meeting of ef-Dectiveness conditions. The Bank will focus on )i> DOH capacity in providing technical pOltfolio management of the sector, to assist superviSIOn and coordination over the Government in improving project implementation. devolved health care financing and delivery Since a major obstacle to effective system (such as leveraging of DOH financing, implementation of these projects appears to be the and information systems); inability to effectively function in the devolved )i> greater equity in the application of the DOH system, the immediate effort would be to examine budget for personal health services (including the changes needed at both central DOH and the pricing policy and privatization options for local levels to make the public sector more retained hospitals and criteria to handle the responsive to devolution. Procurement, another "creeping re-nationalization" of devolved area which seems to be a major bottleneck, needs hospitals); serious attention also . )i> effective and sustainable expansion of the New Proposals for WB Assis!ance During indigent program of the National Health 19~'9-2000 Insurance (NHI) (including mechanisms for cost-sharing with LGUs and working with 8. Health Sector Review. The GOP has local health networks). agreed to carry out a health sector review between September 1998 and June 1999. This will be led 9. Once the health sector review is DOH-led initiative that will update the public completed and the GOP undertakes institutional investment plan and formulate an implementation and policy reforms, new lending proposals can be strategy for the plan, with technical collaboration dis(;ussed. provided by the WB and other interested donors. A task group with broad representation from -34­ Phiiippines ­ Restoring Stronger Growth with Greater Equity Draftfor Discussion What the Government Can Do and How the World Bank Can Help 811 -1198 IV. Recent Relevant World Bank Studies/Documents For further information, please contact Ms. Leonora Gonzales or Ms. Charito Sanalila ofthe World Bank at 637-5855. Or you may visit the Bank's Public Information Center at the 23rd Floor, Taipan Place, Emerald Ave. Ortigas Center. Pasig City . 1. Philippine Health Development Project - Implementation Completion Report, 1998 3. Health Sector Assistance Strategy Note, 1998 4. A Strategy to Fight Poverty, 1996 5. Health and the Environment, 1996 6. Devolution and Health Services: Managing Risks and Opportunities, 1994 7. New Directions in the Philippines Family Planning Program, 1991 This Briefing Note is an evolving document, and as such, is subject to change. -35­  PHILIPPINES - Restoring Stronger Growth with Greater Equity: ­ What the Government Can Do and How the World Bank Can Help Briefing Note No. 10: Reforming Housing Finance I NOIe: This briefing note is part of a larger World Bank (WB) document on "Restoring Stronger Growth with i Greater Equity: What the Government Can Do and How the World Bank Can Help," The document has been I preoared primarily for use of the Government of the Philippines (GOP) as an input into their policy-making , activities, and as a background paper for consultations with the GOP on the World Bank's Country Assistance Strategy (CAS) in the context ofthe Government's development agenda. The consultations are scheduled to start in September 1998. I. Introduction willingness to pay. Finally, since the private sector has been reluctant to lend to the low­ 1. The GOP's policy on housing finance is income market segment at interest rates that are captured in the 1992 National Shelter Program considered "affordable" and since housing (NSP). The NSP estimated that there was a 3.7 finance involves long-term funding, the million housing backlog. To begin to fill this Government has relied on the publicly managed gap, it established a target of 1.2 million units of pension funds (SSS, GSIS and Pag-IBIG) which government housing assistance for the period mobilize substantial long-term funds to finance 1992-98 with the ultimate objective of achieving the subsidized housing loans. horne ownership for all Filipinos. Based on the 1.2 million target, specific lending targets were It is clear that Government alone cannot provide set for the National Home Mortgage and sufficient fimding to meet the needs oflow-income Finance Corporation (NHMFC) and Pag-IBIG, families, and that a more "market-friendly" and guarantee targets for the Home Insurance approach is essential to attract the necessary private technical andfinancial resourCes. and Guaranty Corporation (ill GC), as well as benchmarks for the National Housing Authority (NHA) and the Housing and Land Use 3. While these policies have resulted 10 a Regulatory Board (HLURB). The Housing and fair amount of downmarket penetration and Urban Development Coordinating Council reported success in meeting targets, the (HUDCC) monitors progress on the targets, following important weaknesses have emerged: which also influence budget allocations for the y Interest subsidies and delinquencies on low- age:ncies. income housing loans-plus tax breaks associated with HI GC guarantees--have 2. A second key strand of housing policy resulted - in considerable fiscal and quasi­ has been to subsidize home ownership via low­ intt~rest rate loans. In order to reduce the fiscal costs to government. aJ lBut they have administrative costs of lending to low-income not improved affordability for most of the households (those taking mortgage loans below P3 7 5,OOO), underwriting guidelines were 3j The quasi-fiscal costs arise through reduced investment returns to pension funds that will likely sirrplified in the mid-1980s under so-called have to be made up in future through higher tax "formula lending". This approach has revenues to fund pensions. On the flow basis. the ess~ntially resulted in entitlement to loans based interest subsidies are estimated at close to P3-5 on declared incomes without a thorough analysis billion pr year. based on martet interest rates of 18­ of the borrowers' character, and capacity and 22%. -36­  Philippines - Restoring Stronger Growth with Greater Equity Draft for Discussion !Vlwtthe Government Can Do and How the World Bank Can Help 8//.1/98 target population; have not addressed the contractual savings sector. (See Briefing Note underlying causes of affordability problems No.3: Financial and Corporate Sectors.) (including distortions in land markets); and have resulted in large leakages to non-target II. Recommendations on What populations. Government Can Do );. The foclls on quantitative targets has led to insufficient attention to quality: NHMFC's 5. The GOP and the WB have engaged in a declared collection efficiency on the UHLP productive dialogue on possible measures to is only 63 percent. Although NHMFC was reform housing finance. This dialogue is obliged to suspend further lending in 1996 supported by two in-depth studies of housing and to focus exclusively on improving finance (see Section IV), and has yielded an collections, there has been no measurable increase in collection efficiency on its P42 agenda for reform whose key objective is to redefine Government's role in housing finance billion portfolio in the past two years. so as to achieve increased affordable housing Whereas Pag-IBIG's portfolio quality is solutions in an efficient and sustainable manner. substantially higher, due to better A vision for a reformed housing finance system application of underwriting processes, it has would include: also experienced arrears of 13 percent, while );. a clear separation of socialized housing its financing, underwriting and loan subsidy mechanisms from transactions in servicing capacity have been strained by a the housing finance market; tripling of its housing portfolio since 1994. );. efficient targeting of housing subsidies via ;;. Finally, funding for low-income housing has the use of better information and fallen sharply as the capacity of the public appropriately designed subsidy mechanisms pension agencies to bear these costs on to preserve beneficiaries' and behalf of Government has been strained. intermediaries' incentives, and proper The collapse in public funding capacity has accounting for such programs in the budget; affected not only low-income families, but also the private developers serving this );. a wide array of private financial institutions market. In addition, the distorted policy playing a greater role in financing housing environment has discouraged private lenders at market rates of interest within the primary from entering the market with their own mortgage market, even in the case of resources. It is clear that Government alone medium- to low-income clients; cannot provide sufficient funding to meet );. an active and liquid secondary mortgage the needs of low-income families, and that a market, with investors purchasing mortgage­ more "market-friendly" approach IS backed securities (MBS) from private banks essential to attract the necessary private (i.e. so-called non-conforming MBS) or technical and financial resources. from a privately managed secondary mortgage market institution (SMI) that 4. These shortcomings point to the need to would act as the focal point of the redefine the role of Government in housing conforming MBS market; finance and to support home ownership--and shelter more generally-through more efficient );. a redefined role for Government that is and sustainable means. Reforming housing guided by a "market-friendly" housing finance is also integral to a comprehensive policy that focuses on maintaining a stable poverty reduction strategy, as well as a broader macroeconomic framework (with low reform agenda to strengthen the closely related inflation and low market interest rates), reducing direct interventions, improving -37­  Philippines - Restoring Stronger Growth with Greater Equity Draft for Discussion ~ the Government Can Do and How the World Bank Can Help 811 -1198 targeting of subsidies, and putting in place a maximizing returns on those assets, and re­ clear and simple legal, regulatory, evaluating NHMFC's future. The proposed supervisory, and tax framework to facilitate housing finance T A could provide greater private participation In housing assistance in this regard. With regard to finance. HIGC, the T A would help to reduce direct and contingent liabilities for Government 6. To implement such a vIsion would relative to HIGC by developing a model that require a series of legal, regulatory, fiscal and would enable HIGC to price guarantee risks institutional reforms in the following key areas: appropriately, constitute appropriate >- Developing the Primary and Secondary reserves for guarantee calls, and re-focus the Mortgage Markets. Reforms in the primary guarantees (as well as tax breaks, if any) market are needed at all stages from loan towards lower-income clients. Finally, Pag­ ongmation, underwriting and servlcmg IBIG has come under increasing pressure to through to foreclosures in the event of non­ provide subsidized credit to low-income payment. They would include eschewing borrowers.' It is essential to ensure Pag­ "formula lending" in favor of sound IBIG's ability to meet its fiduciary underwriting guidelines, improving credit obligations and improve its asset-liability reporting, building capacity for loan management. servicing, removing impediments to title and private mortgage insurance, and >- Increasing the Transparency and Efficiency of Socialized Housing. A well­ streamlining foreclosure proceedings. In order to increase liquidity in the primary functioning home ownership support scheme would result in market returns to market, measures are required to develop a lenders so as to increase their funding for secondary market by streamlining the tax this market segment, while ensuring treatment, regulatory framework and affordability for borrowers by carefully approval processes for mortgage-backed targeting subsidies based on transparent securities. Moreover, government can play criteria and solid information. Designing a a catalytic role in supporting the transparent, efficient, carefully budgeted and establishment of a new, privately managed fiscally sustainable home ownership support and controlled secondary mortgage scheme will require careful planning and institution that-unlike NHMFC-is self­ piloting prior. to full-scale implementation. sustaining and has the confidence of the In the interim,' a transition mechanism is market. Such an institution could play a recommended to compensate funders for major role in channeling long-term private bearing the cost of subsidizing low-income and public resources into an efficient home-buyers. Moreover, since 100 percent housing finance market. home ownership is neither optimal nor >- Rationalizing the Role of Government­ feasible, efficient rental markets are needed Controlled Housing Finance Institutions. to provide shelter for less wealthy and more For reasons that are both external and mobile households. The options for internal to NHMFC, it has again become developing more efficient alternatives to the highly illiquid and insolvent. Adequate current rent control law should be explored, recapitalization would cost more than one so as to reflect market prices for rents and percent of GDP, has failed in the past and is thereby increase the supply and quality of not recommended. On the contrary, the lack the rental housing stock, while providing of material progress in increasing collection adequate protection to renters. efficiency makes it essential to consider options for disposing of NHMFC assets, -38­ Philippines - Restoring Stronger Growth with Greater Equity Draft for Discussion !Vhar the Government Can Do and How (ile World Bank Can Help 811./198 » Strengthening Policy Formulation and III. lIow the World Bank Can Help· Institutional Development. This would involve building a consensus in favor of a 7. The reform program proposed above "market-friendly" housing policy that would contribute greatly to supporting low­ leverages public resources more effectively income families, bolstering economic growth, and emphasizes impact over inputs. For and generating long-term fiscal savings. We can example, while subsidies can be provided to help support these reforms through one of the make home ownership affordable, such an following options: approach does not address (or even monitor) the multiple factors that result in costly (a) A $10 million technical assistance loan. homes in the first place. These factors This loan is included in the 1999 pipeline and is include the high costs of land conversion ready for pre-appraisal subject to GOP and development anslOg from costly clearance. regulations, laws and procedures; incentives (b) A program loan. This loan would be for "land banking" for speculative purposes provided for overall budget support to the GOP that result in land being taken out of the based on policy reforms in the housing finance market; inadequate public infrastructure to sector. open up appropriate areas for low-income (c) An Adaptable Program Loan (APL) . housing; and high carrying costs for This package would be a longer-term program developers due to insufficient public consisting of several loans covering policy resources for low-income mortgages at reform as well as technical assistance to the subsidized interest rates. Thus a richer set sector. (For a description of APLs, see of indicators is warranted than is currently foreword in Briefing Note No. 17: WB used to measure Government's true impact Assistance Program for 1998-1999). on improving access to affordable shelter, (including, e.g., price-to-income ratios). (d) As a component of a larger program These factors result in higher ratios of house loan covering both the housing finance and the prices to incomes in Manila than in many contractual savings sectors. A proposal for such other capital CIties, and therefore in a program has been submitted to the GOP for problems with affordability that cannot just consideration. be addressed with mortgage subsidies for a relatively small subset of households. 