International Bank for Reconstruction and Development 89178 FOR OFFICIAL USE ONLY CG200048 FROM: The ActingSecretary December 28, 2000 CONSULTATIVEGROUPMEETING FOR THE PHILIPPINES Reportonthe Proceedin!s Chairman's 1. Attachedis the Chairman'sReporton the Proceedings of the Consultative GroupMeetingfor the heldon June 19-20,2000 in TagaytayCity,Philippines. Philippines 2. Themeetingwas chairedfor thefirst timeby the Philippine Government, by the represented Department of Finance;hence,the reportwas preparedby the Departnentof Finance. Distribution For Information Executive for: Directors CountryOffice,Manila Australia Malaysia EuropeanOffice Austria Netherlands TokyoOffice Belgium NewZealand Canada Norway Denmark SaudiArabia Finland Singapore France Spain Kuwait Sweden Germany Switzerland Italy UnitedKingdom Japan UnitedStates Korea Executive Directorfor the Philippines VicePresident, Investment Operations, IFC AsianDevelopment Bank Chairman,DAC/OECD Conunission of the EuropeanUnion Embassyof Brunei(Washington, D.C.) EuropeanInvestment Bank NordicDevelopment Fund IFAD International Monetary Fund IslamicDevelopment Bank KuwaitFundfor Arab Economic Development OPECFund SaudiFundfor Development UnitedNationsDevelopment Program This document has a restricted distributionand may be used by recipients only in the perfonnance of their official duties. Its contentsmay not otherwisebe disclosedwithout World Bank authorization. Summary Report of the Proceedings by the Chairman 2 3rd Consultative Group Meeting for the Philippines Tagaytay City, Philippines June 19-20, 2000 1 CONSULTATIVEGROUP MEETING FOR THE PHILIPPINES Tagaytay City, Philippines, June 19-20, 2000 Summary Report of the Proceedingsby the Chairman 1. The twenty-third meeting of the Consultative Group (CG) for the Philippines was held on June 19-20, 2000 in Tagaytay City, Philippines under the chairmanship of the Philippine Department of Finance and co-chairmanship of the World Bank. It was the first time that the CG meeting was held in the Philippines, and chaired by the Government of the Republic of the Philippines. Participants from the Philippines included representatives from the Departments of Finance, Agriculture, Agrarian Reform, Budget and Management,Education Culture and Sports, Energy, Environment and Natural Resources, Foreign Affairs, Health, Social Welfare and Development, and Transportation and Communications; National Economic and Development Authority; Bangko Sentral ng Pilipinas (central bank); Bureaus of Customs, Internal Revenue, and Treasury; Office of the President; representatives from the Economic Coordinating Council, House of Representatives and Senate of the Philippines; Development Academy of the Philippines; Development Bank of the Philippines; Land Bank of the Philippines; National Anti- Poverty Commission; Supreme Court of the Philippines; and a representative from the non- government organizations. 2. The donor community was represented by delegations from Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Italy, Japan, Korea, Malaysia, Netherlands, New Zealand, Norway, Saudi Arabia, Singapore, Spain, Sweden, Switzerland, the United Kingdom, and the United States of America. The international organizations participating in the meeting included the Asian Development Bank, European Community, International Finance Corporation, International Fund for Agricultural Development, International Monetary Fund, Saudi Fund for Development,United Nations Agencies (UNDP, ILO/SEAPAT,UNFPA) and the World Bank. Please see "List of Participants" in Annex 1. 3. The theme for this year's CG meeting was "SustainingPoverty Reduction Through Growth and Other Supporting Policies" (see Agenda of the Meeting in Annex 2). The Philippine delegation presented the following main documents in the meeting: The Philippines: Accelerating Development, Sharing Growth; ConsolidatingEconomic Growth; Expanding the Capacities and Reach of Pro-Poor Services; Status and Prospectsfor Rural Development and Poverty Alleviation in the Philippines; and Embracing Governance Reforms in the Philippines: Promoting Competition, Accountability and Social Responsiveness. The Philippines also distributed The President's 1999 SocioEconomic Report, Sustaining Poverty Reduction Through Growth and Other Supporting Policies:A Progress Report, and Report on the 8th Annual ODA Portfolio Review. In addition, the World Bank distributed reports entitled Philippines Growth with Equity: The Remaining Agenda, and Combating Corruption in the 2 Philippines. The main statements by the Government and Donor representativesdelivered during the meeting are in Annex 3, and other statements delivered by donor representatives are in Annex 4. Opening Session 4. The Chairman, Mr. Jose T. Pardo, Philippine Secretary of Finance, welcomed delegates to the meeting, and thanked the co-chairman, Mr. Vinay Bhargava, Country Director for the Philippines of the World Bank, for the World Bank's support in the preparations for this year's CG meeting. Secretary Pardo emphasized that while the Philippine economy continues to post respectable growth three years after the Asian crisis, the Government needed the support of the donor community in its socio-economic program which focuses on enhancement of basic services and economic opportunities, particularly in the rural areas. The meeting agenda covered economic development, poverty reduction and policies, structural and public sector reforms, and aid utilization. Secretary Pardo enjoined donors to express their views on these Government priorities. 5. In his opening remarks as co-chairman, Mr. Bhargava commended the Government for hosting the CG meeting, thus, taking a stronger leadership role in the aid coordination process, and for its responsiveness to suggestions from the last meeting. Mr. Bhargava pointed out four areas which he hoped would receive concrete suggestion during the meeting: (i) how to boost sagging investor confidence and accelerate GDP growth to 5-plus percent in the remaining years of the Medium Term Plan; (ii) how to make growth more equitable, particularly in Mindanao, through a focused development program; (iii) how to improve governance in the private and public sectors; and (iv) how to make better use of ongoing and new ODA commitments. Session 1: Recent Socio-EconomicDevelopments,Achievements and Challenges 6. Secretary Pardo gave a presentation about the present state of economic development in the Philippines. He assured the donors that the Estrada administration was pursuing the economic reforms the Government had embarked on. The fundamentals of the Philippine economy remained strong, as seen by continued economic growth, low inflation and low interest rates. The budget deficit in 1999 reflected the efforts of Government to sustain the economy inspite of lower tax collections. Government spending was also within the expenditure target, inspite of the requirements arising from the Mindanao conflict. To enhance the country's long-term competitiveness, Government aimed for (i) a balanced budget by year 2003, (ii) continued banking reforms through the enactment of a new central banking act; (iii) privatization of certain Government assets; (iv) more foreign investments with the new Retail Trade Liberalization Act; (v) completion of legislation on the restructuring and privatizing of the power sector; (vi) reforms towards development of domestic capital markets; (vii) reforms in the grain sector aimed at food security and stable prices; (viii) building of a knowledge-based economy to keep up with technological advancement; and (ix) substantial progress in enterprise and farms credit policy. To increase investor confidence, the Government had created a high-level interagency task force to maintain peace and order in the country. For year 2000, Governmenttargeted to achieve GNP and GDP growth of 4.5 to 5.5 percent, and 4 to 5 percent, respectively, an inflation rate of 5 to 6 3 percent, while keeping the 91-day T-bill rate at 9.5 to 10.5 percent, and the budget deficit at P62.5 billion or 1.8 percent of GNP. 7. In addition to Secretary Pardo's statement, a presentation was made by central bank Governor Rafael Buenaventura on monetary and external account performance of the Philippines. Governor Buenaventura highlighted the achievements of the Philippines in terms of strong export growth, which contributed to an impressive current account surplus and overall balance of payments position. The gross international reserves were at record levels, while total external debt of the country continued to be manageable, consisting mainly of medium-to-long term loans. The banking sector had sustained its soundness. Interest rates were kept consistent with requirements for growth, and the peso exchange rate versus the U.S. dollar had remained broadly stable. In terms of banking reforms, the General Banking Law was enacted to strengthen the regulatory and supervisory framework of the banking system. 8. Mr. Sean Nolan of the International Monetary Fund (IMF) stated the IMF's views on the Philippines' socio-economic development. Mr. Nolan observed the solid macroeconomic performance of the Philippines, and said that the weak business confidence in the country may undermine the benefits of recovery. The factors that affected investor sentiment included budget deficit, slow progress in implementing Government's structural reforms, governance concerns, and the Mindanao conflict. The IMF recognized Government's efforts to manage the deficit in year 2000, the formation of the Economic Coordinating Council, progress made in reform legislation, and continuing adherence to existing foreign exchange, monetary, exchange and trade, and domestic regime policies. Accordingto Mr. Nolan, the following measures and actions were needed to strengthen the reform program and revive market confidence: passage of power sector reform legislation, restoring confidence in the stock market, passage of revisions to Bangko Sentral ng Pilipinas law, and completion of privatization of the Philippine National Bank. He added that the Government's macroeconomic targets for 2000 were achievable if macroeconomic policies remained on track, the reform agenda was vigorously pursued, and the security situation improved. Mr. Nolan concluded that the Philippines had the potential to achieve a GDP growth rate of at least five percent per annum over the medium term considering the evident global competitiveness of Filipino workers. He emphasized the need for: (1) strengthening public service delivery in education, rural development, and physical infrastructure, through increased tax revenues and implementing expenditure reforms; (2) strengthening the legal and regulatory environment; and (3) putting in place appropriate incentives to savings and investments through development of capital markets and contractual savings schemes. 9. The Asian Development Bank (ADB) likewise presented its assessment of the Philippine economy. ADB reaffirmed that the Philippines had gained economic growth momentum despite the lingering effects of the Asian economic crisis. However, ADB pointed out the minimal growth in industry and services, shrinking investments, and need for balancing fiscal stimulus with domestic and external stability. ADB expressed particular concern on the composition of the budget for 2000, need for better tax collections, distress in the banking and corporate sector, need for improved governance and regulation of the capital markets and non-bank financial institutions, and the peace and order situation in Mindanao. These concerns needed to be attended to position the economy on the path to a full recovery. To achieve medium term growth 4 targets, the country needed large investment support in the areas of agriculture, rural development and infrastructure. This would require public savings and the greater participation of private sector and local governments in the overall investment effort. In terms of poverty reduction target in the medium term, ADB observed that little progress had been achieved since 1997. On the other hand, progress in population management and environmental improvement was slow. ADB concluded that it was important to immediately address the socio-economic impediments that had inhibited development in the past, such as those calling for policy changes. 