Statement by Andrei Bugrov at the meeting of May 4, 1999

International Bank for Reconstruction and Development 87505 International Development Association International Finance Corporation Multilateral Investment Guarantee Agency FOR OFFICL.\L USE ONLY CONFIDENTIAL EDS99-116 May 4, 1999 . St:ltement hv A ncirei RnProv ...., Date of Meeting: May 4, 1999 The Philippines - Country Assistance Strategy We welcome the proposed Country Assistance Strategy of the World Bank Group for the Republic of the Philippines. I commend the Staff and Management for this well prepared document. We appreciate the participatory and analytical process used for CAS formulation, namely, the involvement of various stakeholders and other donors in CAS consultations and incorporation of the client surveys' results into the strategy. I fully endorse the CAS key strategic directions involving its alignment with the Government's medium-term plan and selecting activities for APL support, resumption of support for structural reforms, closer collaboration with other donors, increased transparency, and stronger emphasis on monitoring and evaluation. I also support the CAS focus on seven strategic action areas that reflect the Philippines' development challenges and the Government' s own priorities. This attempt of an integrated approach to economic, structural and social issues inspired by the idea of the Comprehensive Development Framework is commendable. The Philippines' impressive growth record in the pre-crisis period and achievements in poverty reduction and human development are widely recognized. Although the initial impact of the regional crisis in the Philippines has been less severe than in the neighboring countries, its social consequences are still emerging and relatively favorable poverty trends of the recent past could be adversely affected. Therefore we strongly support the CAS emphasis on promoting economic recovery, protecting the gains in human development and enhancing social services for the poor, newly unemployed and other vulnerable groups. We would also like to stress the importance of such emphasis in the light of the pro-poor/pro-market agenda of the Government. This document has a restricted distribution and may be used by recipients only in the 1 perforrnmce of their official duties. Its contents may not othenvise be disclosed without ! \Vorld Bmk authorization.  I appreciated the discussion in the last CAS Progress Report which explained why the Philippines have been affected by the negative impact of the regional crisis far less than Indonesia, South Korea and Thailand. Yet, the explanation allowed for two different practical conclusions. At the risk of oversimplification, one could put them in the following way: (i) the emerging market economies should be more self-restrictive in their reliance on the inflow of short-term capital ; or (ii) they should be fully open to short-term capital inflow and concentrate their attention on improving domestic financial systems . I believe that further careful analysis of the Philippine case could feed into a clearer lesson to be learned from the East Asian financial crisis by the Bank and many of its clients. Of course, both internal factors (policy mistakes and financial system weakness) and external ones (strength and volatility of international capital flows) contributed to the regional crisis. But a better understanding of the correlation between them would help to respond more effectively to the crisis management needs ot the atfected countries and reduce the likelihood of such a crisis occurring in other countries. We agree with the proposed parameters of IBRD base-case program of lending and non-lending assistance. We are also happy to learn from Mr. Alfiler's circulated statement that the Philippine authorities see the base-case package as appropriate. Our understanding is that the Bank will stand ready to provide increased support in case of acceleration and deepening of structural reforms. I am pleased to note that the CAS paper presents a well-defined and ambitious plan of IFC involvement. The main part of it is the base-case investment program in the amount of $350-500 million for the IFC's own account. We agree with the priorities of the program which include the restructuring of companies affected by the crisis, support for consolidation in the financial sector and facilitation of private participation in infrastructure. We also welcome the intended geographical and sectoral diversification of IFC activities in the Philippines. We note with satisfaction that the quality and performance of the Bank-financed project portfolio have improved since the last CAS. At the same time the recent increase in the number of projects at risk (up to 25 percent of all ongoing projects) raises serious concern. Also, about half of the "mature" projects have large undisbursed balances. In view of this, we would urge speedy implementation of the portfolio improvement actions agreed between the Bank and the Government last December.