8. We are ready to engage the GOP in a dialogue on these options to address the reforms needed in the housing finance sector . V. Recent Relevant World Bank Studies/Documents For further information, please contact Ms. Leonora Gonzales or Ms. Charito Sanalila of the World Bank at 637-5855. Or you may visit the Bank's Public Information Center at the 23 rd Floor, Taipan Place, Emerald Ave. Ortigas Center, Pasig City. I. Housing Finance: Reforming Public Provision and Promoting Private Participation (Draft Study), World Bank June 30, 1997. 2. A Study of Housing Subsidies in the Philippines L1anto, Orbeta, Sanchez and Tang, February 27, 1997 . This Briefing Note is an evolving document, and as SUCh, is subject to change. -39­  PHILIPPINES - Restoring Stronger Growth with Greater Equity: What the Government Can Do and How the World Bank Can Help Briefing Note No. 11: Water Supply, Sanitation and Solid Waste Management for the Urban Poor Note. This briefing note is part of a larger World Bank (WB) document on "Restoring Stronger Growth with Greater Equity: What the Government Can Do and How the World Bank Can Help." The document has been prepared primarily for use of the Government of the Philippines (GOP) as an input into their policy-making activities, and as a background paper for consultations with the GOP on the World Bank's Country Assistance Strategy (CAS) in the context ofthe Government's development agenda. The consultations are scheduled to start in September J 998. I. Introduction beaches and other amenity areas have often been choked with untreated wastes generated by the urban population. Finally, many urban areas face unsustainable groundwater extraction by unregulated wells constructed by consumers, who have been unable to satisfy their water supply demand from the water utilities. Given these problems, the challenges facing policy makers are clearly multi-dimensional. 2. Deficient Solid Waste Management (SWM), resulting from inadequate urban infrastructure and weak institutions is a major cnvironmental and health hazard. Out of the total 16,400 tons of waste generated daily by the Contract signing of the Manila Second current urban population, only an estimated 2,600 Sewerage Project on March 17, 1998. tons are disposed in controlled dumpsites. Urban areas will face increased pressure to im prove Current Cballenges SWM, as urban populations have grown rapidly, especially in many secondary cities in the 1. Access of urban residents to basic Philippines. Projections for the next 15 years - services, such as clean and safe water supply, hygi,enic disposal of human, liquid and solid wastes is inadequate in the Philippines. With the rapid expansion of urbanization in the last two indicate that an additional 12 million poor people in cities will generate 4,000 more tons of daily waste, most of which will not be collected. decades, these service deficiencies have been II. Recommendations on \Vbat aggravated, particularly in low income Government Can Do communities, and has led to persistently high incidences of infant and child morbidity in the 3. Financing issue. Only about a quarter of secondary cities of the country, relative to the the approximately 500 Water Districts have been economic development that has occurred. actually able to obtain financing from the Local

Residential neighborhoods, local waterways, -40­  Philippines - Restoring Stronger Growth with Greater Equity Draft for Discussion What the Government Can Do and How the World Bank Can Help 8114198 Water Utilities Administration (L WUA). Another the interests of the service providers, consumers 1,000 LGU-run water supply systems have relied andfinancing agencies. on ad-hoc grants to meet their financing needs. - Financing of investments in sewerage and solid waste infrastructure by city governments has been totally inadequate. The current crisis of sectoral financing is further accentuated by: (a) a 5. Complex organizational arrangements for service delivery. The current regulatory structure gives authority to: (a) the National Water Resources Board (NWRB) to regulate concentration of the water supply loan portfolio in prices in LGU and private systems (other than a few large water districts; (b) LWUA's continued MWSS and Water Districts financed by LWUA); dependence on highly concessional financing and (b) LWUA, as the financier, to approve tariff (both external and domestic) to finance water increases in Water Districts. For SWM, LGUs district investments; (c) inability of LWUA to manage and invest in environmental infrastructure gene'rate revenue surplus from its operations in within their respective jurisdictions, with the order to build up reserves and sustain future Department of Environment and Natural operations; and (d) failure of LGUs to leverage Resources (DENR) monitoring pollution through the powers vested under the Local Government its regional and local offices. A Central Projects Codle to finance the growing deficits in water Sewerage and Sanitation Office (CPSO-LWUA) supply, sanitation and solid waste infrastructure. has been established to facilitate the financing of sewerage infrastructure in secondary cities. Recommended Actions: (a) re-evaluate sectoral LGUs, after the passage of the Local Government financing arrangements; (b) establish a pre­ Code of 1991, have the requisite resources to investment facility that could provide technical leverage urban sector investments with relatively assistance to water utilities to choose appropriate long gestation periods. However, the LGUs have private sector participation option; and preferred self-liquidating, short-term projects (c) support an investment program that provides (such as, markets, bus terminals and incentives for LGUs to leverage more oftheir own slaughterhouses) synchronized with the three­ resources to attract public and private financing. yearly election cycle. This preference for short­ term projects, many of which could be left to the 4. An incentives problem. Current laws, private sector, is reducing long-term investments administrative procedures and sectoral in the sector. arrangements are confusing for a private investor interested in either financing or operating sector Recommended Actions: (a) Develop a services. In addition, many are apprehensive simplified system of obtaining LGU commitment about the risks caused by the unpredictable to participate in projects for basic infrastructure political interactions at all levels. These services; (b) develop an effective and credible disincentives in the business environment are regulatory environment for water management compounded by the lack of clarity and through a review of the Water Resource Authority transparency in the regulatory environment, ofthe Philippines (WRAP) bill. particularly with respect to tariff adjustments. 6. Implementing adopted strategies in tbe Recommended Actions: Develop a framework SWM sector. Outside of Metro Manila, the that encourages private sector participation in preponderance of informal and illegal open dumps terms ofboth financing investments and operating throughout the Philippines lead to public health services efficiently, focusing on (a) ensuring concerns, surface and ground water pollution, appropriate incentives so that optimal risk methane emissions into the atmosphere, and sharing with the private sector takes place; and citizen and landowner complaints. Secondary (b) legislation to improve the regulation of sector cities have been largely left to solve their own service organizations that simultaneously protects SWM problems from their limited resources . -41­  Philippines - Restoring Stronger Growth with Greater Equity Draft for Discussion What the Government Can Do and How the World Bank Can Help 8/14/98 Responding to this situation, the Presidential Task efficient SWM technologies, approaches and Force on Waste Management (PTFWM) adopted systems. the new strategy in SWM sector that has replaced the Integrated National Solid Waste Management 9. Unsanitary waste disposal facilities. Systl~m Framework. Closure of existing open dumpsites and introduction of sanitary landfills is an urgent Recommended Actions: DENR should take the priority. Local operational capacity and financing lead to achieve the established national goals and recurrent costs have been problems with existing strategies. The adopted strategic policy sanitary landfills. framework will help build local capacities including those of LGU5 and communities, and Recommended Actions: Upgrade waste provide appropriate technical orientation and disposal facilities. Environmental impact access to finance. assessment procedures are needed for siting and designing landfills to mitigate impacts. The 7. Inadequate institutional capacities at attitude of communities, i.e., Not in My Backyard national, provincial, city and municipal levels. (NIMBY) is an obstacle to siting new landfills At the national level, designated as chair of the necessitating early public involvement. As the PTFWM, DENR has been assigned responsibility DENR has the task of assisting local authorities to develop a national policy framework and with the proper siting and design of sanitary support program on solid waste management. For landfills, and is urgently strengthening its this purpose, the GOP has decided to create a regional offices to provide this assistance should Solid Waste Management Authority (SWMA) be supported. Many secondary cities wish to building upon the existing Project Management upgrade their SWM practices but lack the initial Oftke-Presidential Task Force on Waste finance and know-how on cost recovery Management (PMO-PTFWM) of DENR with its mechanisms. The GOP needs to assist these cities multi-sectoral focus. PMO, however, does not in these two areas. have the sufficient technical staff to do the wide range of function required. At the local level, the 10. Social problem related to SWM. The SWM offices of most LGUs similarly lack Integrated National Solid Waste Management technical expertise, and have limited budgets System Framework (INSWMF) has established a largt~ly because cost recovery is poor. national goal to reduce 30 percent of municipal solid waste disposal by recycling. The Ecological Recommended Action: Upgrade institutional Waste Management program of the DENR has capacities at national, provincial, city and been very active in public education campaigns, municipal levels. promoting recycling, and helping establish local redemption centers. Some LGUs and NGOs have 8. Insufficient information and knowledge initiated waste segregation and collection on best practices in SWM. Local decision programs. Quite often, however, they only found makl~rs and waste managers do not have access to that the stockpiled recyclables do not have a local appropriate technical materials to help them make market. decisions and evaluate SWM alternatives. - Without this knowledge, decisions makers are in a disadvantageous position to respond to unsolicited BOT proposals from many active private sector proponents . Recommended Action: Support recycling efforts including intensification ofthe efforts in the areas of market promotion and the provision of technical assistance. Recommended Action: Update information and knowledge base on appropriate, effective, and -42­  Philippines - Restoring Stronger Growth with Greater Equity Draft for Discussion ~ the Government Can Do and How the World Bank Can Help 8/14/98 III. How the World Bank Can Help estimated investment of $150 million possibly to be implemented within a 10-year period, will: 11. The WB extended 10 loans totaling $540 (a) establish a national policy framework to million for water supply, sewerage and sanitation encourage investments in SWM by LGUs; from the late 1970s to 1990. Since 1995, (b) assist LGUs in intermediate cities to undertake inve.stment operations have been aimed at pilot SWM projects; (c) assist the GOP in addressing policy reform, support to sewerage updating national policy and regulatory development, facilitate private sector participation framework and institutional reforms, and to in water supply and sanitation, and financing channeling technical assistance and access to sustainable operations in water utilities finance to local authorities; (d) assist the GOP in traditionally considered 'non-viable'. Two introducing strategic SWM planning approaches projects, the Manila Second Sewerage Project at the local level; (e) assist GOP in adopting ($48 mm) and the Water Districts Development practical risk assessment template for BOT Projl~ct ($56.8 mm), were approved in 1997-98. projects, including, standard legal documents for These seek to operationalize the national policy management contracts and franchise ofcollection for sewerage and sanitation development and services; and, (f) provide enabling environment in finance a pilot public performance audit in enhancing opportunities for job creation in micro­ Metropolitan Waterworks and Sewerage System enterprise activities related to solid waste services (MWSS). for waste pickers. New Activities in Pipeline for 1998-1999 New Proposals for World Bank Assistance in 1999-2001 Period 12. Water supply and sanitation activities: The proposed LGU Urban Water and Sanitation 14. In terms of project financing, no new Projl~ct (LGUUWSP), will support investments in proposals are recommended, as there are already small municipal-run systems that have been projects in the WB pipeline that need to be traditionally considered 'non-viable' because of successfully implemented. The use of the their relatively small customer bases. This project adaptable program loan instrument for the will help the GOP in its drive for decentralization LGUUWSP and SWEEP projects will give for water supply to LGUs and greater private flexibility during implementation to the GOP and sector participation. The objectives of the Government Financial Institutions (GFIs) (i.e., proposed project, which with a total estimated borrowers of the proj ect) to begin the program on investment of $190 million between 1998 and a relatively small scale, monitor what works and 2007 are: (a) assist water utilities improve what doesn't work, and then scale up investments operational efficiency and accountability to in the succeeding program loans. consumers; (b) facilitate private sector participation in the sector; and (c) leverage 15. At the request of DOF, the WB has private financial flows into the water and completed a study that recommends a framework sanitation sector. to promote private sector participation in the water supply sector. It would be prepared to 13. Solid waste management activities: The provide whatever follow-up assistance the GOP proposed Solid Waste Environmental may request. Enhancement Project (SWEEP), with a total