10. The summaryof general discussions during the meeting is contained in "Closing Session". Session 2: Progress and Plans on Poverty Reduction Policies and Programs 11. Agriculture Secretary Edgardo Angara talked on the "Status and Prospects for Rural Development and Poverty Alleviation in the Philippines", particularly on Government's five-fold rural development strategy including (i) modernizing the agriculture and fisheries sector; (ii) speeding up and fully implementing agrarian reform; (iii) promoting the proper use and conservation of natural resources; (iv) focusing the delivery of basic social services as well as providing safety nets during the transition period; and (v) implementinginstitutional reforms and strengthening inter-agency cooperation. The Government had progressed in its rural development strategy with the implementation of the Agriculture and Fisheries Modernization Act from which programs such as "Agrikulturang MakaMASA" and Agro-Industry Modernization Credit and Financing Program were conceived.The Government had also gained headway in intensifying land distribution and enhancing partnerships in support of agrarian reform communities such as launching of a joint venture program between agrarian reform beneficiaries and private sector entrepreneurs called "MAGKASAKA"; promoting environmental sustainability through adoption of strategies and programs such as Sustainable Forest Management Strategy, Community-Based Forest Resources Management Program, Coastal Resources Management, and Watershed or Ecosystems Management Approach; and initiating institutional reforms and inter-agency cooperation. These initiatives were to be pursued by Government amidst significant challenges posed by increasing resource constraints, operational bottlenecks in devolution to local governments,and the recent conflict in Mindanao. 12. Secretary Horacio Morales of the Department of Agrarian Reform (who is also lead convenor of the National Anti-Poverty Commission) explained the efforts of Government in "Expanding the Capacities and Reach of Pro-Poor Services". He discussed the efforts and achievements of Government in improving the efficiency and effectiveness of social services, addressing issues such as unequal income distribution, and improving access to education and health. The accomplishments in the implementation of the National Anti-Poverty Agenda (NAA), health sector reform, population program, and new education initiatives were also discussed. Secretary Morales explained the NAA aimed to create an enabling and empowering environment for the poor. Under NAA, Government would pursue focused targeting towards the poorest families throughout the country, convergence of services in targeted communities, mobilization of private sector investment, strengthening local governance for poverty initiatives, strengthening basic sector participation in anti-poverty policy formulation, and effective governance of the anti- poverty program of the Government. On health services, Government'saction plan included the Health Sector Reform Agenda which intended to reform health care financing, health regulatory 5 environment, hospital systems, public health programs, and local health systems. Government's population program entailed formulation of a Population and Development Directional Plan for 2001-2004 in 1999, and preparation of the State of the Philippine Population Report. On the other hand, new education initiatives included prioritizing resource provision for basic education and middle-level manpower development, and establishment of a National Coordinating Council for Education. Secretary Morales noted that Government's budgetary allocation for basic social services was below 20 percent of total budget, and emphasized the importance of official development assistance support, which he noted had shown an unstable trend - the share of support to social services in total ODA fluctuated from 14.7 percent in 1995 to 9.6 percent in 1996, peaked at 18.45 percent in 1997 and suddenly declined to 6.06 percent in 1998. This highlighted the need for greater resources to be channeled into social services. 13. A non-government organization (NGO) representative, Ms. Ana Maria Nemenzo, was invited to the Meeting to deliver her views about the role of NGOs in the delivery of basic social services. Ms. Nemenzo explained the crucial role of people's organizations (POs) and NGOs in the National Anti-Poverty Commission (NAPC) in the planning, implementation, monitoring and evaluation of anti-poverty policies, programs and projects aimed to promote development and quality of life of the Filipino people. POs and NGOs were the links of NAPC-Basic Sector in different levels of communities in promoting and implementing national anti-poverty policies and programs. She stressed that the key foundations for empowering the poor still lay in available opportunities for self-organizing, social preparation, values and commitment building, savings mobilization,training of local leaders and organizers and continuing capability building. On microfinance lending, she suggested that donor support be directed at programs that would enhance the savings initiatives of the poor, upgrade the existing credit systems at the level of poor households, and strengthen their capacity to adopt improved financial systems. 14. Mr. Terence Jones, head of delegation of the United Nations (UN) agencies, was invited to talk on the subject of poverty reduction. The UN commended the Government for sustaining its growth and structural reform agenda and the progress it had made in tackling the challenges set out in the Medium Term Development Plan. On Government's aim to reduce poverty, Mr. Jones identified several opportunities to redefine and refocus the present efforts in macro-economic reform. He cited the need to produce and review with Congress and other stakeholders a gender- sensitive and pro-poor budget. In the area of employment policy, he stressed that employment could be tackled through growth and targeted measures, complemented by an effective social safety net, mechanisms that ensured compliance with labor standards, and measures that assured security of tenure. He informed that the International Labor Organization, with support from UNDP, should field a mission to explore these concerns with Government. In the area of population management, Mr. Jones suggested that Government consider the demographic impact of various policy instruments and program services, and to incorporate population management dimensions into the allocations of resources and determination of priorities. Finally, Mr. Jones urged Government to institute programs that strengthen the country's capacity to manage globalization that is consistent with the requirementsof a national anti-poverty strategy. 15. The summary of general discussions during the meeting is contained in "Closing Session". 6 Session 3: Progress and Plans on Structural and Public SectorReforms 16. Secretary Benjamin Diokno of the Department of Budget and Management gave a presentation entitled "Embracing Governance Reforms in the Philippines: Promoting Competition, Accountability and Social Responsiveness" to discuss Government's efforts in undertaking governance reforms. The Government's programs were categorized into nine areas: (i) institutional strengthening and streamlining of the bureaucracy; (ii) public expenditure and financial management; (iii) revenue generation and administration; (iv) local governance; (v) citizen and private sector participation; (vi) corporate governance;(vii) the rule of law, involving primarily the administration and delivery of justice and the maintenance of peace and order; (viii) graft and corruption; and (ix) information and communications technology. The first four represented the core of public management reforms, while Government continued to cooperate with the citizenry to achieve reforms in remaining areas. Government had created the Presidential Committee on Effective Governance-to ensure consistency and congruence of approaches to address institutional weaknesses. Reforms in public expenditure and financial management focused on budgeting and planning, procurement, and accounting and auditing. To strengthen revenue generation and administration, the elementsof reform centered on the Bureau of Internal Revenue involving its organizational restructuring, the improvement of its information management system, streamlining the system of bank remittances, and improving its wage and incentive structure. For local governance, Government had formulated a policy framework for financing local governments' basic services and development projects predicated on promoting self-reliance. 17. The World Bank followed Secretary Diokno's presentation with its statement entitled "Governancefor Growth: The Immediate Agenda". The Bank acknowledged the steps taken by the Philippines in establishing a governance framework that is conducive to transparency, participation and poverty reduction. The Bank likewise noted the recent concerns on a weakening governance framework both in the private and public sectors. It also observed the Government'sresponse to this new challenge as evidencedby the creation of the ECC, efforts to curtail tax erosion, progress on key economic legislation, creation of the Presidential Commission on Effective Governance, and the anti-corruption strategy developed by the Development Academy of the Philippines. The Bank commended the governance agenda presented by Government and suggested the following priority areas to help advance such agenda: (i) regaining confidence with legislation of a Revised Securities Act, and to trying afew, high visibility corruption cases conclusively; and (ii) maintaining the momentum and completing reforms in tariff reduction, banking sector, fiscal consolidation, and comprehensive tax reform process. In public sector reforms, the Bank suggested Government focus on the following basic areas: (i) intensifying anti-corruption efforts under a strong leadership from Government and with active civil society involvement; (ii) taking steps towards creating a meritocratic civil service; (iii) revamping Government financial management systems; and (iv) developing a more foolproof procurement system. The rapidly evolving field of e-governmentwas noted as suitable for innovative approaches in the two latter areas. In advancing private sector participation, competition and transparency into new areas, the finalization of a power sector reform was seen as a next major step in the right direction. To improve both the growth prospects and distribution of income, the Bank suggested that food trade liberalization would afford growth and equity. While recent housing policies have been financially unfavorable and regressive, the Bank 7 endorsed the Medium-Term Philippine Development Plan for Shelter. The Bank concluded that law enforcement was important in many areas of reform - thus the need for judiciary reform under the Supreme Court, and strengthening the independenceand diligence of regulatory bodies under the Securities and Exchange Commission. 18. The summary of general discussions during the meeting is contained in "Closing Session". Session 4: Aid Utilization and Indications of Donor Assistance 19. A presentation was made by Socio-Economic Planning Secretary Felipe Medalla to discuss "Mobilizing ODAfor Sustainable Growth and Poverty Reduction". Secretary Medalla cited that the Medium-Term Development of the Government called "Angat Pinoy 2004" was in agreement with the new development paradigm of the donor community since both promote the principles of partnership and ownership. To address donors' concern, Government had instituted measures to improve aid disbursement including (i) improved project design and selection criteria; (ii) strict adoption of readiness criteria in the prioritization of new ODA; (iii) application of certain approaches such as use of adaptable program loans for complicated projects; (iv) establishment of a right-of-way fund in the 2001 budget to resolve resettlement problems prior to project implementation; and (v) the enhancement of a cost-sharing arrangement between the national government and local governments to effectively decentralize project identification and ensure project sustainability. To fast track the project approval process, government offices cooperated to ensure timely compliance with conditions for project approval, issuance of environmental compliance certificates, and addressing of implementation bottlenecks. Secretary Medalla also pointed out that an improved coordination between the Government and the donor community would help avoid disbursement-relatedproblems. Such improved coordinationwould involve the (i) continuing conduct of consultative-style programming exercises; (ii) non-inclusion of legislative measures in program loans; and (iii) avoidance of policy decisions as condition for loan effectiveness. Secretary Medalla recognized that Government needed to pay attention to governance aspects of project management. Finally, Secretary Medalla informed the donors that Government's priority in the development of Mindanao was to immediately implement or accelerate projects that were already in place and to improve and expand the delivery of basic social services. 20. Each of the donor delegations expressed their views on the Philippines' socio-economic development. The donors acknowledged that economic progress had been achieved through sustainable policies and reforms but expressed their concern primarily on the alleviation of poverty in the country (please see "Closing Session" for a complete summary of discussions).As an indication of their continuing support to socio-economic development in the Philippines, the donors pledged a total of US$2.6 billion in new ODA. 21. The summary of general discussionsduring the meeting is contained in "Closing Session". Closing Session 22. The Co-chairman, Mr. Vinay Bhargava, thanked President Estrada for hosting the Heads of Delegations dinner held on June 18, 2000 and the Government of the Philippines for hosting the 8 meeting for the first time and for the warm hospitality extended to all delegates. The Co- chairman also summarizedthe views expressed by the donors during the meeting: * Donors welcomed the steps taken by Governmentto improve investor confidence; * Donors commended the government for reinvigorating the structural reform process; * Donors noted concerns and identified several areas needing Government priority action, which included: (1) implementing key measures to enhance resource mobilization; (2) boosting investor confidence by addressing governance at the stock exchange; (3) focusing on rural development and implementation of the Comprehensive Agrarian Reform Program and other asset reform programs; (4) supporting family planning programs to reduce birth rates; (5) finalizing and implementingthe National Anti-Poverty Action Agenda in a timely manner; (6) implementingefforts initiated on Judicial Reform to improve the country's overall governance framework; (7) instituting specific anti- corruption measures based on the reports of the DevelopmentAcademy of the Philippines and the World Bank; (8) setting-up a CG working group to have a regular GOP-donor dialogue with regard to the comprehensive governance improvement program outlined by Government; (9) implement commitments made during the December 1999 ODA portfolio review. The donors suggested that Government provide a progress report on actual accomplishments on these areas in the next CG meeting; - Donors welcomed briefings and assurances given by Government concerning Mindanao; - Donors could consider providing urgent relief to displaced persons, and said that conclusion of a peace agreement quickly and addressing socio-economic needs of the poor in Mindanao were essential to a permanentand lasting solution to the conflict; - Donors believed that accelerated implementation of existing ODA-financed projects in Mindanao was the most effective way to deliver assistance; new projects for Mindanao could be considered in the framework of a medium-term developmentplan prepared with extensive participation of local Muslim communities; and - Donors welcomed Government's suggestion to hold a post-CG meeting on Mindanao. 23. The Co-chairman announced that in addition to the US$7.7 billion of undisbursed ongoing ODA (of which $700 million was for Mindanao), the donors present in the meeting pledged an amount of US$2.6 billion equivalent in new commitments of which about $361 million was for Mindanao. The pledged amount brought the amount of existing ODA commitments available to Government to US$10.3 billion (of which about $1 billion was for Mindanao). Finally, Mr. Bhargava commended the Government for being responsive in a frank and substantive dialogue with donors in a true spirit of partnership, exemplified by the joint-portfolio review, pre-CG meetings, and briefings on Mindanao, which donors hoped would continually help improve the lives of the Filipino people. 24. Secretary Pardo expressed sincere gratitude to everyone who had taken part in the consultations on the Philippines' programs and plans for development. In response to the action agenda presented by the Co-chairman, Secretary Pardo outlined the position of Government on each of the issues raised by donors: * Enhance Resource Mobilization - Government had instituted effective reform measures in its revenue collecting agencies, including the full computerization of the Bureau of 9 Internal Revenue (BIR) and the Bureau of Customs (BOC) and the improvement of their information systems. Government was committed to rationalize the system of incentives and subsidies in build-operate-transferschemes, fast track the privatization of some of its assets, and pursue measures to address the country's low savings levels; * Investor and Business Confidence - Government would continue its endeavor to revive investor and business confidence by pursuing the passage of the Revised Securities and Exchange Act, and the proposed legislation for a comprehensive restructuring and privatization of the power sector, which should improve the sector's efficiency, bring down the cost of power and provide a level playing field and market oriented-system for market participants; * Focusing on Rural Development and the Comprehensive Agrarian Reform Program - Rural development and agrarian reform remained as a principal thrust of the Administration in its continuing campaign against poverty. Government efforts to achieve this objective were explained in the earlier sessions;- * Population Management - Government recognizedthat population management was key to accelerating development, and with the complex social and cultural milieu of the Philippines, would have to be flexible in addressing the issue. Government would continue to implement resource generation, reproductive health interventions, support to the delivery of family planning services, and adhere to its official policy to enjoin all sectors to contribute to an integrated approach to population management; * Finalizing the National Anti-Poverty Action Agenda - The National Anti-Poverty Action Agenda was in the last stages of refinement, and the holding of the Anti-Poverty Summit in August would formalize the adoption of the Action Agenda; * Efforts on Judicial Reform - Government supported efforts by the Judiciary for judicial reform, including initiatives by the Judiciary for institutional strengthening. The Executive Branch expressed its appreciation for the assistance extended by the World Bank, UNDP and USAID in this area and welcomed any further financial assistance for its reform efforts; * Anti-Corruption Measures - A Ten-Point Jumpstart Anti-Corruption Program was drawn up from a government study commissioned by the President. This would be boosted by the expected early signing of the Executive Order for strengthening of existing anti- corruption entities, and the setting-up of an anti-corruptioncouncil; * CG Working Group - The Government welcomed the donors' suggestion of a regular GOP-donor dialogue with regard to the Government's comprehensive governance improvement program, with the Departmentof Budget and Managementas Chair; * Commitments on the December 1999 ODA Portfolio Review - Government reaffirmed its commitments made during the Joint ODA reviews to improve ODA performance. As disbursements improved, Government would focus on achieving the expected development outcome, or the measurable results; * The Mindanao Situation - Government was fully committed to implementing comprehensive and sustainable programs to promote peace and development in Mindanao, including formulation of an action plan for relief and rehabilitation projects and accelerating the implementation of ongoing projects. Government would support the localization of peace and development initiatives and reliance on the trisectoral approach as advocated by the Philippine Civil Society, Government and Business Conference at the national level. Secretary Pardo emphasized that it was during the Estrada 10 administration that Mindanao had received a higher per capita appropriation,and that the military agenda was not the Government's overriding goal for Mindanao. He also recognized the difficulty in undertaking development projects in areas where peace and order posed considerable risks. Governmenthad ascertained that actual figures reflecting the additional funding for military operations in Mindanao were not significant enough to cut into social expenditures. 25. Responding to the suggestion of the Co-chairperson, Government advised that it would provide a progress report on identified priority areas for Government action even before the next CG Meeting through regular dialogue with donors. 26. Finally, Secretary Pardo acknowledged with deep gratitude the expressions of financial commitments made by the Philippines' developmentpartners in the amount of US$2.6 billion. 27. A press conference followed the closing of the meeting. Press statements are attached in Annex 5. List of Annexes Annex Document I List of Participants 2 Agenda of the Meeting 3 Statements of Government, World Bank and Lead Discussants per the Agenda: a. Opening Remarks by the Chairman, Mr. Jose T. Pardo, Secretary of Finance, Philippines b. Opening Remarks by the Co-Chairman,Mr. Vinay Bhargava, Country Director, Philippines, World Bank c. Statement by Mr. Jose T. Pardo, Secretary of Finance, Philippines d. Statement by Mr. Rafael Buenaventura, Governor, Bangko Sentral ng Pilipinas, Philippines e. Statement by Mr. Sean Nolan, Representative of the International Monetary Fund f. Statement by the Asian Development Bank g. Statement by Mr. Edgardo Angara, Secretary of Agriculture, Philippines h. Statement by Mr. Horacio Morales, Secretary of Agrarian Reform, and Lead Convenor of the National Anti-Poverty Commission, Philippines i. Statement by Ms. Ana Maria Nemenzo, representative of Non- Government Organizations, Philippines j. Statement by the United Nations Agencies Delegation k. Statement by Mr. Benjamin Diokno, Secretary of Budget and Management, Philippines 1. Statement by Mr. Bernard Funck, Principal Economist, World Bank m. Statement by Mr. Vipul Prakash, Country Manager, International Finance Corporation-Manila:Discussion on Corporate Governance n. Statement by Mr. Felipe Medalla, Socio-Economic Secretary, National Economic and Development Authority, Philippines o. Closing Remarks by the Co-Chairman p. Closing Remarks by the Chairman 4 Other Statements including those delivered during Session IV: a. Statement by Mr. Aloysius Ordu, Principal Operations Officer, World Bank: "Mobilizing ODA Flows for Poverty Reduction through Better Performance" b. Statement by the Asian Development Bank: "ADB-Philippine Partnership in Development and Poverty Reduction" c. Statement by the United Nations Agencies: Progress and Plans on Structural and Public Sector Reform d. Statement by the United Nations Agencies: Peace and Development in Mindanao e. Statement by the United Nations Agencies: Report on UN Indication of Assistance for 2000 and 2001 f. Statement by Mr. David Swan, Acting Assistant Director General, Australian Agency for International Development g. Statement by the Government of the Kingdom of Belgium h. Statement by the Canadian Delegation i. Statement by the French Delegation j. Statement by Mr. Lother Zimmer, Director, South-East Asia Division, Federal Ministry for