-43­ Philippines Restoring Stronger Growth with Greater Equity Draft for Discussion What the Government Can Do and How the World Bank Can Help 8/14/98 IV. Recent World Bank Studies/Documents in the Sector For further information, please contact Ms. Leonora Gonzales or Ms. Charito Sanalila of the World Bank at 637-5855. Or you may visit the Bank's Public Information Center at the 23rd Floor Taipan Place, Emerald Ave. Ortigas Center, Pasig City. 1. Private Sector Participation Framework for the Philippines Water Sector, Informal Policy Note prepared by Harvey Gam, Economic Advisor, Water and Sanitation Division, 1998. 2. Philippines Sector Assistance Strategy Note for the Water Supply, Sanitation and Solid Waste Management Subsectors in Urban Areas, 1998. 3. Proposal for Establishing a Philippine Water Regulatory Commission, NERA, 1996. This Briefing Note is an evolving document, and as such, is subject to change . -44­  PHILIPPINES - Restoring Stronger Growth with Greater Equity: What the Government Can Do and How the World Bank Can Help Briefing Note No. 12: Meeting the Challenges of Rapid Urbanization il/ote: This briefing note is part of a larger World Bank (WB) document on "Restoring Stronger Growth with Greater Equity: What the Government Can Do and How the World Bank Can Help." The document has been prepared primarily for lise of the Government of the Philippines (GOP) as an input into their policy-making activities, and as a background paper for consultations with the GOP on the World Bank's Country Assistance Strategy (CAS) in the context ofthe Government's development agenda. The consultations are scheduled to start in September 1998. I. Introduction 3. However, rapid urbanization has also increased the magnitude of poverty in these areas. In many cities and municipalities, large segments of the population are forced into cramped marginal settlements, with poor quality drinking water, sanitation, and solid waste services. Even dangerous areas such as waterways and railroad right-of-ways have been converted into sites for makeshift homes by poor families. 4. Rapid urbanization has also put heavy strains on the environment. Rivers and lakes are becoming heavily polluted, and air quality in many cities is deteriorating due to excessive traffic and industrial emissions. Aquifers are fast 1. The Philippines is one of the fastest becoming depleted by heavy extraction by urbanizing countries in the world, with annual industry, commercial, and residential users. urban population growth topping 5% over the past Garbage is being dumped indiscriminately even decade. Soon the majority of the population will in areas where the possibility of contamination of live in urban centers. By 2020, cities will contain ground water is high. about 65% of the total population. While the traditional metropolitan centers of Manila, Cebu 5. Addressing these challenges requires a and Davao have continued to expand moderately concerted national effort to improve urban the .~nost rapid growth has occurred in new fringe development and local management policies and areas such as the Cavite-Laguna subregion or the practices. This will necessarily involve Dagu pan- U rdaneta urban corridor. interventions at all levels of government but especially for LGUs which have the primary 2. This growth, in turn, has supported responsibility for guiding and financing urban increased economic activity and employment development under the Local Government Code. opportunities. At present, an estimated 70% of the gross national product is generated in urban areas. -45­  Philippines Restoring Stronger Growth with Greater Equity Draft for Discusion What the Government Can Do and How the World Bank Can Help 8!I.fI98 II. Recommendations on What competItive market-based responses. They Government Can Do should also consider local initiatives and comparative advantages. 6. The government's February 1997 >- Effective planning and management at all National Urban Policy Agenda (NUPA) provides levels of government must be promoted and a sound starting point for addressing urban issues institutionalized. Integral to this is enhanced in the Philippines. The NUPA cites a number of revenue mobilization and financial principles to help attain the country's management at the LGU level to be supported development visions. by strategic intervention from the national >- Scope - focus on matters relevant to the urban government. sector but recogmze issues of rural ? Private sector and community participation integration. must be expanded and made more meaningful in planning, financing and delivering urban >- Local Governance - primary responsibility services. for urban development rests on selt:reliant LGUs. III. How the World Bank Can Help >- Practical and achievable objectives recognize the need for pragmatic and realistic Ongoing Projects Under Implementation policy objectives, as public interventions have only limited influence over the spatial 9. Weare prepared to expand our support distribution of urban populations. for urban development in the Philippines. This >- Economic and market efficiency - enhance would build on an already solid foundation of the role of the private sector in providing and assistance extending more than three decades in financing urban services. such diverse areas as decentralization, LGU finances, local capacity building and training, >- Social safety nets - safeguards for those who low-income housing and area upgrading, and are extremely and economically environmental protection and infrastructure disadvantaged. development. Our present urban program al ? Sustainable urban development consists of an ongoing municipal development considerations for both the immediate and project (Third Municipal Development Project), enduring benefits of development. which will be completed within two years, and a follow-on operation (Local Government Finance 7. Together with these principles, the NUPA and Development Project), which is scheduled for has identified four major urban development negotiations soon. We will also prepare an Urban goals: (a) integrate systems and growth of urban Sector Assistance Strategy for the Philippines centers; (b) deliver basic services; (c) establish during the second half of 1998. This would higher quaJity living environment; and (d) provide an opportunity for the GOP and the Bank encourage effective economic and urban planning to discuss a work program in support of urban and management. development in the Philippines. 8. These principles and goals imply the following requirements: aI The World Bank has ongoing and planned ? Interventions to develop local infrastructure operations for urban transportation in Metro-Manila. andfor the water supply and solid waste subsectors and institutions should be based on sector­ directed at LGUs. which are discussed in separate specific considerations and promote briefing notes. -46­  PhiiljJpines Restoring Stronger Growth with Greater Equity Draft for DiSCI/sian !!.!::.ltthe Government Call Do and How the World Bank Can Help 811+198 New Proposals for World Bank Assistance the accompanying institutional development in the 1999-2001 Period and capacity building (see Briefing Note No. 11: Water Supply, Sanitation and Solid Waste IO. Based upon the principles and goals cited Management/or the Urban Poor). in the NUPA as well as the priority concerns of the GOP, the possible key area of our assistance (b) Formulate institutional and legal in the urban sector is to develop and implement a frameworks related to environmental national urban development agenda to address concerns including the regulatory mechanisms challenges of urban poverty, scarcity of affordable necessary to safeguard natural resources and urban housing, productivity and efficiency of public health and natural resources. urban areas and threats to environmental health. The agenda would clarify critical urban issues Urban Governance related to the above challenges as well as urban governance and capacity building. In order to (a) Enhance municipal development involving achieve effective improvements in these key improvements to: (i) urban infrastructure and areas, it is envisioned that the work program service especially those concerning social developed will involve actions at the (a) development and environmental projects; (ii) municipal level; (b) metropolitan or inter-local revenue mobilization including those from level; and (c) national level. local business and property taxes, commercial bank borrowing, and bond flotations; and (iii) Urban Poverty Alleviation institutional development and capacity building in municipal planning, financial (a) Initiate urban poverty alleviation programs management, urban management and public­ at the municipal level involving improvement private partnerships in urban service delivery. of living conditions in marginal settlements, The Local Government Finance and provision of shelter, tenure regularization, Development Project, mentioned above, will infrastructure, basic utilities and services, and pursue these important objectives, as well as micro credit. help to reorganize and strengthen the Municipal Development Fund, to become an (b) Support housing finance and land tenure effective financial intermediary to channel systems especially for low-income credit to local governments, mainly in the households. In line with the lower-income classes. recommendations in Briefing Note No. 10: Reforming Housing Finance, this involves (b) Rationalizelocal vis-a-vis national reforms in the systems of targeting and government responsibilities and functions delivering subsidies in support of socialized for urban development and management, housing. It would also improve the access of including central-local fiscal relationships. the poor to land and security of tenure This requires a review of the Local through more efficient land titling and Government Code in terms of actual registration systems. experiences of urban LGUs in project - Urban Environmental Quality (a) Improve delivery of urban infrastructure and implementation, service delivery the organizational structure and internal operations of LGUs to determine their and financing. This will also require a review of services like water supply, solid waste institutional capacity and needs. management, flood control and drainage, environmental sanitation and transport, with -47­ Philippines Restoring Stronger Growth with Greater Equity Draft for Discusion What the Government Can Do and How the World Bank Can Help 8//-1/98 (c) Improve national level support to local stakeholders is crucial if resources are to be government finance especially for major optimized. However, the existing institutional infrastructure projects, through the accessing arrangement for managing the urban sector is of market-based sources of funding and weak. There is no single government agency collaboration with the private sector. which has the mandate and capacity to manage the urban sector including regular consultations (d) Strengthen urban planning and financial with the private sector, which is a major management systems and procedures at all stakeholder in urban development. levels of government through a nationwide capacity building program targeted at urban 12. This situation could be addressed by LGUs and their partners in both government establishing a National Urban Partnership with and the private sector at the municipal, representatives from NGOs and POs, private provincial and national levels. business sector, academe, the League of Cities, Municipalities and Provinces, and national (e) Develop, refine and implement urban government which will meet regularly to policies and programs including the NUP A discuss, refine and monitor implementation of through consultation workshops, seminars, urban policies and programs. On the part of and public fora among key local and national government, an inter-agency task force on urban stakeholders to forge a consensus and agree development could be established with on actions to address critical urban issues. membership from NEDA, HUDCC, DOF, DBM, DPWH, DOTC, DILG, DENR, DTI, the Leagues 11. Urban development and management of Municipalities, Cities and Provinces, and others invariably require the involvement of various that the President may wish to include. This task government agencies at all levels, the private force could represent government in the National business sector and local communities, with urban Urban Partnership and, at the same time, serve as local government units (LGUs) playing a critical the WB's counterpart in the preparation and rok:. The need to orchestrate and synchronize the subsequent implementation of our Urban appropriate and timely inputs of these key Assistance Strategy . IV. Recent Relevant World Bank Studies/Documents For further information, please contact Ms. Leonora Gonzales or Ms. Charito Sanalila of the World Bank at 637..5855. Or you may visit the Bank's Public Information Center at the 23rd Floor, Taipan Place, Emerald Ave. Ortigas Center, Pasig City, 1. Strengthening and Reorganization of the Municipal Development Fund, 1998. 2. Municipal Development Project I and II - Performance Audit Report, 1997. 3. Implementation Completion Report ~ Municipal Development Project II, 1997. 4. Improving LGU Access to Private Capital Markets, 1996. 5. Developing an Action Plan for the Financing of LGU Projects for Social and Environmental Objectives, 1996. 6. Project Completion Report ~ Municipal Development Project I, 1995. 7. Project Completion Report Regional Cities Development Project, 1994. This Briefing Note is an evolving document, and as such, is subject to change . -48­  PHILIPPINES - Restoring Stronger Growth with Greater Equity: What the Government Can Do and How the World Bank Can Help Briefing Note No. 13: Energy Sector Nate: This briefing nate is part of a larger World Bank (WB) document an "Restoring Stronger Growth with Greater Equity: What the Government Can Do and How the World Bank Can Help." The document has been prepared primarily for use of the Government of the Philippines (GOP) as an input into their policy-making activities, and as a background paper for consultations with the GOP an the World Bank's Country Assistance :Strategy (CAS) in the context ofthe Government's development agenda. The consultations are scheduled to start in :September 1998. I. Introduction 3. In the Philippines, nearly half of the rural 1. Energy sector activities have a major population live below the official poverty line. impact on the Philippines economy and on its The electrification level in these rural areas, environment. A significant proportion of the which are primarily served by rural electric country's public foreign debt is associated with cooperatives (RECs), is still less than 60 percent. the National Power Corporation (NPC). Further, Furthermore, those rural poor who do have access the Government's contingent liabilities associated to electricity, face unusually high tariffs due to the with the sector, particularly with NPC's inefficiencies ofthese RECs. independent power producers (IPPs), are enom10US. II. Recommendations on \Vhat Government Can Do 4. To improve the efficiency in the sector, various reforms are needed which are summarized below . 5. Restructure and Privatize NPc. The long-term soiution to many of the sector's problems is to move to a fully competitive electricity market, firstly by restructuring and privatizing NPC. However, this will require passage of the Omnibus Electricity Bill. (see par. 8) Also, restructuring and privatizing NPC's

generation assets is complicated by the Corporation's huge liabilities and its existing contractual obligations with IPPs. Other issues 2. Peak rates for electricity are among the are that after privatization, the Government will have to: (a) either write-off the net liability or pass highest in the region. This is due to a number of it on to electricity consumers through tariff hikes; factors, including administrative and operational and (b) continue to hold most of the IPP contracts. inefficiencies in the distribution sector due to its Over the medium term, this will result in a market fragmented nature, and high losses in distribution that is less than fully competitive. The recent networks from both technical and non-technical financial crisis has added to these complexities sources (i.e., theft). -49­ Pilippines ­ Restoring Stronger Growth with Greater Equity Draft for Discussion What the Government Can Do and How the World Bank Can Help 81/./198 since it has become extremely difficult for NPC to including only the essential elements of sectoral borrow at a reasonable cost, and it may be policy. This would simplify the Bill and probably difficult to sell its assets in a market which is facilitate its passage. depressed. 9. Within this framework of priorities, 6. Rationalize the Distribution Sector. If key actions that the Government could take the benefits from restructuring the generation and are as follows: transmission sectors are to be sustained, and true ~ Separate (unbundle) the transmission competition evolve, the distribution sector must activities of NPC from its generation be able to deliver power to end users in an activities, and establish the transmission efficient manner. Of the many distributors, very activities as a separate legal corporate entity few are of substantial size with established possessing satisfactory legal structure, international commercial credit. Rationalization functions and resources. (and possible consolidation) of the sector, to strengthen the financial viability of distributors, is ~ Establish a corporate NPC holding company an essential first step to facilitating investment. as a separate legal entity, to hold all the For efficient development of the energy sector, generation companies; subsequently, establish reform is essential as potential buyers of NPC's and corporatize each generation company, spun-off generation companies will need to be and take all measures necessary and possible assured that they have reliable outlets for their under the prevailing legal framework, to sell electricity. Further, real competition among the share of generation companies to public generators depends on the development of and private investors. sufficiently large commercially-viable buyers that ~ Develop an immediate action plan to: can bear the market risk which NPC currently assumes. This would also allow the Government (a) restructure NPC's finances with a view to refinance the short-term maturity debts, and to to press IPPs to assume the commercial risk associated with their investments, reducing use the proceeds of privatization, to reduce its con'~ingent liabilities. Consolidation needs to be debt obligations; (b) review NPC's investment program to defer some of its investments, encouraged through incentives, such as offering particularly where such investments would dist:ibutors to purchase NPC's subtransmission systems. contribute to the system's already high reserve m~rgin; (c) determine how to provide 7. Strengthen the DOE, ERB and NEA. NPC with sufficient funds in order to keep its The structural changes in the sector are placing operation viable for the next 12-18 months nev, pressures on the sector's policy-making and (i.e., prior to privatization). regulatory capabilities. The size and technical ~ Re-evaluate the role and functions of NEA; com plexity of the increased work load investigate ways to rationalize the distribution necessitates strengthening staffing as well as sector, strengthen the capabilities of the additional training of responsible sector entities distribution entities, and transform the RECs (i.e.. DOE, ERB and NEA). into stock cooperatives, in order to improve sector efficiency and reduce losses. Further, 8. Pass the Omnibus Electricity Bill . effective ways to transfer NPC's Many of the above priorities have been addressed subtransmission assets to regional under the power sector reform framework subtransmission and/or distribution entities presented in the Omnibus Electricity Bill. should be established. However, this Bill has been pending in the Congress for a considerable time. Consider ~ Proceed with the effective application of redesigning the current draft Bill, with a view to unbundled tariffs at generation, transmission -50­ Pilippines - Restoring Stronger Growth with Greater Equity Draft for Disclission ~tthe Government Can Do and How the World Bank Can Help 8/1·1/98 and distribution levels, to remove cross ;;- Transmission Grid Reinforcement: The subsidies and make them transparent, and to Project involves unbundling NPC's put into place adequacy of tariffs at different transmission and generation assets, with a levels to ensure the financial viability of the view to privatizing the non-transmission relevant entities. elements within a competitive wholesale market environment. The Project's major ? Strengthen DOE's and ERB's organizational physical component is the improvement of the capacities by reviewing their staffing, salary, Luzon transmission system, encompassing the training requirements and procedures. transmission lines from the Masinloc and Sual coal-fired power plants. III. How the \Vorld Bank Can Help ;;- Energy Sector Project JEXIM 10. The WB has been supporting three Component: This project is now closed. ongoing projects involving NPC, two of which However, the WB is responsible for also have PNOC as a borrower and PNOC-EDC supervising the JEXIM-financed component as the project implementation agency (i.e." the of the Project, which was originally to close in Leyte-Cebu and Leyte-Luzon Geothermal June 1995, but has had two extensions to Projects). The Leyte-Luzon Project also has a December 1998. The loan covers various substantial Global Environment Facility (GEF) reinforcement and expansion projects for grant component. A brief description of these substations, small island grids, and projects are described as follows: (sub)transmission lines III Visayas and Mindanao. ;;- Leyte-Cebu and Leyte-Luzon Geothermal: The Leyte projects were designed to promote 11. The WB can assist the Philippine GOP in the utilization of geothermal energy for power implementing the identified priority reform generation, and to support the integration of program for the sector by (i) providing advice and NPC's national transmISSIOn grid by assistance during supervision of the existing submarine cable links from Leyte to Luzon power sector portfolio; and (ii) cooperating with and Cebu. ADB on its proposed power sector restructuring ? The GEF grant component of Leyte-Luzon program loan; and (iii) financing new projects in distribution, particularly in rural areas. was critical in the selection of environmentally preferable geothermal energy for power generation. IV. Recent Relevnnt World Bank Studies/Documents For further information, please contact Ms. Leonora Gonzales or Ms. Charito Sanalila of the World Bank at 637-5855. Or you may visit the Bank's Public Information Center at the 23rd Floor, Taipan Place, Emerald Ave. Orfigas Center, Pasig City. _ 1. Philippines Energy Strategy and Pricing Study, June 1997 2. Potential Impacts of DSM Programs in the Philippines, July 1996 3. Philippines Power Sector Study: Structural Framework for the Power Sector, November 1994 This Briefing Note is an evolving document, and as such, is subject to change. -51­  PHILIPPINES - Restoring Stronger Growth with Greater Equity: What the Government Can Do and How the World Bank Can Help Briefing Note No. 14: Transport Sector Note: This briefing note is part of a larger World Bank (WB) document on "Restoring Stronger Growth with Gre~ter Equity: What the Government Can Do and How the World Bank Can Help". The document has been prepared primarily for use of the Government of the Philippines (GOP) as an input into their policy-making activities, and as a background paper for consultations with the GOP on the World Bank's Country Assistance Strategy (CAS) in the context ofthe Government's development agenda. The consultations are scheduled to start in September 1998. ., I. Introduction adopted by the GOP, implementation support from the donor community should be l. Transport sector in the Philippines is forthcoming. The main challenge for the crit.cal for development of the national GOP IS the pnontIzation of proposed economy and integration of the archipelago. recommendations and their effective The sector received enhanced support from implementation. The WB has prepared a the Government during the ongoing Medium Transport Sector Assistance Strategy Note for Tenn Development Plan (MTDP 1993-98) in discussion with the new Administration. A terms of budgetary allocation and policy transport sector consultative meeting was held formulation. Recognizing that the transport in Manila on March 16, 1998 in which senior sector is still a major developmental staff from all concerned GOP agencies and constraint, the next MTDP (1999-2004) the WB transport team participated to discuss document, currently being finalized, has GOP transport sector plans and possible WB established a comprehensive/ambitious assistance strategy. The meeting broadly agenda of reforms and investments for the endorsed the WB' s proposed transport sector sector, in order to provide reliable passenger assistance strategy, the key elements of which and freight services at competitive levels. are summarized below. The key elements of the proposed MTDP are: ).> reduced government intervention; II. Recommendations on 'Vhat Government Can Do ).> increased commercialization and private sector participation; 3. Road Sector. The road sector ).