Economic Cooperation and Development (BMZ) k. Statement by His Excellency, Yoshihisa Ara, Japan Ambassador to the Philippines 1. Statement by the Netherlands Delegation m. Statement by His Excellency Graeme Waters, New Zealand Ambassador to the Philippines n. Statement by the Spanish Delegation o. Statement by the Swedish Delegation p. Statement by the United States of America Delegation q. Statement by the Asian Development Bank r. Statement by the European Commission s. Statement by the European Investment Bank t. Statement by the International Fund for Agriculture Development u. Statement by Saudi Fund for Development 5 Press Release Annex 1 Annex I Page 1 of 14 LIST OF PARTICIPANTS Australia Mr. David Swan Acting Assistant Director General East Asia Branch Australian Agency for International Development Manila His Excellency John Buckley Ambassador Embassy of Australia Manila Mr. Bob Mann Counselor, Development Cooperation Australian Agency for International Development Manila Dr. Patricia A. Ludowyk First Secretary, Development Cooperation Australian Agency for International Development Manila Austria Dr. Wolfgang H. Harwalik Austrian Trade Commissioner Embassy of the Republic of Austria Belgium Mr. Theo Myers First Secretary for International Cooperation Royal Belgian Embassy Manila Canada Mr. Edward Langtry Director-General Indonesia, Philippines and South Pacific Program Canadian International DevelopmentAgency Ms. Vivien J. Escott Counselor and Head of Aid Embassy of Canada Manila CG Meeting List of Participants CG Meeting List of Participants Annex I Page 2 of 14 Mr. Kent Vachon Assistant to the Ambassador Embassy of Canada Manila Denmark H.E. Peter U. W. Rosting Ambassador Royal Danish Embassy Finland Mr. Raimo Anttola Deputy Director-General Ministry of Foreign Affairs of Finland France Mr. Jean-Yves Leclercq Financial Attache Embassy of the Republic of France Mr. Jean Philippe Quercy French Trade Commissioner Embassy of the Republic of France Manila Germany Mr. Lothar Zimmer Director South-EastAsia Division Federal Ministry for Economic Cooperation and Development Mr. Christian Germann Counselor Embassy of the Federal Republic of Germany Manila Mr. Erich T. Geis Chief Economist East Asia and Pacific Department Kreditanstalt Fuer Wiederaufbau Frankfurt CG Meeting List of Participants Annex I Page 3 of 14 Italy Mr. Andreas Ferrarese First Secretary Embassy of the Republic of Italy Manila Japan His Excellency Yoshihira Ara Ambassador Extraordinaryand Plenipotentiary Embassy of Japan, Manila Mr. Yujiro Fujisaki Second Secretary Embassy of Japan Mr. Masamashi Abe Loan Aid Division Economic Cooperation Bureau Ministry of Foreign Affairs Mr. Tomoo Takeshita Deputy Director DevelopmentFinance Division Coordination Bureau, Economic Planning Agency Mr. Mokoto Hojo Deputy Director Development Finance Division International Bureau Ministry of Finance Mr. Shinya Ejima Director DAI-1 JBIC-Tokyo Mr. Masatomo Ogane Senior Representative Japan Bank for International Cooperation Manila Mr. Seichi Kitazawa Chief Representative Japan Bank for International Cooperation Manila Annex I CG Meeting List of Participants Page 4 of 14 Mr. Hideo Ono Resident Representative Japan International Cooperation Agency Mr. Kiyoshi Masutomo Deputy Resident Representative Japan International Cooperation Agency Manila Korea Mr. Park Kang-ho Director Development Cooperation Division Ministry of Foreign Affairs and Trade Mr. Han Choong-sik Resident Representative Korea International Cooperation Agency, Manila Mr. Lee Byung-hwa Counselor Embassy of the Republic of Korea Manila Malaysia Mr. Raihan Shariff Trade Commissioner Malaysian Embassy Manila Netherlands His Excellency Theo Arnold Ambassador Royal Netherlands Embassy Manila New Zealand His Excellency Graeme Waters Ambassador New Zealand Embassy Ms. Moira M. Turley Deputy Head of Mission New Zealand Embassy Ms. Patricia Montemayor-Tan Programme Officer New Zealand Embassy CG Meeting List of Participants Annex I Norway Mr. Joar Strand Second Secretary Royal Norwegian Embassy Manila Saudi Arabia Mr. Abdullah Al-Subaihi First Secretary and Finance Officer Royal Embassy of Saudi Arabia Manila Singapore Mr. Robin Chua Centre Director Singapore Trade DevelopmentBoard Mr. Oscar Via Economic and Commercial Counsellor Embassy of Spain Manila Mr. Carlos Robles Assistant Director for International Cooperation and DevelopmentAssistance for Asia Ministry of Foreign Affairs Spain Mr. Victor Guasch Coordinator General Spanish Technical Cooperation Office Embassy of Spain Manila Ms. Jennifer Catron Desk Officer Development Assistance for the Philippines Spanish Agency for International Cooperation Ministry of Foreign Affairs Spain Sweden His Excellency Ulf Hakansson Ambassador Embassy of Sweden CG Meeting List of Participants Annex 1 Page 6 of 14 Mr. Per G. Hallstrom Counselor Embassy of Sweden Manila Switzerland Mr. Alberto Groff Attache Embassy of Switzerland Manila United Kingdom of Great Britain Mr. David Campbell Deputy Head of Mission Embassy of the United Kingdom of Great Britain and Northern Ireland Manila United States of America Mr. Robert Randolph Assistant Administrator Bureau for Asia and the Near East United States Agency for International Development Washington D.C. Mrs. Patricia Buckles Mission Director United States Agency for International Development Manila Mr. Joseph Ryan Mission Economist United States Agency for International Development Manila Mr. Robert Barnes Economic Development Advisor United States Agency for International Development Manila Mr. Gil Dy Liacco Senior Program Economist United States Agency for International Development Manila Mr. Todd Schwartz First Secretary US Embassy, Manila Annex I CG Meeting List of Participants Page 7 of 14 Asian Development Bank Mr. Ayumi Konishi Manager, Programs Department(East) Asian Development Bank Manila Mr. Shiladitya Chaterjee Senior Economist, Programs Department (East) Asian Development Bank Manila European Community His Excellency Yves Gazzo Ambassador Delegation of the Commissionof the European Community Manila Mr. Gildo Pivetta DevelopmentCounselor European Community Manila Mr. Enrique Buatas Desk Officer European Community Manila IFAD Mr. Penumaka Venkat Ramesh Country Portfolio Manager IFAD Rome IFC Mr. Vipul Prakash Country Manager International Finance Corporation Philippines IMF Mr. Sean Nolan Resident Representative International Monetary Fund Manila CG Meeting List of Participants Annex 1 Page 8 of 14 Saudi Fund Engr. Mohammed Al-Arifi Technical Department The Saudi Fund for Development Riyadh Mr. Abdullah Al-Shedokhi Senior Economic Specialist Research and Economic Studies The Saudi Fund for Development Riyadh Mr. Abdulazziz Al-Hadlag Economic Specialist and Project Officer Technical Department The Saudi Fund for Development Riyadh United Nations Agencies Mr. Terence Jones United Nations Resident Coordinatorand Resident Representative United Nations DevelopmentProgramme Manila Ms. Ricarda L. Rieger Deputy Resident Representative United Nations DevelopmentProgramme Mr. Wolf-Rudiger Bohning Director SEAPAT & OIC International Labor Organization Mr. Philip Wan Deputy Representative Senior Programme Coordinator UNICEF Dr. Sang Mu Lee Representative Food and Agriculture Organization Manila Ms. Uyen Luong Representative United Nations Population Fund Manila CG Meeting List of Parficipants Annex I Page 9 of 14 Mr. Joseph Clarence Soriano Advisor Resident Coordinator's Office United Nations Population Fund Manila World Bank Group Mr. Vinay Bhargava Country Director World Bank Office, Manila Mr. Aloysius Ordu Principal Operations Officer World Bank Office, Manila Mr. Bernard Funck Principal Economist World Bank Office, Manila Ms. Heidi Hennrich-Hanson Country Program Coordinator, Philippines East Asia Region Ms. Maribelle S. Zonaga Program Officer World Bank Office, Manila Mr. Joven Balbosa Economist World Bank Office, Manila Ms. Leonora Gonzales External Relations Officer World Bank Office, Manila Office of the Executive Director - World Bank Mr. Murilo Portugal Executive Director for the Philippines World Bank, Washington D.C Mr. Felix Enrico Alfiler Advisor, Office of the Executive Director for the Philippines World Bank, Washington D.C CG Meeting List of Participants Annex I Page 10 of 14 Office of the Executive Director for the Philippines - Asian Development Bank Ms. Patricia Riingen Executive Director for the Philippines Asian Development Bank, Manila Ms. Rosalia V. De Leon Advisor, Office of the Executive Director for the Philippines Asian Development Bank, Manila Republic of the Philippines Department of Finance Mr. Jose T. Pardo Secretary Mr. Joel A. Baniares Undersecretary Ms. Florencia Gozon-Tarriela Undersecretary Ms. Lily K. Gruba Undersecretary Mr. Rodrigo P. Castelo Undersecretary Mr. Jeremias N. Paul, Jr. Assistant Secretary Mr. Roberto B. Tan Assistant Secretary Mr. Gil S. Beltran Assistant Secretary Ms. Ma. Edita Z. Tan Director Ms. Ma. Gilda Victoria Director Ms. Leonor Magtolis-Briones Treasurer of the Philippines Bureau of the Treasury Mr. Dakila B. Fonacier Commissioner Bureau of Internal Revenue CG Meeting List of Participants Annex I Page 11 of 14 Mr. Melchor S. Ramos Assistant Commissioner Bureau of Internal Revenue Ms. Teresita S. Luchico HREA/Policy and Planning Service Bureau of Internal Revenue Mr. Renato Axnpil Commissioner Bureau of Customs Ms. Cecilia Reyes Deputy Commissioner Bureau of Customs Mr. Aaron Redubla Special Assistant Bureau of Customs National Economic and Development Authority Mr. Felipe M. Medalla Director General Mr. Augusto B. Santos Deputy Director General Mr. Ruperto P. Alonzo Deputy Director General Ms. Ofelia M. Templo Assistant Director General Ms. Socorro Zingapan Director Mr. Felizardo Virtucio Director Ms. Erlinda Capones Director Mr. Rolando Tungpalan Director Mr. Eugenio Inocentes Director CG Meeting List of Participants Annex I Page 12 of 14 Bangko Sentral ng Pilipinas Mr. Rafael B. Buenaventura Governor Mr. Diwa C. Guinigundo Managing Director Mr. Bernardo J. Barrientos, Jr. Department of Agriculture Mr. Edgardo J. Angara Secretary Department of Agrarian Reform Mr. Horacio R. Morales, Jr. Secretary Ms. Antoinette Raquiza Assistant Secretary Ms. Erlinda F. Dolatre Division Chief Mr. Marvin Macatol Staff Department of Budget and Management Mr. Benjamin E. Diokno Secretary Ms. Cynthia G. Castel Undersecretary Ms. Amelita D. Castillo Director Mr. Jose Edgardo L. Campos Senior Strategy Advisor Public Sector Reform Department of Education, Culture and Sports Mr. Ramon C. Bacani Assistant Secretary Department of Energy Mr. Cyril C. del Callar Undersecretary CG Meeting List of Participants Annex I Page 13 of 14 Department of Environmental and Natural Resources Mr. Antonio H. Cerilles Secretary Mr. Ramon J.P. Paje Undersecretary Ms. Joseph Lita Director Mr. Dionisio S. Tolentino, Jr. Program Director, National Forestation Development Office Department of Foreign Affairs Ms. Laura Q. Del Rosario Special Assistant CM II Mr. Anthony Achilles L. Mandap Principal Assistant/Foreign Service Officer IV Department of Health Ms. Susan Pineda Mercado Undersecretary Department of Social Welfare and Development Mr. Felicidad L. Villareal Undersecretary Ms. Belinda C. Manahan Undersecretary Department of Transportation and Communications Mr. George D. Esguerra Assistant Secretary Ms. Lydia S. Malvar Director Office of the President Ms. Donna Gasgonia Vice-Chairperson NAPC/Govermnent Sector Economic CoordinatingCouncil Mr. Margarito R. Teves Consultant/Private Sector Representative CG Meeting List of Participants Annex I Page 14 of 14 Senate of the Philippines Mr. John H. Osmefia Senator House of Representatives Mr. Joey Sarte Salceda Congressman Supreme Court of the Philippines Ms. Evelyn Toledo Dumdum Project Director, Judicial Reform Program GovernmentFinancial Institutions Mr. Florido P. Casuela President Land Bank of the Philippines Ms. Remedios L. Macalincag President Development Bank of the Philippines Development Academy of the Philippines Mr. Eduardo T. Gonzales President Mr. Edgar P. Callanta Senior Vice-President for Programs Ms. Ma. Antoinette G. Virtucio Director Non-GovernmentOrganizations Ms. Ana Maria R. Nemenzo Vice-Chairpersonfor the Basic Sector Mr. Blenn Huelgas Commissioner NAPC-Victims, Disasters