> dear distinction between policy making, dominates the transport system in the regulation and operation, and inter-modal Philippines, both in terms of usage as well as integration. government budget support. Central government attention, along with that of the 2. For each subsector, the MTDP donor community, has mainly been focused document proposes specific targets and on the National Road Network managed by actions. The Bank is in general agreement DPWH. The main problem with road with the broad objectives of the MTDP. If network in the Philippines is not its size or these: objectives and proposed actions are capacity, but its quality and condition. Major -52­ Philippines - Restoring Stronger Growth with Greater Equity Draft Jor Discussion What the Government Can Do and How the World Bank Can Help 811-1198 institutional and financial constraints facing transport schemes with the eXlstmg road the road sector are well documented. The first system in Metro Manila. This is to be priority is to carry out major institutional achieved through strategic investments in reform at DPWH covering both institutional traffic management measures, key corridors, restructuring and business processes re­ access improvements to transit stations and engineering to address well recognized improvements of selected secondary roads. po litical, institutional, financial and technical To address transportation problems on the problems. The WB is already supporting two fringe of the Metro Manila area, there is a mcdor studies which will provide the need for action to be taken in rapidly analytical underpinning and specific developing problem areas such as in the recommendations for the proposed reforms. Cavite-Laguna (CALA) Region. The ongoing Roads Information and M.magement Support System (RIMSS) study 6. Rail Sector. The modest rail network will provide the framework for DPWH's in Luzon has been deteriorating over the last business process re-engineering. The two decades. PNR has been operating with proposed Better Roads Philippines (BRP) increasing losses and its operations are not study will examine alternative institutional viable. The GOP agenda for the rail sector is structure of DPWH, including possible setting to privatize the Philippines National Railways up of an independent Highway Authority and (PNR), expand the commuter rail network in a dedicated Road Fund. Metro Manila (LRT) through private investments and eventually integrate the PNR 4. The local road network (about 85% of and LRT systems. This is a very difficult the total), which is the responsibility of the agenda. Initial preparation works for PNR provinces and local government units, serves privatization are financed by a small US mostly the poor towns and rural areas. This Trade Office grant. Preparation of a draft subsector needs considerable support and PNR Restructuring Plan is emvisaged under attention. However, a substantial investment ADB technical assistance. GOP have in preparation is needed to put in place a requested additional help with advice and workable framework that is needed to assist coordination in general and in the area of the large number of weak local institutions. regulatory fnimework in particular. 5. Metro Manila Urban Transport. 7. Ports and Shipping. After roads, the Urban transport is clearly the most pressing water transport is the second highest used transport problem faced in the Philippines, mode of transportation in the Philippines. resulting from ~weak institutions and traffic The two key challenges facing the port management and the most pressing problem is subsector are: (a) commercialization/priva­ m Metro Manila. Strengthening of tization and (b) decentralization of the ports metropolitan governance m Manila by operations. The proposed agenda of MTDP developing, testing and implementing for the ports sector is quite broad and improved traffic management and ambitious. Most of the proposed changes enforcement practices for MMDA is of high would require Congressional approval and a priority. This should be followed by a major considerable amount of preparatory work Metro Manila Transport Integration Project, needs to be done to convert these objectives to help improve the integration of major -53­  Phi:ippines - Restoring Stronger Growth with Greater Equity Draft/or Discussion What the Government Can Do and How the World Bank Can Help 8//.//98 into implementable plans. DOTC recognizes side, the proposed APL operations would this and plan to seek help in due course. finance, on a programmatic basis, a selected portion of DPWH's investment - III. How the World Bank Can Help Ongoing Program of Assistance program covering rehabilitation, upgrading and maintenance of the national highways network. );;> Local Roads Improvement Project: It is 8. The WB has only one ongoing project proposed that GOP and the WB should which is the Highway Management Project initiate dialogue with other donors on (H\1P) being implemented by the DPWH. possible ways of assisting the local roads The Project has three major components; (a) system and initiate the necessary Road Information and Management Support preparation works. Sy.3tems (RlMSS), (b) civil works sub­ projects, and (c) institutional strengthening. );;> Metro Manila Urban Transport Project 9. The ongoing RlMSS Study will (LIL) and Metro Manila Urban Transport provide the framework for DPWH's business Integration Proiect (MMURTIP): A WB process re-engineering while the institutional loan tailored for moving quickly is strengthening component will propose a proposed (a Leaming Innovation Loan) to Better Roads Philippines (BRP) Study which strengthen governance in MMDA, then to will look into the alternative institutional be followed by a large loan for the needed stmcture of DPWH, including the possible major investments in transportation in the setting up of an independent Highway Metro Manila area. Authority and a dedicated Road Fund. );;> Urban Land Management and Transport New Proposals for World Bank Assistance Project in Cavite-Laguna (CALA) Region: in 1999-2001 Period To address the transportation and relative land problems in this area, a project is 10. The following program of lending and presently under preparation. non-lending services is proposed which should be confirmed in the next (1999) Non-Lending Services Country Assistance Strategy discussions. PNR Privatization Support: In response to the Lending Services GOP request for additional help, the WB );;> National Roads Improvement and could explore providing staff expertise in the Management Project (APL): It is proposed areas requested. that the WB's next intervention in the roads sector should be an Adaptable Program Loan (APL) operation -- a series of (say 3) inter-linked loans, designed to help formulate and subsequently implement DPWH's proposed institutional reforms. On the investment -54­ Philippines - Restoring Stronger Growth with Greater Equity Dmfifor DisCllSSiol1 What the Government Can Do and How the World Bank Can Help Hlf-l/98 IV. Recent Relevant World Bank Studies/Documents For further information, please contact Ms. Leonora Gonzales or Ms. Charita Sanalila o(the World Bank at 637-5855. Or you may visit the Bank's Public Information Center at the 23rd Floor, Taipan Place, Emerald Ave. Ortigas Center, Pasig City. 1. Draft Transport Sector Assistance Strategy Note, June 1998 2. Public Expenditure for Sustainable and Equitable Growth, 1995 3. Infrastructure Assessment Study, 1993 4. Formal Transport Sector Reports, 1983-88 This Briefing Note is an evolving document, and as such, is subject to change. -55­ - PHILIPPINES - Restoring Stronger Growth with Greater Equity: ­ What the Government Can Do and How the World Bank Can Help Briefing Note No. 15: Private Participation in Infrastructure - I Note: This briefing note is part of a larger World Bank (W8) document on "Restoring Stronger Growth with , Greater Equity: What the Government Can Do and How the World Bank Can Help_" The document has been ! prepared primari£v for use of the Government of the Philippines (GOP) as an input into their policy-making , activities, and as a background paper for consultations with the GOP on the World Bank's Country Assistance i Strategy (CAS) in the context ofthe Government's development agenda_ The consultations are scheduled to start in I September J998. I. Introduction Moreover, GOP's justifiable effort to resolve the power shortage problem resulted in some transactions which for translated into high Since the early 1990s, the Government ofthe end-user tariff for consumers. Philippines has embraced the need for ,.., involving the private sector in the J. The BOT law was also intended to development andfinancing ofmajor promote private sector participation in the other infrastructure projects to overcome sectors. But, major developments in this area did significant internal requirements, combined not materialize, except for the Light Rail Transit with extremely scarce public financing. (LRT) line No.3, and the privatization of the Metropolitan Waterworks and Sewerage System (MWSS). Part of the problem can be attributed to A major milestone in this regard was the the decentralization process which began in 1991 passage ofthe Build-Operate-Transfer (BOT) and which gave local governments much of the law in 1993. authority to initiate such transactions but without equipping them with the requisite capacity to 1. The BOT law pioneered Private effectively negotiate them. Other constraints stem Participation Infrastructure (PPI) in the from weak or. inadequate regulatory systems and Philippines and to some extent in the region, by institutions, as well as Government's own rationalizing BOT schemes through a transparent cautiousness with taking on additional liabilities and competitive process for involving the private related to such transactions. seClOr in infrastructure. While the law principally emanated from the need to overcome extreme 4. Today, there are many potential PPI power shortages in the country, it was also projects in various stages of deyelopment, but few exttmded to the other infrastructure sectors are coming to closure. Moreover, the East Asian including, transport, water and sanitation. financial crisis has adversely affected the development of a future pipeline. As such, given 2. The PPI movement in the Philippines was current internal and external constraints, the GOP highly successful in addressing the immediate has an opportune window to investigate and problems in the power sector, but involved costs correct the fundamental weaknesses still present to the Government. The GOP assumed contingent in the country's PPI system. In addition, it should liabilities associated with the need to offset certain focus on maximizing its success by bringing risks for Independent Power Producers (IPPs) in existing prospects to closure and to tackle the order for them to enter an untested market. significant problems in the power sector through -56­  Philippines - Restoring Strollger Growth with Greater Eqlllty Draft for Disclission What the Government Can Do and HolV the World Bank Can Help 811-1198 the privatization of the National Power 7. Third, there is a need to improve the Corporation (NPC), institutional capacity of line agency to identify, promote, and negotiate PPI projects; and also a need to improve GOP's institutional capacity to II. Recommendations on What manage transactions at the stage of turning the Government Can Do pipeline of projects into specific transactions. For instance, preparation of feasibility studies and 5, In the short-term, the Government should tender documents are not appropriately focus on several constraints that hinder PPI from undertaken. Also, the BOT center needs to be: ng expanded and enhanced. First, a enhance its capacity as well as to identify and transactional policy and regulatory framework implement a financing mechanism that would does not accommodate the needs of private sustain it as an ongoing commercial operation. investors, although a broad sector policy Even if the policy environment for PPI is framework has become much more hospitable to improved, weak capacity can severely impair PPL For example, regulations are not clear, prospects for attaining success In these pmiicularly on the different forms of PPI, and undertakings. there are difficulties in delineating agency responsibilities both within central government 8. Fourth, there is a need to strengthen local and between central and local government units. government units (LGUs) to build their capacity Also, eligibility, terms, and pricing rules for to manage the PPJ process in addition to making GOP's guarantees are not clearly specified. In proper investment decisions for their addition, the project selection process could be communities. The institutional capacity problems clearer and more transparent and the process for at the local level are in fact more significant since soliciting, evaluating and awarding projects can most of the urban infrastructure responsibilities be simplified and standardized further. have been devolved to LGUs. 6. Second, the GOP should undertake III. How the \Vorld Bank Can Help substantive work for strengthening capacity to evaluate price guarantees and managing the 9. We can assist the GOP to advance PPI assumption of contingent liabilities. Risks in the through the following areas: (a) advice on policy past have been inordinately allocated to the and regulatory frameworks, (b) streamlining National Government and should be more project preparation, (c) managing the GOP's balanced. For example, the existing terms of IPP liabilities, (d) enhancing the GOP's capacity, and contracts involve significant contingent liabilities (e) promoting the use of the Bank guarantee. We to the GOP. Regarding market risks, most IPP have suggested that a useful way to tackle these contracts are energy conversion agreements that issues in a comprehensive manner is to undertake oblige the GOP to guarantee fuel supplies for the the proposed Country Framework Report (CFR) IPPs and guarantee minimum revenue under three for infrastructure. The CFR, which we fund, types of capacity payment (Le., power off-take) would be intended to clarify Philippine's policy structures. Regarding country risks, a buyout and regulatory framework for infrastructure, clause was included in most contracts at a time indicate its sectoral plans, and identify barriers to wh,en investors perceived that substantial political private involvement and possible actions to risks existed. The GOP should be more selective reduce them. The report would draw on country in extending GOP guarantees to the private data, information on best practices in other parts companies and should raise the importance of of the world, and on discussions with country contingent liability management. representatives, the private sector, and others. The report could also provide the WB Group and the -57­  Philippines Restoring Stronger Growth with Greater Equity Draft Jar Discussion What the Governmenr Can Do and How the World Bank Can Help 811-1198 GOP with an opportunity to indicate where and in appropriate risk templates, which have been what form it is will ing to provide further tailored already devised for some sectors, should continue assistance to develop infrastructure in the country. to be developed for other sectors as well. Also, our thrust is to establish GOP's capacity to (a) Advice on Policy and Regulatory manage contingent liabilities. Frameworks. We can assist the GOP to strengthen the regulatory environment and to (d) Enhancing the GOP's Capacity. We build regulatory capacity to facilitate the could help the GOP manage PPJ transactions at broadened use of PPJ. Strengthening the the stage of turning the pipeline of PPJ projects regulatory environment would help to assure into specific transactions. Creating a specialist private sectors to function effectively and team would also be useful in this context. In efficiently. Under decentralization in the addition, it would be helpful to develop replicable