and Calamities Sector u-A Annex 2 Annex 2 Page I of 2 PHILIPPINES ConsultativeGroup Meeting June 18-20, 2000 Tagaytay Highlands, Tagaytay City, Philippines Chairman: Hon. Jose T. Pardo, Secretary of Finance, Government of the Philippines Co-Chairman: Mr. Vinay Bhargava, Philippines Country Director, World Bank AGENDA Sunday, June 18, 2000 7:00 p.m. to 9:00 p.m. Heads of DelegationDinner hosted by the Government of the Philippines Monday, June 19, 2000 8:30 a.m. to 9:00 a.m. Registration 9:00 a.m. to 9:10 a.m. Chairman's Opening Remarks 9:10 a.m. to 9:20 a.m. Co-Chairman's Opening Remarks 9:20 a.m. to 10:30 a.m. Session I: Recent Socio-Economic Developments, Achievements and Challenges * Statementby the Government of the Philippines (Secretary of Finance, Jose Pardo and Bangko Sentralng Pilipinas Governor Rafael Buenaventura) * Lead Discussants:International MonetaryFund, Asian Development Bank * General Discussion 10:30 a.m. to 10:45 a.m. Coffee Break 10:45 a.m. to 12:30 p.m. Session II: Progress and Plans on Poverty Reduction Policies and Programs (withfocus on rural developmentand basic social services) * Statements by the Government of the Philippines (Secretary of Agriculture, Edgardo Angara, and Secretary of Agrarian Reform and Lead Convenor of the National Anti-Poverty Commission, Horacio Morales) * Short Statement by an NGO Representative * Lead Discussant: UNDP * General Discussion Annex 2 -2 - Page 2 of 2 12:30 p.m. to 2:00 p.m. Lunch hosted by the World Bank 2:00 p.m. to 2:45 p.m. Continuationof Session II - General Discussion 2:45 p.m. to 5:30 p.m. Session III: Progress and Plans on Structural and Public Sector Reforms (focuseddiscussion on economic,financial and corporate governance) * Statement by the Government of the Philippines (Secretary of Budget and Management, Benjamin Diokno) * Lead Discussant: World Bank * General Discussion (Fifteen-minute coffee break will occur around 3:30 p.m.) 6:30 p.m. Reception hosted by the Government of the Philippines Tuesday, June 20,2000 9:00 a.m. to 11:00 a.m. Session IV: Aid Utilization and Indications of Donor Assistance * Statement by the Government of the Philippines (Secretary of the National Economic and Development Authority, Felipe Medalla) * Statements on Aid Utilization and Aid Indications by Members * General discussion 11:00 a.m. to 11:30 a.m. Coffee Break 11:30 a.m. to 12:00 p.m. Closing Session * Co-Chairman's Closing Remarks (Mr. Bhargava) * Statement by the Governmentof the Philippines (Secretary of Finance, Jose Pardo) 12:00 p.m. to 1:30 p.m. Lunch hosted by the World Bank 1....m. to.2..5...m....e... Confr.............................................. 1:30 p.m. to 2:15 p.m. Press Conference 1] Annex 3 J R j I~~~~~~~~~~~i ~~~~~~~~~~Annex 3a Page I of 2 CONSULTATIVEGROUP MEETINGFOR THE PHILIPPINES Tagaytay City, June 18-20, 2000 Opening Statement by the Governmentof the Republic of the Philippines Finance SecretaryJose T. Pardo Chairman I now declare the 23 rd Consultative Group Meeting for the Philippines open. I am indeed very pleased to welcome all delegates of the donor community and participants from the Philippines in Tagaytay City where we will hold the CG Meeting in the Philippines for the first time. This is also the first time the Government of the Philippines will chair the Meeting, with the World Bank as co-chairman.May I thus welcome Mr. Vinay Bhargava, the Country Director for the Philippines of the World Bank. I am likewise very pleased to welcome Mr. Murilo Portugal, Executive Director for the Philippines on the World Bank's Board, and Ms. Patricia Zamora-Riingen,ExecutiveDirector for the Philippines on the Asian DevelopmentBank's Board. Three years after the Asian crisis, the Philippine economy proved to be resilient as it continues to post respectable growth in 1999 and the first quarter of this year. Upon assumption of office, the Estrada Administration has aimed at poverty reduction as its mission. To achieve this, Government has embarked on the mobilization of resources increasingly towards the enhancement of basic services and economic opportunities, particularly in rural areas. Sustained economic expansion shall complement our equity objective to ensure meaningful redistribution of wealth. We high appreciate the donor community's openness in providing renewed support to the socio- economic program of Government as evidenced by your presence here today. The theme for this year's Meeting is Sustaining Poverty Reduction Through Growth and Other Supporting Policies , which would give the Governmentthe opportunity to update the official donor community on the economy and discuss its priority programs for which we seek donor support. The discussions in this CG Meeting shall be a continuation of the pre-CG consultations between the Philippine Government and the donors. Let me take this opportunity to thank you- the donors and Governmentagencies, for your support in the three pre-CG meetings held recently. The meetings proved to be very productive in discussing Government's socio-economic performance and priorities, as well as generating donor reactions, which proved to be most useful in preparingfor this CG Meeting. The Agenda for this year's meeting is composed of four sessions. In the first session, Recent Socio-Economic Developments, Achievements and Challenges, the Government shall present an account of the Philippine macroeconomicconditions and the financial sector, key reforms affecting fiscal management, banking and economic competitiveness, among others, and economic targets for the year. Annex 3a Page 2 of 2 The second session, Progress and Plans on Poverty Reduction Policies and Programs, the Government shall focus on the achievements and challenges it is facing in areas of basic social services and rural development,the lynchpin of the Administration. Thereafter, we will move on to Progress and Plans on Structural and Public Sector Reforms, the third part of the Agenda. In this session, Governmentshall present the progress made and plans for improving governance which serve to enhance the environmentfor more effective economic, financial and corporatemanagement. The final but not the least part of the meeting is the session on Aid Utilization and Indications of Donor Assistance where the Governmentshall have the opportunityto discuss the recent reviews of ongoing ODA-assistedprojects and programs, and likewise inform the donors of actions and measures put in place to improvethe Government'sabsorptive capacity and portfolio performance. The Government considers it opportune that in this occasion, we could update and discuss with donors their concerns on project quality and implementation. In this session, we hope to obtain the types and levels of assistance the donors are ready to extend in supporting the programs of Government. In each session we also look forward to hear the statements from donor lead discussants, to be followed by general discussions. You may note that more time is being given in this year's meeting to open discussions to facilitate the exchange of ideas between the Government and the donor community. We would appreciate hearing the donors' views on the priorities and plans of Governmentto enable us to develop the discussions to a point where donor cooperation and support can be best mobilized to complement Government development efforts. It is now my pleasure to invite Mr. Vinay Bhargava to deliver the co-chairman's opening remarks, after which we shall proceed to the first session. Thank you once again, and Mabuhay! Annex 3b Page 1 of 2 CONSULTATIVE GROUP MEETING FOR THE PHILIPPINES [H±J-JI Tagaytay City, Philippines June 19-20, 2000 Opening Remarks by the Co-Chairman Mr. Vinay Bhargava, Country Director, Philippines, World Bank Mr. Chairnan, Ladies and Gentlemen: I would like to begin by congratulatingthe Government for hosting the CG meeting in the Philippines and thereby assuming greater role in the aid coordination process. We in the World Bank welcome this in line with the principles embodied in the Comprehensive DevelopmentFramework or CDF as it is popularly known. I would also like to commend NEDA for taking the lead to organize the four pre-CG workshops during the last four weeks. The topics of these pre-CG workshops were closely aligned with the CG meeting agendajust described by Secretary Pardo. As many of you are aware, the participants at each workshop numbered from 80-100 persons representing donors, private sector and civil society. The discussions during these sessions were substantive and should enable a more focused discussion during today's sessions. As we start the 2 3rd CG Meeting, I would like to remind you of the key messages from the donors which had emerged from the 22"dCG Meeting and were noted in my concluding statement for the government's consideration and action. The key messages were: o Make the fiscal consolidationto happen by boosting revenue collections. o Accelerate structural reforms particularly in banking and corporate sectors. o Improve governance. o Take measures to reduce high rate of population growth. IJ Focus on rural development. o Improve absorptive capacity for and performance of ODA portfolio. You will recall that reducing poverty in Mindanao was discussed and the donors had indicated that that they would like to support the developmentof Mindanao but are constrained by unstable peace and order situation. I trust that during this CG meeting, we will hear from the government on actions taken in all of these areas. Mr. Chairman, let me end my remarks with two observations. First, I would like to commend the government for its responsivenessto the feedback gathered during the survey done at the last CG meeting. The main messages from the survey were to allow more time for discussion and less for presentations, distribute materials before the meeting, hold Pre-CG and CG working group meetings and meet in the Philippines for 1- 1/2 days. From my perspective, the government has successfully and positively acted on Annex3b Page 2 of 2 all of these suggestions. Second, I hope that the discussionsduring this CG meeting will result in concrete suggestions in four crucial areas. The four areas are: (i) how to boost sagging investor confidence and accelerate GDP growth to 5+ percent in the remaining years of the Medium Term Plan; (ii) how to make growth more equitable, particularly in Mindanao through a focused development program; (iii) how to improve governance in the private and public sectors and (iv) how to make better use of ongoing and new ODA commitments. Mr. Chairrnan,I hope that this CG meeting will achieve the objective of confirming donors' commitmentto the Philippines,and pulling developmentpartners together in coordinated efforts to support the government in its peace and development efforts. Annex 3c Page 1 of 10 _ ~~2000 CONSULTATIVEGROUP MEETING FORTHE PHILIPPINES THE PHILIPPINES:ACCELERATINGDEVELOPMENT,SHARINGGROWTH STATEMENTOF HONORABLEJOSE T. PARDO SECRETARY,DEPARTMENT OF FINANCE GROUPMEETING CHAIRMAN, CONSULTATIVE Introduction Beforeanythingelse, I would like to thankour foreignfriendsfor their continuedsupportof the Philippines'developmental projects.As you know, much has happenedsince the ConsultativeGroup Meeting held Marchof last year. And I am glad of this opportunityto apprise you of the tasks we have accomplishedand the challenges we continueto face in the yearsahead. On that note, allow me to walk you throughthe currentsituationwe are in. Apparently,much has been said about what has been going and not goingfor the Philippineeconomyand about the way things are run in this country. And we do understandyour concerns. If peoplego solely by what they hear and read, then we, who are in the forefront of the government'ssocio- economic baftle, have a good reasonto worry. But seeingthe odds and ends at eye-level,let me tell you frankly as we find ourselvesin the crossroadsof change, we do knowwherewe are movingthe economy to. Indeed,there is moreto the Philippinesand the Filipinosthan meets the eye. Ours is not your normalcut-and-dried scenariothat affords predictabilityand forecast comfort. Our nation, all of our seven thousandone hundred islands and 75 million people, is a complex mix not only of micro-economies but also of western and personalities and