Ph:lippines, we can continue to assist the GOP to models for each sector. The models would include promote sector policies and institutional the transaction structure, certain aspects of the development at the local government leveL technical design, the boilerplate bidding documents and legal agreements, and the process (b) Enhancing Project Preparation. We can for the GOP to evaluate offers under active assist the GOP to develop a clear and transparent consideration. Moreover, enhancing the capacity project selection process and also to streamline of the BOT Center as a one-stop shop for PPI so the process for soliciting, evaluating, and that it can provide support for a more complete set approving project proposals. We would propose of private sector options would be important. to ';!stablish a pre-investment fund for preparation for bidding and facilitation of feasibility studies to (e) Using the Bank Guarantees. To work assist the GOP in evaluating private sector most effectively with the private sector in East options. Asia and the countries involved, the WB guarantees can be an option when they can bring (c) Managing the GOP's Liabilities. We existing prospects to closure. In the Philippine can assist the GOP in setting up a mechanism for cases, providing partial risk guarantees could be assessing, valuing and pricing guarantees and for explored to attract private sector financing on better allocating risks among central and local existing and future projects. government and private sectors. In this regard IV~ Recent Relevant World Bank Studies/Documents Forfurther information, please contact Ms. Leonora Gonzales or Ms. Charito Sanalila ofthe World Bank at 637-5855. Or you may visit the Bank's Public Information Center at the 23rd Floor, Taipan Place, Emerald Ave. Ortigas Center, Pasig City. 1. Choices for Efficient Private Provision of Infrastructure in East Asia, 1997. 2. Infrastructure Development in East Asia and Pacific: Towards a New Public-Private Partnership, 1997. 3. The Private Sector in Infrastructure: Strategy, Regulation and Risk, 1997 . This Briefing Note is an evolving document, and as such, is subject to change. -58­  Philippines - Restoring Stronger Growth with Greater Equity. What the Government Can Do and How the World Bank Can Help Briefing Note No. 16: Strengthening Governance and Preventing Corruption Note: This briefing note is part of a larger World Bank (WB) document on "Restoring Stronger Growth with Greater Equity: What the Government Can Do and How the World Bank Can Help." The document has been prepared primarily for use of the Government of the Philippines (GOP) as an input into their policy-making activities, and as a background paper for consultations with the GOP on the World Bank's Country Assistance Strategy (CAS) in the context ofthe Government's development agenda. The consultations are scheduled to start in September 1998. I. Introduction 1. President Estrada's call for eliminating The poor are the hardest hit by graft and corruption is warmly welcomed by any economic decline and they the domestic as well as the international suffer most by community. Global experience demonstrates that inefficiencies/corruption in the corruption has a significant negative impact on economic growth and undermines public support provision ofpublic services. in donor countries for development assistance. Therefore, eliminating corruption has to be a vital element in the GOP's program for restoring H. Recommendations on \Vhat stro:lger growth. In a recent survey, the business Government Can Do community in the Philippines ranked graft and corruption as the second highest problem facing 3. Corruption is a complex problem, the Estrada administration (the first-ranked transcends the public sector and requires a problem was crime/peace and order). coordinated effort by all sectors of the economy, as well as international community.a! 2. The harmful effects of corruption are Bribery, for example, is a two-way street, often espE~ciallysevere on the poor. The poor are the involving private sector agents seeking favors hardest hit by any economic decline and they from public officials who seek monetary reward suff(~r most by inefficiencies/corruption in the for granted. Corruption is also a global problem provision of public services. They are deprived of that requires international solutions. We a fair share in the country's wealth because of recommend that the GOP should formulate and wealth accumulation through corrupt means by a carry out its campaign to eliminate graft and few individuals. Moreover, the poor are least corruption in collaboration with: (a) a broad group capable of paying the extra costs associated with of civic society stakeholders in the Philippines bribery and fraud. Thus, preventing corruption should be prominent in a poverty reduction a/A description of corruption and governance issues in stratl~gy. the Philippines in a book titled, "Pork and Other Perks: Corruption and Governance in the Philippines". 1998. Published by the Philippines Center for Investigative Journalism, Evelio B. Javier Foundation and Institute for Popular Democracy. - 59 ­ Philippines Restoring Stronger Growth with Greater Equity Draftlor Disclission What the Government Can Do and How the World Bank Can Help 8//.1/98 (e.g. NGOs, Philippine Center for Investigative Audit, Department of Justice, Civil Journalism, business leaders and organizations, Service Commission, National Bureau of religious leaders, labor representatives, etc.); and Investigation, and Presidential Commi­ (b) on-going international initiatives to curb ssion Against Graft and Corruption); transnational bribery and money laundering. These initiatives are coming from organizations enact legal and judicial reforms; and such as the Organization for Economic Cooperation and Development, European Union, reform the disclosure policies to make United Nations, World Bank, Asian Development information available to the public and Bank, International Monetary Fund, Council of encourage scrutiny of government action Europe, International Chamber of Commerce, and programs by civil society and media. Transparency International, etc. III. How the 'World B~mk Can Help 4. To be effective, a campaign to eliminate corruption will have to be run on various 5. Since corruption undermines fronts. The following areas are recommended for development, we have adopted a framework for priority action: addressing corruption as a development issue. Such a framework governs our activities at four ).> continue economic policy and regulatory levels: reforms that create greater competition and transparency in economic activities. ).> preventing fraud and corruption within the WB financed projects; accelerate civil service reform to address personnel policy (recruitment, promotion helping countries that request our support and pay) and ethics issues; in their efforts to reduce corruption; introduce greater transparency and taking corruption more explicitly into accountability in the use of government account in our country assistance resources by undertaking reforms in the strategies and programs; budget processes; ).> adding voice and support to international strengthen financial management systems, efforts to reduce corruption. particularly at the local government unit (LGU) level, as an instrument for 6. If requested by the government, we will preventing, discovering and facilitating be willing to assist the GOP in developing and the punishment of fraud and corruption carrying out an action program for preventing while protecting honest officials; graft and corruption and improving governance both at the national as well as LGU simplify tax and customs policy and level. The activities in which we can help procedures to reduce discretion of include: officials and thereby narrow the scope for corrupt payments; Continuing the efforts to prevent fraud and corruption in the projects we finance. strengthen the capabilities of the agencies responsible for prevention, detection, Designing and implementing economic investigation and prosecution of graft and policy and regulatory reforms to enhance corruption (Ombudsman, Commission on transparency . -60­  Philippines - Restoring Stronger Growth with Greater Equity Draft for Discllssion What the Government Can Do and How the World Bank Can Help 8/1-1/98 Technical assistance in undertaking 9. Improving procurement financial diagnostic surveys of households and management and internal controls of agencies firms to gather information necessary for implementing WB-financed projects, through designing anti-corruption bodies. technical assistance and training. Following Strengthening procurement and financial the recommendations of TRIC 1 and 2, the WB's management systems, particularly at the LGU levels. Resident Mission in the Philippines (RMP) has contracted qualified local institutions to train staff of implementing agencies. On procurement 7. In the Philippines, our effort has so far management, a contract with the Asian Institute of concentrated on: (a) helping prevent fraud an Management to carry out a program of training cOf':uption in WB-financed projects; and and technical assistance (TA), has been signed. (b) helping provide a climate conducive to To date, a training needs assessment is in hand for efficiency and transparency. 5 agencies and in the coming months the course curricula will be prepared and the scope of the T A Helping Prevent Fraud and Corruption in will be identified and subsequently implemented. WU-financed Projects As regards financial management and the strengthening of internal controls, Sycip Gorres 8. Anti Corruption/Core Operations and Velayo (local arm of Arthur Andersen) is Initiative. Following the discussions on presently implementing a trammg needs preventing corruption in Bank-assisted projects assessment of two GOP agencies in coordination dUrlng the 1996 Country Portfolio Performance with a counterpart team from COA. Within RMP, Review (CPPR), the GOP took upon itself to international and national specialists in forge an agreement among five selected procurement and financial management have been implementing agencies and the Commission on hired to ensure that a high standard of service is Audit (COA) for the latter to undertake a provided to our clients as well as fiduciary Transparency and Internal Control (TRIC) Study. responsibilities are met. TRIC was intended to assist the management of concerned implementing agency in: (a) assessing Helping Provide a Climate Conducive to the presence and level of transparency in Efficiency and Transparency procurement transactions; (b) determining the existence andlor adequacy of internal controls for [0. Our objective is to help strengthen the proJect implementation; and (c) identifying areas GOP's capacity to manage efficiently and for improvement and necessary corrective effectively the country's resources, including measures. The coverage of the study was loans from the WB. Experience suggests that sub;equently expanded under TRIC-II to cover an good governance has four essential elements: additional nine implementing agencies. The improving public sector management, ensuring TRIC studies have been completed and key financial and economic accountability, findings relate to a number of breakdowns in the maintaining predictability in applying rules and procurement, project execution and financial regulations, and ensuring the availability of, and management areas~ The WB and GOP have access to, information. Along these lines, the committed to support implementation of the major following activities have been undertaken. recommendations of the study. The focus will be both on improving the capabilities of the 11. Resu1ts Monitoring. A grant from the implementing agencies through training and WB to build institutional capacity in the GOP for technical assistance and strengthening of the monitoring and evaluation of results was oversight agencies. approved in April 1997. Implementation of the grant is proceeding according to schedule. This -61­  Pftr!//N"U1C<\' Ncslonng ,\lrUIl,r.!,l'1' (t'nl1~-;h ll'lfft (irciI{('r F,Plit" Dra/ifo/" Discllssiot! Ilk/! !hi! (ju"cI'IWIf'IJI ('(/I! flo Ulld 11:)11' ihe' IVr)rld ilullk ('UII lid!) 811-1198 right at our office) or our website. The PID is designed to make project information available to interested parties at the early stages of development. Information on procurement opportunities is also available through the Monthly Operational Summary. the Bank's ....... International Business Opportunities Service, and /~" .. the Technical Data Sheet issued after Board ,j.. '-:.-", ~~___,,-<...-y-<, __ '" approval of a project, which describe in some ".~ detail the items to be financed. Other outlets for information are RMP's quarterly newsletter (INTOUCH) and a multimedia information kiosk available in CD-ROM. 14. Consultation and Dialogue with NGOlDonorlBusiness and Civil Society. By conducting dialogue and consultation activities, grant does not only help enhance an appropriate we invite other players in the development ch\~cks and balance system ensure accountability process to participate in an informed public for results, but more importantly. contributes to a debate on vital issues. This helps raise the ClL ture of "results consciousness". Mon itoring awareness of the general public of means to and evaluation develop such a culture which leads prevent corruption. to ':he easy detection of malpractices. 15. Client Feedback Survey !)rogram. 