orientalculturesand values. Yes, we do have our own uniqueway of responding to change,given our strenPths for that matter. and our weaknesses, m Annex 3c Page 2 of 10 = That brings me to the questionmost often asked: What seemsto be the problem? As one Asian Wall StreetJournalfeature puts it, "The Philippineshas long beenthe East Asian puzzle: Why did a country with quite favorableconditions-high levelsof literacyand education, strong commercialties to the US, and an advancedjudiciary and establisheddemocracy-not maintainits early positionas one of East Asia's more prosperous countries?" So what and why indeed? To piecetogetherthe Philippinepuzzle, let us take a long, hard look at whatwe haveon hand. Duringthe last CG meeting,we have presented to you testimonials of the country'sresiliencein the midstof a cripplingcrisis that sweptthe region. Past reform efforts, which the Estrada administration continues to pursue, are now bearing fruit as evidenced by the country's improvedeconomicfundamentals. Among these reforms are: liberalizationof trade, investment and the foreign exchange markets;deregulation of the financialsystemand of the oil and power industries;the continuedreform of tax policy administration, and big ticket privatization. And of course, the Governmenthas taken and continues to take major stepsto improvethe qualityof life of everyFilipino. GaugingEconomicPerformance Havingsaid that, please indulgeme this time as I try not to keepyour attentionwith figuresand hardfacts on the economy. In 1999, the GNP grew by 3.7 percent. GDP,on the other hand, by 3.2 percent. Growth was largely driven by a reboundin agriculture productionwith its 6.6 percent jump from negative 7.5 percent in 1998. Duringthe first quarter,GNP and GDP rose by 3.45 percentand 3.4 percent, respectively.The main growth drivers, however,were the I'g1 Annex 3c Page 3 of 10 ME== industry and service sectors.Agriculture,on the other hand, slowed down. As normalization of the weather led to the reductionof palay and corn production,losses were offset by the performance of cash cropssuch as coconut,banana,poultryand livestock. Continued strength in merchandiseexports also fuelled economic expansion, growing from 16.9 percent in 1998 to 18.8 percent in 1999. The biggest export item, electronics,held on to the banner, confirmingthe country'scompetitiveedge in information technology, front. specificallyin the manpower Becauseof this, the currentaccount and overall balance-of-payment positionshave improveddramatically. Inflationaveraged 6.6 percentin 1999 comparedwith 9.0 percentin 1998. It further went down to 3% during the first quarter of 2000. Interest rates also remainedat manageablelevels as the country's 91-day Treasury Bill rate droppedto 10.2 percentin 1999 from 15.3 percentin 1998. The rate declinedfurther to 8.9 percentaveragefor the first quarter of 2000. On aspects of monetary management, currency, banking and financial policy, I would like to defer to BangkoSentral ng Pilipinas Governor Rafael Buenaventura who will make a presentation subsequently. Fiscal Outlook With regardto the fiscal situation,the PhilippineNationalGovernment posteda budgetarydeficit of P 111.7 billionfor 1999, about 3.6% of GNP. This deficit level was due both to a deliberateeffort of the government to pump prime the economy and to arrest revenue shortfalls due mainly to lower collections. But all these veered us away from a possible recession. Moreover,higherfiscal deficit did not translateto higherinflationand higherinterestrates. Annex 3c Page 4 of 10 Among the reasons for this is that the government opted to finance the deficit largely from external sources (46% of total net borrowings were from foreign sources compared with the previous year's 14%). This enabled us to avoid crowding out private sector borrowers in the domestic market. The fiscal deficit of the National Government for the first five months of 2000 was P34.1 billion, which is 4.8% larger than programmed for the period. Total government revenues registered at P213.1 billion or 3.4% lower than programmed. But this shortfall is mainly explained by an P8.2 billion shortfall from projected privatization proceeds. Admittedly, the privatization program is the weakest link in the revenue generation chain. This can also be traced to the sluggishness in the equity and asset markets. With regard to tax revenues, internal revenue collection was 2.3% below program but customs collections were 5.9% above target and tax collections by other offices were also 1.1% above target. BIR collections fell mainly because of a P4.3 billion or 12.4% shortfall in collections of taxes on net income and profits, reflecting the continuing weakness of corporate profits in 1999. April, by the way, is when adjustments in taxes on previous year's income are made. But as mentioned, the outlook for the rest of the sectors that account for the bulk of tax collections, namely, the industry sector, particularly manufacturing, and the services sector, is quite positive. We therefore believe that the tax revenue goals for the whole year are still attainable. Taming Expenditures On the expenditure side, government spending was still 2.3% below program for the first five months of the year. Unexpected pressure came mainly from requirements in addressing the Mindanao conflict. IIX1 Annex 3c Page 5 of 10 However,dependingon how the situationthere further unravels,the governmentis workingon a contingency planto addressits impacton the budget. [But as perhapswill be shownin the specialpresentation on the Mindanaosituation,there are certainpositivedevelopments as regardsthe peaceprospectsin the area.] The Philippineshas prudentlymanaged its external debt. We have committeddebt proceedsto productiveuses in the areas of basic infrastructure, as and exportcompetitiveness capital goods,industrial well as investmentsin humancapitalsuch as education,health,and other social services. While the country'sforeign debt increased from year ago levels, we have reliedless on short-termforeignborrowings as evidencedby the increasedshare of medium and long term debt stock. This in turn improved our debt maturity profile with multilateral and bilateral assistanceaccounting for 51 percentof total externaldebt. Competitiveness TowardsFar-Reaching The government continuesto implementreformsaimedat enhancing the country'slong-termcompetitiveness. First, in the fiscal sector,we are aimingfor fiscal consolidationin the medium term. Comingfrom a short term pump-priming strategy last year, we expectthe fiscal deficitto declineto 1.8 percentof GNP this year. Fiscal balance will hopefully be attained by year 2003. Thereafter, we will be aiming for fiscal surpluses and reduce our reliance on both domestic and external borrowings, to fund our budget. We intend to further improve revenue generation to ensure sustainablefundingfor importantpublicexpenditures and to improve efficiency in the utilizationof public funds. In order to realize these goals, we will continue to aggressivelypursue tax administration reformssuch as: | Annex 3c M* Page 6 of10 * The full computerization of Bureau of Customs and the Bureauof InternalRevenue; * Further strengtheningof the institutionalstructure and operations of the largetaxpayersservice; * Enhancing facilities that will promote voluntary compliance,such as taxpayer assistanceprograms,and morefocusedand professional audit. Second,we will continueto pursuebankingreformsthroughthe New Central BankingAct which is meantnot only to instituteinternational supervisionand regulatorystandardsbut also further strengthenthe system.The Governorshall elaborateon this in his presentation. Third is privatization.The Governmentplans to put on the auction block the following: (a) National Power Corporation; (b) PNOC- Energy Development Corporation;(c) Meralco;(d) PhilippinePostal Corporation; (e) Philippine National ConstructionCorporation; (f) Philippine Phosphate Fertilizer Corporation. The Government's privatizationefforts and its public-private partnershipinitiativesoffer rewardingopportunitiesfor privatesector investments, both domestic and foreign,broadensownership base,and develops capital markets. Fourth, the recent signing into law of the Retail Trade Liberalization Act is expected to generate more foreign investments and employment,leadingto greaterefficiencies that can ultimatelybenefit the Filipinoconsumers. Fifth, we are in the final stages of completingthe legislationon the restructuringand privatizingthe power sector. This reform aims to improve the sector's efficiency and bring down the cost of power, which is essentialto long-termcompetitiveness. Sixth are the reforms toward development of domestic capital markets.The Governmentis working closelywith Congressto pass Annex 3c Page 7 of 10 the proposedSecuritiesAct of 2000 to strengthenthe regulatoryand supervisoryframeworkof the SECto improvecorporategovernance. Seventh,the proposedreformin the country'sgrain sectoris aimedat of the food securityand stable prices.This includesthe restructuring National Food Authority and the promotion of private sector participationin grains importations. Eighth,the governmenthas initiatedpoliciesto build a knowledge- based economywith the recentpassageof the electroniccommerce bill and the issuance of guidelines for the establishment and operation of technology firms. Key activities to support these initiativesare: (a) scienceandtechnologyresearchand development; (b) human resource developmentand labor-management relations; (c) governance; (d) monitoringof total factor productivity;and (e) productivity advocacy activities. All these are embodied in the Medium-Term 2000-2004. NationalActionAgendafor Productivity Ninth, the governmenthas made substantialprogressin the area of enterprise and farms credit policy reforms. Executive Order 138 articulates government's policy to pursue a liberalized, market- oriented, and private-sectorled system for the provisionof credit to basic sectors. This is one areawherethe donor communityplaysan crucial role not only by providingfunding sources but also in the creationof a new creditpolicyframework. Likewise,the Governmentinitiated additionalmeasuresto beef up investors'confidencein the market.Among others are the following: (1) creation of Presidential Anti-Organized Crime Commission (PAOCC) and its Task Force (PAOCTF)to coordinateefforts of all law enforcementagenciesto restore peace and order.; and (2) the peace talk arrangementsinitiatedby the Governmentand its efforts to addressthe Mindanaoproblemwhich has long evadedsolution. I~j1 Annex 3c Page 8 of 10 of 2000 LookingAhead: Meetingthe Challenges Today, we stand at the crossroadsof a new millenium,mindfulthat there are no easyfixes to the problemsthat we face. As one foremost economiststated (Dr. Raul Fabella), "The ultimate long-runchallengeto the Estradaadministration is not how to spur a recovery,becausethat invariably comes about, but to craft a recovery that does not stumble in five years. The Estradarecoverymust defy the grip of the boom-bustheritage: Marcos' watch ended with a crisis; as did Aquino's; and Ramoscould not, in the end, avoid the same fate. For PresidentEstradato do his predecessors one better, the qualityof recoverymust be purposely architectured." Hence,we have packaged framework a directional for development- a blueprint,so to speak, at leastfor the mediumterm that takes into consideration the intricaciesof our uniquesocio-economic system. We projecta growth in GNP of 4.5 to 5.5 percentand in GDP of 4 to 5 percent. Industryis expectedto fully recoverand grow by 4.1 to 5.1 percent. Inflationis targeted to be 5 to 6 percent. The primaryculprit should be the prolongedperiodof relativelyhigh world crude oil prices. But even then, the experienceof the first five monthshave shownthese to be quite manageable. The governmentshall containthe NationalGovernment's deficit of P 62.5 billion or 1.8 percentof GNP.Revenuesare targetedto increase to P 566.9 billion or 16.3 percent of GNP. The National Government'sexpendituresare programmedat P 629.5 billion or 18.1 percentof GNP. The low inflationenvironmentand the adherenceto the fiscal targets are expectedto keep the 91-dayTreasurybill rateto within 9.5- 10.5 percentin 2000. X~1 Annex 3c J11XI Page 9 of 10 With a stronger