12. Focused Training. In addition to the Early this year, we initiated a client feedback above anti-corruption initiatives and TA support, process designed to survey client countries on a we continue to strengthen the capacity of range of issues related to the WB's impact in implementing agencies through focused training those countries, and the cl ients' perceptions of the on areas where lack of knowledge and skills could our performance. The pilot survey was conducted lead to corrupt practices. These ongoing trainings in 12 countries, including the Philippines. The include procurement, disbursement, audit. and results have helped LIS gauge client feedback otl}~r financial management courses. among GOP. policymakers and implementors, NGOs, media, business, and civil society. [t was 13. Public Disclosure and Information also seen as an opportunity for these players to Dissemination. To further promote give their candid feedback on the our projects and accountabi lity and transparency In the activities. development process, we expanded the range of docllments prepared for operational purposes that are made available to the public. These documents include the Project Information Documents (PIDs) which is made available through our Public Information Center (located -62­ Philippines Restoring Stronger Growth with Greater Equity Draft/or Discussion What the Government Can Do and How the World Bank Can Help 811-1198 IV. Recent Relevant World Bank Studies/Documents For further information, please contact Ms. Leonora Gonzales or Als. Charita Sanalila of the World Bank at 637-5855. Or you may visit the Bank's Public Information Center at the 23rd Floor, Taipan Place, Emerald Ave. Ortigas Center, Pasig City. 1. Helping Countries Combat Corruption - The Role of the World Bank. September 1997 2. The State in a Changing World, World Development Report, 1997 3. The Challenge of Inclusion, Annual Meeting Address by WB President James D. Wolfensohn, 1997, Hongkong SAR, China 4. The WB Participation Sourcebook, 1996 5. The WB Policy on Disclosure of Information, March 1994 This Briefing Note is an evolving document, and as such, is subject to change. - 63 ­  PHILIPPINES - Restoring Stronger Growth with Greater Equity: What the Government Can Do and How the World Bank Can Help Briefing Note No. 17: WB Assistance Program for 1998-1999 Pipeline of Projects, Economic and Sector Work (ESW) and Technical Assistance Note: This briefing note is part of a larger World Bank (WB) document on "Restoring Stronger Growth with Greater Equity: What the Government Can Do and How the World Bank Can Help." The document has been prepared primarily for use of the Government of the Philippines (GOP) as an input into their policy-making activities, and as a background paper for consultations with the GOP on the World Bank's Country Assistance Strategy (CAS) in the context ofthe Government's development agenda. The consultations are scheduled to start in September 1998. Foreword: 1he WB's assistance program is currently governed by a Country Assistance Strategy (CAS) wh~ch T was developed closely in consultation with the GOP in February 1996. In addition, the WB and the GOP hold annual Programming Discussions during which a three-year lending program and a 12-month program of analytical studies is agreed. The following tables include lending operations and economic and sector work (ESW) which were agreed upon during the May 1998 Programming Discussions. Some of the ESW and the technical assistance activities were based on subsequent discussions . In the table of projects, there are several proposals marked APL (Adaptable Program Loan). APL is a new Bank product offering which is more flexible than a traditional loan. APLs finance long­ term development programs, starting with a first set of activities, carried out under agreed milestones and benchmarks for realizing the program's objectives. Reaching program-defined trigger points during a first loan allows the commitment of funds for a second loan, and so on for each successive APL -­ until the development objective is reached or partners decide that the program parameters no longer hold. The first Adaptable Program Loan funds components that are ready, necessary, achievable in less time than the typical five-year investment project. The benchmarks, trigger points, and parameters of, the program allow other components to be prepared. These components are eligible for financing at subsequent stages, based on results and learning from the previous phases of lending . - 64 ­  Phillppmes - Restoring Stronger GrOlI,'11I "'1111 (/reater Eq/ll/y DI'(l11 lor D,SCIISS/OII /Vila,' the Government Can 00 and HolV tlie World [Jul1k Can /ldp ,'1/1'4198 A. LENDING OPERATIONS FOR PROCESSING FOR 1998-1999 PROJECT TITLEI TENTATIVE IMPLEMENTING AGENCY BRIEF DESCRIPTION PROCESSING PROPOSED LOAN TIMETABLE AMOUNT Banking System Reform • This program loan will support reforms already Appraisal: Completed Loan under way to strengthen the banking system August 1998 Loan Amount: $300 million and enable it to better cope with the regional Negotiation: October financial market turbulence, Loan proceeds will 1998 be used to finance budgeted expenditures, Board Presentation: November 1998 HOUising Finance and This program loan is being considered based A comprehensive Contractual Savings Reform on the analytical work carried out by the World document outlining the Package Bank at the request of the Department of objectives and reform Loan Amount: To Be Finance and other government agencies in the options was provided to DetE~rmined (TBD) areas of housing finance and contractual the GOP on July 10,1998. savings, Reforms will aim to enhance access Further processing of the to housing finance by low-income households. loan depends on GOP's , They will also address the adverse impact on feedback on the , public pension agencies of below-market document returns on housing loans and weak loan recovery performance in the Government's i housing program. Public Sector Management This program loan would seek to help the public A comprehensive Ref.)rm Package sector adjust to its new role alongside the document outlining the Loan Amount: $200 million private sector, as well as to the challenges objectives and reform emerging from the financial turmoil. The reform options was provided to package would involve the implementation of the GOP on July 10, 1998. reforms in the relations of the national Further processing of the government with GOCCs, as well as with local loan depends on GOP's government units, The proposed reforms also feedback on the include introduction of a multi-year capital document. budgeting framework and reorganization of the government, as well as renewed efforts at mobilizing fiscal revenues, including streamlining of existing tax incentives for investments. Private Enterprise Credit This project will augment long-term resources NegotiatiO{1 September Support Project of the banking system, through wholesaling 1998' Loan Amount: $150 million activities by DBP, with the main objectives of Board Presentation: assisting private sector enterprises, particularly October 1998 small- and medium-sized enterprises, to help implement their expansion and modernization plans, to undertake new projects, and to finance permanent working capital requirements. The enterprises would thus be able to alleviate their operational and financial problems ariSing from . the currency crisis and take advantage of new opportunities created by recent economic I developments.

 Phi/,:ppines - Restoring Stronger Growth willi Greater Equity Draft/or DISClIssiO/1 What the Government Can Do and HoH' rile World Bank Call fIe/e 811-1198 PROJECT TITLE! IMPLEMENTING AGENCY BRIEF DESCRIPTION TENTATIVE PROCESSING PROPOSED LOAN TIMETABLE AMOUNT Third Rural Finance Project I This project builds upon an ongoing Second I Negotiation: : September 1998 Loan Amount: $150 million Rural Finance Project and will provide a Board Presentation: October credit line to the LandBank for financial 1998 support to the rural economy, The project will address the critical but temporary difficulties of firms that remain economically viable but face financially-related problems brought about by the regional financial crisis. As support to the Bank's commitment to poverty alleviation, the project includes a micro-finance component to address unfulfilled demand for credit by micro- and small-scale enterprises. Local Government Urban This project is the first in a proposed APL of Negotiation: September 1998 Water and Sanitation (APL) $190 million aimed at improving water and Board Presentation: ProJect sanitation services in a total of 250 small November 1998 Loan Amount: $23,3 million towns, This project will pilot the project / design in about 40 towns so that the national ., government is able to develop a cost effective method of expanding subprojects in ~ the second and third APLs. The project will take specific measures to promote private sector participation in utility management. Co-financing arrangements are being worked out with bilateral donors for building institutional capacity in participating LGUs, Local Government Finance i The project will finance municipal Negotiation: October 1998 and Development Project infrastructure and services in poorer LGUs, Board Presentation: (LOGOFIND) help reorganize and strengthen the MDF, and November 1998 Loan Amount: $100 million provide support TA and training to local and national government units. Solid Waste Ecological The project aims to (a) improve the legal and Appraisal: TBD Enhancement Project regulatory framework and cost recovery Negotiation:. TBD (SWEEP) mechanisms of the solid waste management Board Preseptation TBD Loan Amount: TBD sector to safeguard the environment and \ encourage private sector involvement; (b) increase technical, administrative and regulatory capacities at the national and local levels to improve sector management and i operations; (c) improve solid waste services

and extend their coverage in participating cities; and (d) mitigate the social impact on waste-pickers and promote recycling and I composting of appropriate wastes . I

-66­  Phi/"ppines ­ Restoring Stronger Growth "'ith Greoter Equity Ora/i/o,. Discussion What the Government Can Do and How the World Bank Can Help 8/1-1198 PROJECT TITLEI IMPLEMENTING AGENCY I BRIEF DESCRIPTION I TENTATIVE PROCESSING PROPOSED LOAN TIMETABLE AMOUNT HOllsing Finance TA Project This project will redefine the role of A comprehensive document Loan Amount $10 million government in housing finance and design outlining the objectives and measures to: (i) develop the primary and reform options for the housing secondary markets; (ii) rationalize the and contractual savings activities of the government housing finance sectors was provided to the institutions; (iii) increase the transparency GOP on July 10, 1998 . and efficiency of socialized housing Further processing of the loan programs, and (iv) strengthen institutional depends on GOP's feedback capacity for housing policy formulation, The on the document. result would be a redefined role for government in housing finance and a more efficient allocation of risks and responsibilities. This operation would be closely linked to the proposed housing and pension reform loan, providing TA resources to help implement the reform program. Metro Manila Urban . ­ The project's overall objective is to improve Appraisal: March 1999 Transport Integration the integration of major transport schemes Negotiation: June 1999, Project (MMURTRIP) (particularly, urban rail transit lines) with the Board Presentation: Sept. Loan Amount; $100 million existing road system in Manila through 1999 ­ strategic investments in traffic management measures along key corridors, access improvements to transit stations and outer communities, and improvement of selected i secondary roads, The project would also 1 strengthen metropolitan functions for I> transport management. planning and I programming, and improve coordination between the national agencies responsible for the sector (particularly, ~OT, OPWH, I> OOF and NEOA) and MMOA As a start-up activity focusing on strengthening Metro Manila management, a Learning and Innovation Loan (UL) is proposed. (Note: 1>­ LILs are new Bank instruments used to test \ new approaches and new sectors, often in start-up situations. il,/ku;imum loan size is­ US$5 million. Such loans are likely to involve small, discrete investment and capacity-building efforts that can be implemented in one to three years). -67­

 Philippines - Restoring Stronger Growth with Greater Equity lJraji jiJI" Disclission What the Government Can Do and How the World Bank Can Help 8//-1/98 PROJECT TITLEI IMPLEMENTING AGENCY I BRIEF DESCRIPTION I TENTATIVE PROCESSING PROPOSED LOAN TIMETABLE: AMOUNT Urban Land Management The project aims to promote an integrated Appraisal: TBD and Transport Project in strate!;JY for regional development and Negotiation: TBD Cavite-Laguna (CALA) transport, through the initiation of local Board Presentation: TBD Re!;Jion - -.­ government based land management Loan Amount: TBD practices, investments in priority transport infrastructure and strengthening of inter-local government cooperation. National Road Improvement This project is proposed to be the first in an Appraisal: February 1999 Prc.gram (proposed as an APL program, comprising inter-linked loans Negotiation: May 1999 APL) designed to formulate and subsequently Board Presentation Nov. LOcln Amount:$1DO million implement DPWH's proposed institutional 1999 reforms, On the investment side, the proposed APL operations would finance, on a programmatic basis, a selected portion of DPWH's investment program for 1999-2004, covering rehabilitation, upgrading and , maintenance of th,e national highways , network. Mindanao Integrated Rural The proposed project will be designed as a Appraisal: May/June 1999 Development Project targeted poverty reduction program for the Board Presentation: end (proposed as an APL) rural poor and indigenous communities of 1999. Loan Amount: $100 million Mindanao. The project will target constraints to increasing agricultural production and productivity. It is proposed to be designed as an Adaptable Program Loan (APL) which would allow for a phased, (two to three tranches) but sustained (12 to 15 years) support for the program, which is essential for long-term LGU institutional development and rural poverty alleviation . Teacher Development The project would assist the Government in A proposal has been Project raising the quality of student learning in the submitted to NEDA to Loan Amount: TBD school system by addressing the policy, incorporate teacher training in technical and managerial issues affecting a proposed follow-on to the teachers' performance. To achieve this Engineering and Science objective, the project would focus on Education Project (ESEP). strengthening the pre-service and in-service The plans for the Teacher teacher training, rationalization of Teacher Development Project would Education institutions, better utilization of therefore be re-evaluated in teachers, more flexible teacher deployment light of the GOP's response and terms of service, improved capacity for to this proposal. ! education administration and management.