world economy, exports are expected to remain robust, to grow at 15.7 percent in 2000. On the other hand, imports will grow faster than exports growth at 19.4 percent.With a robust importsgrowth, currentaccountsurplusis expectedto be around7.5 percentof GNP while the balanceof payments surplusis seen at 1.7 percentof GNP in 2000. The numbers I gave broadly show that the country's economic fundamentalsremainbasicallysound.The reformsbeingpursued by the Government likewise point to a further improving economic in the medium-term. environment Extro We all know that a regime of high growth cannot be achieved overnight. On the road to full recovery,potholesabound. In orderto forge ahead, we must pave the way, mindful there are no silver bulletsnor formulasto addressthe country'sbasicills. That is why I welcome opportunitiessuch as this when our donor community can see for themselveswhat is truly happeningaround us. Perception, especially that which is spawned by active imaginationand aided by a truly free andvibrantpress, may serveto dampen investor and donor enthusiasm. But the facts and figures speak for themselves. There is more to the Philippinesthan pocket disturbances and unflatteringgovernance scenarios. Our countryand peoplehave gone throughworst trials in the past- both natural and man-made-but we have always come out whole. Bruised maybe, but not battered. Shaken maybe but not crippled. Hurt maybe but never defeated. Becauseto us, the true measureof character,national characterfor that matter,is not falling at all nor faltering in our aims,but in risingeverytime we fall. I.E-I Annex 3c MV.I Page 10 of 10 _ We maintainthat crisis is an opportunityin disguise. On that note, I urge our partnersin development, our donors,to help us accelerate not only the unmaskingof the said disguisebut in the unearthingof more opportunitiesin this resource-richland. Fully aware of your concerns,we urge you to take a closer look at our strengths-as a talented, highly-skilledpeople,who have chosento take the bull by the horns.For we believethat reforms,no matterhow bitterthey may seemfor now,will see us throughin the long hardpull. Thank you. Psas Annex 3d ,_ Pagel of9 2000 CONSULTATIVE GROUP MEETING FOR THE PHILIPPINES CONSOLIDATING ECONOMICGROWTH' By GOVERNORRAFAEL B. BUENAVENTURA BangkoSentralng Pllipinas THE STORY OF THE PHILIPPINESFALLINGBEHINDTHE GOODTIMESIN ASIA IS GROSSLYEXAGGERATED. TWO YEARS AFTER THE 1997 FINANCIALCRISIS THAT SHOOK ASIAN ECONOMIES, KEY INDICATORS DO INDICATE THAT THE PHILIPPINESIS NOW POISED IN THE SECOND MILLENNIUMTO MOVE AHEAD. ECONOMICRECOVERYHAS STARTEDSINCE 1999AND THE CHALLENGEIS TO CONSOLIDATEECONOMICGROWTH SO THAT THE MAJORITYOF THE FILIPINOSWILL BENEFITFROMITS FRUITS.THE ROLE OF THE INTERNATIONAL DONORCOMMUNITY AND IN IS INDISPENSABLE. PURSUING THIS, LET ME STRESS THAT MONETARY POLICY AND A STRONG AND STABLE BANKINGSYSTEMHAVEVERY IMPORTANTROLE TO PLAY. WHAT HAVEWE ACCOMPLISHED LET ME JOIN SECRETARYPARDOIN TELLINGYOU THE STORYOF THE GAINSAND POSITIVEDEVELOPMENTS WE HAVEACHIEVEDSO FAR. FIRST, THE ECONOMY'S PERFORMANCE IN 1999 EXCEEDED THE 'Delivered duringthe ConsultativeGroupMeetingon 19June 2000at TagaytayCity,Philippines BANGKOSENTRAL / CONSOUDATING ECONOMICGROW17 I 1 td ~~~~~~~~~~~~~~~ ~~~~~~~~~~~~~~~ 2 of 9 W|F=qM'ff 2000 CONSULTATIVE GROUP MEETING FOR THE PHILIPPINES = MACROPROGRAMTARGETS. ON THE STRENGTHOF RAPIDEXPORT GROWTH AND A RECOVERY IN DOMESTIC DEMAND, AND ON THE SUPPLY-SIDEBY A REBOUNDIN AGRICULTURE, REAL GROSS NATIONAL PRODUCT GREW BY AN AVERAGE OF 3.6 PERCENT IN 1999, HIGHER THAN THE PROJECTEDGROWTH OF BETWEEN 1.5 PERCENT TO 3.5 PERCENT FOR THE SAME PERIOD. THE AVERAGE INFLATIONOF 6.6 PERCENTIN 1999COMPAREDFAVORABLY WITH THE INFLATIONTARGET OF 7.5 PERCENTFOR THE YEAR, HELPEDMAINLYBY DECLININGFOOD PRICES. THE CURRENTACCOUNT SURPLUSIN 1999 AT 9.0 PERCENT OF GNP WAS HIGHERTHANTHE 2.1 PERCENTTARGETFOR THE WHOLE YEAR. THE RECOVERY PROCESS HAS BEEN SUSTAINED AS THE DOME4TIC ECONOMY GREW BY 3.4 PERCENT DURING THE FIRST QUARTERTHIS YEAR BUOYEDMAINLYBY THEREBOUNDOF INDUSTRY AND THE CONTINUEDRESILIENCEOF SERVICES. ON THE INFLATION FRONT, PRICE FLUCTUATIONSHAVE BEEN REDUCED SUBSTANTIALLY DUE TO STABLE FOOD SUPPLY AND PRUDENTMONETARYMANAGEMENT. INFLATIONFOR THE FIRSTFIVE MONTHS OF THE YEAR AVERAGED 3.3 PERCENT DESPITE THE FACT THAT FUELPRICESALL OVERTHE WORLDWERE RISING. A FAVORABLEEXTERNALPAYMENTSPOSION HAS ALSO BEEN PRESERVED.THE OVERALL BALANCE OF PAYMENTS POSITION WAS STRONGER IN 1999 OWING TO SIGNIFICANT CURRENT ACCOUNT SURPLUS. THROUGHOUT THE CRISIS, PHILIPPINE EXPORTS BANGKO ECONOMICGROWuH SENTRA/ CONSOUDATING |pN ~~~~~~~~~~~~~~~~ 3d Page 3 of 9 dtiwM 2000 CONSULTATIVEGROUP MEETING FORTHE PHILIPPINES CONTINUED TO GROW AND THEY HAVE BEEN DRIVINGTHE STRONG EXTERNAL PAYMENTS POSITION. FOR THIS YEAR, WE EXPECT TO CONTINUEREALIZINGBOP SURPLUSGIVEN THE ESTIMATEDSURPLUS OF OVER $400MILLIONFOR THE FIRSTFIVEMONTHS. ON ACCOUNT OF IMPROVED EXTERNAL INFLOWS, INTERNATIONAL RESERVES ARE AT RECORD LEVELS. BY END- DECEMBER1999,THE BSP GROSSINTERNATIONAL RESERVES(BSP-GIR) REACHED$15 BILLION,ENOUGHTO COVER4.3 MONTHSOF IMPORTSOF GOODS AND SERVICES. AS OF 2 JUNE 2000, BSP-GIRSETTLEDAT MORETHAN $15.4BILLION. LIKE THAT OF A PRUDENTHOUSEHOLD,THE EXTERNALDEBT OF THE COUNTRY CONTINUESTO BE MANAGEABLE.CEILINGSON LOAN APPROVALS ARE FOLLOWED STRICTLY. FOREIGN DEBT LIKEWISE CONSISTSMAINLYOF MEDIUM-AND-LONG TERM LOANS(MLT). AS OF DECEMBER1999, MLT LOANS,WITH A SHARETO TOTALOF 89 PERCENT, AMOUNTEDTO $46.5 BILLION,WHILE SHORT-TERMLOANSSTOODAT $5.7 BILLIONOR ONLY11 PERCENTOF THE TOTAL DEBT. CONSIDEREDAS ONE KEY FACTOR UNDERLYINGTHE RELATIVE STRENGTH OF THE PHILIPPINE ECONOMYDURING THE ASIAN CRISIS, THE SOUNDNESSOF THE BANKING SYSTEM HAS BEEN SUSTAINED. NON-PERFORMING LOANS (NPLS) OF THE COMMERCIAL BANKING SYSTEM CONTINUETO BE MODERATEAND THE RATIOTO TOTAL LOAN PORTFOLIO, HAS LEVELED OFF IN THE 13-15 PERCENT RANGE. MOREOVER, THE CAPITAL-ADEQUACY RATIOEXCEEDSTHE 10 PERCENT BANGKOSENTRAL I CONSO IDAING GROWTH _ 1~ FLOOR CONSULTATIVE |t22222000 GROUP MEETING FORTHE PHILIPPINES MANDATED BY LAW AND THE 8 PERCENT STANDARD Annex 3d Page 4 of 9 PRESCRIBED SETTLEMENTS. BY THE BANKFOR INTERNATIONAL ANOTHER POSITIVE DEVELOPMENT IS THAT LOANS OF COMMERCIALBANKS TO VARIOUS SECTORSIN THE ECONOMYHAVE RISEN SINCE NOVEMBER, AFTER A SERIES OF ANNUAL DECLINES THROUGHOUTMOST OF 1999. BY APRIL 2000, OUTSTANDINGLOANS WENT UP BY 4.6 PERCENT,INDICATIVEOF IMPROVINGCREDITDEMAND. OUT OF ABOUT P1.4 TRILLION OUTSTANDING LOANS, 69 PERCENT FINANCED MANUFACTURING,TRADE, AND FINANCIAL INSTITUTIONS- REAL ESTATE-AND-BUSINESS SERVICES. THE ROLE OF THE MONETARY AUTHORITIES IN ECONOMIC CONSQLIDATION THE WORLD CANNOT DISPUTE THEREFOREOUR OPTIMISMAND DETERMINATIONIN CONSOLIDATINGTHE GAINS OF THE PAST TO SECUREA BETTER FUTUREFOR OUR COUNTRYAND PEOPLE. AND IN THIS ENDEAVOR,THE MONETARY AUTHORITIESARE MANDATEDTO KEEP INFLATION STABLE, INTEREST RATES REASONABLE,FOREIGN EXCHANGE MARKET STABLE, EXTERNAL DEBT AND VULNERABILITY AND THE BANKINGSYSTEMSTRONGAND SOUND. MANAGEABLE LET ME BRIEFLY ELABORATE ON THESE GOALS. MONETARY POLICYHASA PROACTIVEROLE PARTICULARLYIN KEEPINGINFLATION STABLE. BANGK) SENTML ECONOMICGRO / CONSOUDA11NG Annex 3d Page 5 of 9 _ _s 2000 CONSULTATIVE GROUP MEETING FOR THE PHILIPPINES A REASONABLE MONEYGROWTHTHROUGHPRUDENTMONETARY MANAGEMENT ENSURESMODERATEINFLATION. WE HAVEADHEREDTO PROGRAMMONETARYAGGREGATEWITH SUFFICIENTFLEXIBILITYTO ACCOMMODATE VARIOUSEXTERNALSHOCKS.LET ME ALSOANNOUNCE AT THIS POINTTHAT THE MONETARYBOARDHAS APPROVEDA MAJOR POLICYSHIFTTOWARD ATTAININGPRICESTABILITYBY THE ADOPTION OF INFLATION TARGETING FOR CONDUCTING MONETARY POLICY STARTING2001. ITS ADOPTIONIS EXPECTEDTO GIVE MORE FOCUS ON THE PRICE STABILITY OBJECTIVE BY ESTABLISHING THE ACCOUNTABILITY OF THE BANGKO SENTRAL, BY INCREASING TRANSPARENCY IN THE CONDUCT OF MONETARY POLICY AND BY ANCHORINGMARKETEXPECTATIONS. MONETARY AUTHORITIES WILL ALSO HAVE TO ENSURE THAT INTEREST RATES REMAIN MARKET-DETERMINED TO PRESERVETHEIR ROLE IN EFFICIENTALLOCATIONOF FINANCIALRESOURCES. IN THE CONDUCTOF MONETARYPOLICY, WE HAVEALSO AIMED AT KEEPING INTEREST RATES CONSISTENT WITH THE REQUIREMENT OF GROWTH SACRIFICING OUR PRICE OBJECTIVE. WI7THOUT ANOTHERITEM IN THE MONETARYAUTHORITIES' LIST OF AGENDA IS ENSURING THE STABILITY OF OUR FOREIGN EXCHANGE MARKET. THE PESO ViS-A-VISTHE US DOLLARHAS REMAINEDBROADLYSTABLE EVEN AS THE PESO EXPERIENCEDSOME WEAKENING DURING THE FIRST FEWMONTHS OF THE YEAR DUE TO SUCCESSIVEINCREASESIN THE US FEDERAL RESERVE INTEREST RATE, BEARISH INVESTOR BANGKO SENTRAL I CONSOUDATING ECONOMGROWTH Annex 3d Page 6 of 9 i|wq 2000 CONSULTATIVE GROUP MEETING FOR THE PHILIPPINES SENTIMENT TOWARD THE ASIAN REGION IN GENERAL, AND LOCAL POLITICAL FACTORS IN PARTICULAR. GIVEN THE COUNTRY'S SOUND MACROECONOMIC FUNDAMENTALS, THE PESO'S RECENT FLUCTUATIONS HAVE BEEN MAINLY SENTIMENT-DRIVEN. AN ADEQUATE LEVEL OF INTERNATIONAL RESERVES, WHICH WE DO HAVE, IS HELPFUL IN ESTABLISHING MARKET CONFIDENCE. AND OF COURSE WE CANNOT OVEREMPHASIZE THAT WE CONTINUE TO EXPECT SUSTAINED DOLLAR INFLOWS FROM WORKERS REMITTANCES AND MERCHANDISE EXPORTS. PRUDENTMANAGEMENTOF THE COUNTRYrS EXTERNALDEBT IS AN EQUALLY IMPORTANT TASK THROUGH IMPROVED DEBT MONITORINGAND COMPLIANCEWITH CEILINGSON LOAN APPROVALS THE COUNTYCAN MAXIMIZETHE BENEFITSTHAT EXTERNALFUNDING CAN BRINGTO THE GROWTH OF THE ECONOMYBY BEINGA PRUDENT BORROWERIN THE INTERNATIONAL COMMUNITY. FINALLY,KEEPINGTHE BANKINGSYSTEMSTRONGAND SOUNDIS FUNDAMENTALTO GROWTH. AS INTERMEDIARYOF FUNDS,A STRONG BANKING SYSTEM WILL ENSURE THE CONTINUEDFLOW OF SAVING AND CREDIT.- TOWARD THIS END, EXISTING MEASURES AND INDICATORS HAVE BEEN PUT IN PLACE INCLUDING THE PHASED INCREASES IN BANK CAPITALIZATION AND MERGERS, STRICT MONITORING OF NON-PERFORMING LOAN RATIOS, LOAN LOSS PROVISION$, AND COMPLIANCE WITH CAPITAL ADEQUACY RATIOS. ADDITIONALREFORM MEASURESHAVE ALSO BEEN PASSED NOTABLY BANGKOSENTRAL I CONSOUDA17NG ECONOMICGROWTH I'-1 Annex 3d It4I Page 7 of 9 2000 CONSULTATIVE GROUP MEETING FOR THE PHILIPPINES THE GENERAL BANKING LAW (R.A. NO. 8791 ON 23 MAY 2000) WHICH WILL FURTHER PROMOTE FINANCIAL STABILITY BY ENHANCINGTHE COMPETITIVENESS OF THE BANKINGSECTORAND BY STRENGTHENING THE REGULATORY AND SUPERVISORYFRAMEWORK. ECONOMICPROGRAMFOR 2000 OUR VISION FOR YEAR 2000 IS CAPTUREDBY OUR PROGRAMOF ECONOMICCONSOLIDATION. IN NUMERICAL TERMS,THE PROGRAMFOR THE YEAR IS ARTICULATEDBY THE FOLLOWINGTARGETS: THE ECONOMY IS TO GROW BY 4.5 TO 5.5 PERCENT AND INFLATIONRATE IS TARGETED TO AVERAGE5.0 - 6.0 PERCENT. TO SUPPORT ECONOMIC RECOVERY,INTEREST RATES ARE TO REMAIN LOW AT 9.5 TO 10.5 PERCENT. THE CURRENTACCOUNTIS TO ACHIEVE A US$6.3BILLIONSURPLUSWITHTHE BALANCEOF PAYMENTS TO POST A $1.4 BILLIONSURPLUS. FOREIGNRESERVESARE ALSO EXPECTEDTO RISE TO $17.1 BILLION. BASED ON THE LATEST NUMBERS, THESE TARGETSARE FIRMLY ON THE GROUND;THEY DO NOT ASK FOR THE MOON. BANKINGREFORMS THESE NUMBERS ARE WITHOUT FLESH AND BLOOD UNLESS SUPPORTED BY STRONG STRUCTURAL REFORMS. FOREMOST OF THESEWOlJLD BE THE PASSAGEOF RECENTBANKINGREFORMSTHAT WOULDFURTHERSERVETHE CAUSEOF A SOUNDBANKINGSYSTEM. BAWGKO SENTRAL I CONSOllDAJINGECONOMICGROWTH -IwA!j2ql 2000 CONSULTATIVE GROUPMEETINGFORTHEPHILIPPINES TO PROVIDE FOR A STRONGER LEGAL FRAMEWORK, THE Annex 3d Page 8 of 9 GENERALBANKING LAW (GBL) HAS BEENENACTEDLAST MAYOF THIS YEAR. LONG OVERDUE FOR UPLIFT,THE GBL 2000 UPDATESSOMEOF THE RULESUNDERTHE HALFA CENTURYOLD GENERALBANKINGACT, STRENGTHENINGTHE REGULATORYAND SUPERVISORYFRAMEWORK. FOREIGNBANKSARE ALLOWEDTO ACQUIREUPTO 100 IN PARTICULAR, PERCENTOF THE VOTING STOCK OF A DOMESTIC BANK WITHIN THE FIRSTSEVENYEARSOF THE LAWS EFFECTIVITY. THE NEW LAWALSO IMPOSES STRICTER RULES ON BANK EXPOSURE TO DIRECTORS, STOCKHOLDERS, OFFICERS, AND RELATEDINTERESTS(DOSRI). THE CAPITAL BUILD-UP PROGRAMFOR BANKS CONTINUESAS A POLICY. HOWEVER, COMPLIANCE WITH THE MINIMUM CAPITAL REQUIREMENTFOR 1999 HAS BEEN EXTENDEDTO END- 2000 AND NO INCREASES IN MINIMUM CAPITAL REQUIREMENT HAVE BEEN PROGRAMMEDFOR 2000. INSTEAD,BANKSWILL BE REQUIREDTO PUT UP VARYINGLEVELSOF CAPITALAS BUFFER,DEPENDINGON THE RISK LEVEL OF THEIR RESPECTIVE PORTFOLIOS. WE HAVE ALSO THE PUBLICLISTINGOF BANKSIN THE EQUITIESMARKET ENCOURAGED AS WELL AS THE MERGERSAND CONSOLIDATIONSIN THE BANKING SYSTEMTO FURTHERENHANCEITS STRENGTH. THE BANKINGSYSTEM'SABILITYTO WITHSTANDSHOCKSHAS