.:,;..~' -68­  Philippines - Restoring Stronger Growth with Greater Equity Draft ji:Jr Discussion What the Government Can Do and How the World Bank Can Help 8/14/98 B. ECONOMIC AND SECTOR WORK PROJECT ; TITLE/IMPLEMENTING TENTATIVE AGENCY BRIEF DESCRIPTION PROCESSING PROPOSED LOAN TIMETABLE AMOUNT Country Economic Economic update with special topics for Report to be completed by Memorandum (CEM) discussion at the Consultative Group Meeting March/April 1999. .. ­ - ~ planned for May 1999. Ac(;eler;itlng tflQ, PoVerty The P!Jfpbseof the study would be to: (i) First mission is planned in Reduction Agenda assess what progress has been achieved since September 1998. Report the last World Bank report (1995); (ii) evaluate to be completed by May the effectiveness, in terms of impact on poverty 1999. reduction, of overall macroeconomic policies, on the one hand, and targeted poverty reduction interventions, on the other hand; (iii) recommend measures to improve the outreach and implementation of poverty reduction interventions which are assessed to be particularly effective; and (iv) provide recommendations for the new administration, as well as donors on poverty reduction policies . '. and programs to support . Education Sector Report Involves updating the Bank-funded 1988 Report to be completed by Education Sector Strategy Report with the end December 1998. objective of helping the government identify an actionable program for rationalizing the education sector and improving educational outcomes. Health Sector Report The sector work would develop strategies for (i) Report to be completed by addressing the inherited and inherent problems end June 1999. of a devolved public health delivery system; (ii) improving equity in the access to personal health including better utilization of financing and insurance options; and (iii) reorganizing the DOHto provide technical supervision, coordination and regulation of a devolved health care financing and delivery system and for building DOH capacity to assume its new roles andfunctions. Sociial Expenditure Review The review will assess how social expenditure The review is scheduled to priorities are being met in the present context take place from August 24 of fiscal austerity, and develop -September 4 , 1998. recommendations in this respect. The review Report to be completed by will focus particularly on the budgets of the September 4, 1998. DECS, State Universities and Colleges, .;;..~,r TESDA. DOH. DSWD and NAPC . -69­  Philippines - Restoring Stronger Growth with Greater Equity Draft lor Dlscllssion What the Government Can Do and How the World Bank Can Help 811--1198 TENTATIVE ACTIVITY BRIEF DESCRIPTION PROCESSING TIMETABLE Various SASNs for: The Sector Assistance Strategy Notes SASNs which have been Rural Development (SASNs)arenotes for each major sector which completed and shared with Water provide a 3-4 year program of leliding and non­ the GOP include those for Health lending activities which the Bank proposes to Rural Development, Transport underfake in the sector to achieve better Water, Health, and Education results on the ground in selected areas. These Transport Other SASNs EMrgy notes serve as building blocks for the planned are being completed for Pri1/ate Sector Development March 1999 CAS. sharing with GOP within Urban August/September 1998. C. SPECIAL TECHNICAL ASSISTANCE GRANTS ACTIVITY BRIEF DESCRIPTION STATUS/ISSUES Annual Poverty Incidence I To be funded from a grant under the Asia- I Grant signing scheduled Survey Europe Meeting (AS EM) Trust Fund being for August 1998 administered by the Bank. The grant will fund TA to the National Statistics Office (NSO) to conduct an annual poverty incidence survey for 1998 in conjunction with a UNDP Project with NEOA institution building for poverty monitoring. Technical Assistance to TA to strengthen capability for supervising the The grant was signed Bangko Sentral ng Pilipinas 'banking system (BSP and POIC) and to handle August 4, 1998. BSP, (BSP), Philippine Deposit corporate bankruptcy filings (SEC). PDIC and SEC are Insurance Corporation preparing workplans and (PDI!<;;) and ~ec;uritiesand TORs. Exciharig~: Cornrois~iori (SEC) ;,;.,~*" . This Briefing Note is an evolving document, and as such, is subject to change~ -70­  PHILIPPINES - Restoring Stronger Growth with Greater Equity: What the Government Can Do and How the World Bank Can Help Briefing Note No. 18: Summary of Country Assistance Review Foreword: This note summarizes the Country Assistance Review (CAR) conducted between May 1997 and Febru,ary 1998 by the Operations Evaluations Department (OED) of the World Bank OED is an independent unit from WB management and reports directly to the WB's Executive Directors. This CAR is the eighth of the new country-focused studies that evaluate the relevance, efficacy and efficiency of the WB's overall program of assistance, as well as its sustainability and its impact on institutional development, The objectives ofthe review are to establish accountability, derive lessons of experience and provide recommendations for action. This CAR concentrates on WB assistance to Philippines since 1986, which marks the turning point in the Philippine's economic and social policy frameworks. OED is planning to discuss the full report with the GOP in the Fall before publishing it. I. A Tumultuous Development Decade Figure 1: OED Ratings for Approved and 1. Despite civil unrest, political turmoil, Completed Projects since FY 1986 natural calamities, external shocks -- and reform 100 J.~~-----fi~~~;=r fatiglle in the early 1990s -- the Philippines has 80 scon:d substantial economic and social gains since 60 1986. Within a decade, GNP per capita more than 40 doubled and the share of the popUlation living 20 below the poverty line dropped by 17 percent to o Satisfactory Likely Substantial below 26 percent. This was achieved through Outcome Sustainability Institutional sound monetary and fiscal management, Development substantial structural reforms, an increase in private investment by 6 percentage points (as a share of GOP), sustained educational investment effective. However the strong intellectual and land reform. contribution of the WB has been constrained until very recently by inadequate participation and 2. These positive features notwithstanding, communications vis-a-vis civil society. In the Philippines still fares below the norm for the lending, competition among donors has been East Asia Region--with lower national savings excessive, and the quality and impact of WB and investment, higher import duties, more rapid operations has been below par in energy, population growth, inadequate infrastructure and agriculture and human resources. (Note: Overall an inefficient bureaucracy and judicial system. OED rating for Philippine projects 011 outcome, Some social indicators, such as the incidence of sustainability and institutional development, communicable diseases and access of the poor to compared to regional and bankwide prqjects, can social services, have regressed in recent years. be seen from Figure 1.) 4. In the last three years, surging private II. Evaluation of World Bank (WB) capital inflows and a lower appetite for reform Operations, 1986-1996 reduced the WB's role and the volume of WB commitments. IMF, Bank and OED warnings 3. Most economic and sector work has been about macroeconomic weaknesses, including the of good quality and aid coordination has been rising exposure to short-term capital flows, went -71­  Philippines - Restoring Stronger Growth with Greater Equity Draft for Discussion What the Government Can Do and How the World Bank Can Help 8/14/98 only partially heeded until the crisis erupted. land reform); );> improve selectivity of Bank lending and non­ III. Towards a New Country Assistance lending assistance and strengthen partnerships Strategy with donors and the NGO community (through a joint CAS with all major donors by 5. To help the economy reach its growth 1999 and expanded NGO participation In potential, fortify its resilience to shocks and strategy, ESW and project preparation). deliver greater benefits to the poor, the unfinished reform agenda must be tackled and poverty NOTE: Since the CAR was an independent reduction programs must target the truly needy. evaluation, we are including the responses of WB Investment levels must be raised and sustained Management and the Executive Board's Committee on with higher domestic savings and foreign savings Development Effectiveness (CODE) on the CAR with less volatile financing sources. The WB Report. should help in the design, financing and coordination of a medium-term, broad-based Management Response development effort. To this end, it should make 7. WB Management, in its response, agreed use of a diversified tool kit (ESW; technical on most of the findings but disagreed with OED's assistance; quick-disbursing operations; financial intermediary loans; sector investment loans; less than satisfactory judgment of Bank efficacy in the power, agriculture, and social sectors. It adaptable lending instruments; guarantees; and aid also disagreed with OED's recommendations to coordination). leave lending to other donors in the social sectors, as it believes that there is a lending role for the IV. The Challenge for the World Bank Bank, including in the reform of the vocational Future Assistance and higher education sectors, if the Government were to take some difficult decisions. While WB 6. The challenge for the Bank is fivefold: management thought that a joint CAS was not );> help the GOP address known macro­ feasible, it agreed to undertake a highly (~conomic and governance weaknesses (in the participatory CAS, involving all stakeholders and banking system, capital markets, public sector taking fully into account other donors' activities. management and judicial system); CODE Response );> mount an integrated BanklIFC/MIGA assistance program for private sector and 8. The World Bank Executive Board's infrastructure development (including the Committee on Development Effectiveness also c:ompletion of the regulatory framework, endorsed the analysis and most of the further privatization of power and water recommendations of the OED study, including supply and through scaling-up lending for resumption of lending for adjustment and municipal development); financial intermediaries. it, however, agreed with the Management's Response in that it would be );> adjust human development strategies and premature for the Bank to withdraw from lending programs (leave lending to donors providing to the social sectors. The Committee also did not concessional funds as preferred by endorse fully the recommendation of a joint CAS government, while maintaining its leading with donors by 1999, but directed instead analytical and advisory role); management to prepare a participatory CAS

);> mobilize efforts for a rural action program and an improved agriculture policy framework (including support for import tariff taking fully into account other donors' activities.D reductions on grains and the completion of This Briefing Note is an evolving document, and as such, is subject to change . -72 ­