BEEN FURTHER IMPROVED WITH THE RECLASSIFICATION OF BANK LOANS ANQ TIGHTENING OF PROVISIONINGREQUIREMENTS. THIS JUNE, LOANS HAVE BEEN RECLASSIFIEDINTO SIX CATEGORIESWITH EANGKO I CONSOUDA17NG SENTRAL ECONOMICGROWTH Annex 3d I~~~~~~~~~~~~~I ~~~~~~~~~~~~Page 9of9 2000 CONSULTATIVE GROUP MEETING FOR THE PHILIPPINES _. UNCLASSIFIEDAS THE LEAST PROBLEMATICAL AND ALLOWANCEFOR PROBABLELOSSESAT ZERO. IN THE AREA OF SUPERVISIONAND MONITORING,THE OFF-SITE SURVEILLANCESYSTEM FOR THE EARLY DETECTION OF PROBLEM BANKS HAS BEEN ENHANCED THROUGH THE PREPARATION OF INDNIDUAL BANK PERFORMANCEREPORTS,MONITORINGOF TOP 100 CORPORATEBORROWERS, DEVELOPMENTOF FAILURE PREDICTION MODELS,AND PREPARATION OF COMPREHENSIVE BANKFOLDERS. CONCLUSION THIS IS BY NO MEANSTHE COMPLETEMONETARYAND BANKING STORY OF THE PHILIPPINES. IN CONCLUDINGOUR REMARKS THIS MORNING, LET ME JOIN ALL OUR COLLEAGUESIN GOVERNMENTIN UNDERSCORINGOUR COMMITMENTTO WORK AND TO WORK HARDTO IMPROVE OUR WAYS OF ACHIEVING ECONOMICPROGRESS.SURELY THERE WILL BE SORE SPOTS HERE AND THERE BUT LET ME ASSURE OUR INTERNATIONALDONOR COMMUNITYTHAT WE RECOGNIZETHAT THEREIS NO OTHERPATHAVAILABLETO US EXCEPTTHE NARROWAND DIFFICULTPATH.AND WE INTENDTO CONTINUETAKINGIT. IN THIS,WE NEED YOURCONTINUEDFRIENDSHIPAND SUPPORT. THANKYOU AND GOODMORNING. i L SEN7RA BlANGKO U CON0SOIJDA71NG ECONOMICGROWTH - Annex3e Page 1 of 4 Consultative Group Meeting for the Philippines Tagaytay, Philippines June 18-20, 2000 Statement by the Representativeof the InternationalMonetary Fund In my remarks today, I will first offer an assessment of recent economic developments and the near-term outlook, and then turn to the policy challenges that must be addressed to ensure rapid, sustainable, and broad-basedgrowth over the medium-term. 1. Recent developmentsand near-term outlook Macroeconomic developments have been generally encouraging since the last Consultative Group meeting in March 1999. Economic recovery is underway, led by continued strong export growth and a gradual pickup in domestic demand. Inflation has fallen faster than expected, aided in part by good harvests and an associated easing of food prices. The external current account is in large surplus, allowing the central bank (BSP) to further strengthen its external reserve position (which now frlly covers short-term debt and other amortization due over the next 12 months). Notwithstanding solid macroeconomic performance,business confidence has been weak, and, unless restored, could undermine the recovery. Investment and private sector credit growth have been sluggish; the stock market has fallen by around 35 percent over the last twelve months;and the peso has come under intermittent pressure in spite of a large current account surplus,indicating sizable capital outflows. Several factors have adverselyaffected investor sentiment, offsetting the impact of otherwise favorable macroeconomic developments.These factors include the slippage in the budgetary position during the second half of 1999;the slow progress made until recently in implementing the government's structural reform agenda; and broader governance concerns, highlighted by a major insider trading scandal on the stock exchange. The recent intensification of the armed conflict in Mindanao has added to investor concerns. In response to last year's slippages, the government has taken important steps to buttress its financial position and accelerate reforms: * The fiscal program for 2000 seeks a reduction in the budget deficit while avoiding an overly-sharp cut in fiscal stimulus at a time when the recovery is still fragile. The fiscal targets are appropriate and achievable if revenue collection efforts are pursued vigorously and expenditures are carefully monitored and controlled. * The formation, in January, of the Economic Coordinating Council has significantly strengthened policy coordination both within the government and with Congress. A:\CG STATEMENT Final.Doc June 17, 2000 (9:32 AMl) -~ Annex3e Page 2 of 4 Key pieces of reform legislation, including the retail trade bill, the general banking act, the securities act, and the power sector act have recently moved forward. The authorities have also stayed the course with policies that have proven to work well for the Philippines, including a market-determinedexchange rate, backed by prudent monetary management;a commitmentto an open exchange and trade regime;and a market-orienteddomestic business regime (includingmarket-determinedoil prices). But further measures and actions will be needed to strengthen the reform program and revive market confidence: * Final passage of power sector reformlegislation will lay the basis for a major restructuring of the industry.This legislationwill need to ensure effective competition in power generation; provide for a strong regulatory body; and ensure the privatization of NPC assets through transparent and competitiveprocedures. * Restoring confidence in the stock market will require prosecution of those shown to have violated securities laws and regulations; governance reforms at the stock exchange; and expanded transparency and disclosure requirements. e Passage of revisions to the BSP law will further strengthenthe BSP's capability to supervise the banking system. Looking further ahead, it will be importantto give bank supervisors the tools they possess in other well-regulated markets, including adequate protection from civil lawsuits for official actions taken and access to vital depositor information (currently precluded by bank secrecy). Completion of the privatizationof the Philippine National Bank, in a fully transparent * process, will get the governmentout of mainstream commercialbanking, limiting the scope for politically-directedlending that has proven to be so costly in the past. The government is pursuingthese actions as part of the policy package being supported by the IMF under the currentstand-by arrangement.The next review of this program is expected to be taken up by the IMF's Executive Board in the coming weeks; the arrangement, approved in March 1998, would then be extended through the end of this year. The government's macroeconomicprogram for the year targets GDP growth of 4-5 percent;inflation of 5-6 percentfor the year; and a further build-up in external reserves to about $16 billion. Developmentsto date suggest that these targets are achievable if macroeconomicpolicies remain on track, the reform agenda is vigorously pursued, and the security situation improves in the near future. - Annex 3e Page3 of 4 2. Medium-Term Challenges Let me now turn to the challengesthat need to be addressed if the Philippinesis to meet its objective of sustained and rapid growth over the medium-term,thereby laying the basis for accelerated poverty alleviation.These issues are well-laid out in the government's medium-term development plan,Angat Pinoy 2004; let me briefly highlight the key themes here. The Philippines has the potential to achieve trend GDP growth rates of at least 5 percent per annum over the medium-term- a growth rate that can be deemed the minimum needed to ensure significant growth in per capita incomes and an acceptable pace of poverty alleviation. The rapid growth of the electronics industry, and related back-office service operations, provides a telling illustration of the capability of Filipino workers to compete effectively in a global industry. But important challenges need to be addressed if this potential is to be fully realized - challenges that fall into three broad groups: (a) strengtheningpublic service delivery; (b) improving the legal and regulatory environmentwithin which private sector activity takes place; and (c) ensuring an appropriateset of incentivesto promote savings and investment. There are several areas in which public service delivery needs to be improved: priority areas include public education, rural development,and physical infrastructure.While private sector participation can play an important supportiverole in these areas, the government will need to increase substantiallythe resources made available for these purposes if growth and poverty alleviationobjectivesare to be met. This in turn will require boosting tax revenues and implementingwide-ranging expenditurereforms to ensure efficient use of scarce budgetary resources. Improving tax administrationis an overarchingpriority, lest low tax collections continue to undermine the government's abilityto deliver key public services.Progress has been made by the Bureau of Internal Revenue in strengthening its operations over the past year, but vigorous efforts are neededto strengthenaudit and collection efforts and take frill advantage of the resources already devoted to computerization.Simplificationof tax incentives is also critical to ensure a sound revenue base and effectivetax administration. Parallel to a stronger revenue effort, there is a need to free up budgetary resources via public sector reform and better targetting of expenditures.Priority issues here include civil service reform, to lay the basis for a smaller yet more effective public service; and enhancing the tasks and capabilitiesof the local government units, which are benefiting from a rising share of budgetary resources over time. The Philippines has made steady progress in removingthe government from direct engagement in production and exchange,via market deregulationand privatization of government-owned commercialenterprises. The challenge ahead is to strengthenthe legal Annex 3e Page 4 of 4 and regulatory environment within which private activity can take place. Important examples that come to mind include: * improving the speed, transparency,and consistencyof the ways in which commercial issues are resolved via judicial processes; * strengthening the surveillanceand enforcementpowers of capital market regulators, notably the Securities and Exchanges Commission,to ensure that markets work smoothly and transparentlywith a "level playing field" for all participants; * improving the supervision of banks and affiliated financial institutions to promote sound management and guard against fraudulent practices; * reforming the framework governinginsolvency and creditors' rights, since the current framework distorts lending practicesand impairs the access of small and medium- sized firms to capital. Finally, let me touch briefly on the need to promote savings, the resource that fuels economic growth, and their efficient use in investment. Savings levels in the Philippines have traditionally been low by regional standards, and act as a constraint on the pace of sustainable growth over the medium-term.Priority needs to be given, therefore, to raising public savings, strengtheningcapital markets, and broadening the coverage of contractual savings schemes in an environment of continued macroeconomicstability.By contrast, investment promotion is an area where government engagement, at least in the form of tax incentives, may become overly-interventionist,with unnecessarily generous tax holidays proving to be a very expensive way of encouraging investment. To conclude, the Philippines has the potential to achieve rapid, sustainable, and broad-based growth if key policy reforms can be put in place. The challenges confronting policy-makers, who need to build public support for often-difficultreform measures, are substantial but not insurmountable.Implementationof this reform agenda will merit the full support of the international community.As in the past, the IMF stands ready to assist the authorities in these endeavours. Thank you for your attention. Annex 3f Page l of5 ThePhilippine Economy: Recent Developments, Achievements and Challenges Paperprepared for the Consultative GroupMeeting for Philippines 19-20June2000 1. Despitesomelingering effectsof the Asianfinancialcrisis, the Philippine economy has begunto regainits growthmomentum. 1999saw a recovery of the agricultural sector from the El Nifio effect which contributedlargelyto the economy'sgood GDP growth performance of 3.2 percentin the year. However, growthperformancewas unevenover sectorsas well as overcomponents of demand.Industrial growthfor example, was very weak and growth in servicesmodest. On the demandside, while consumption grew steadilyandexportsexperienced veryrapidgrowth,investment continuedto shrink. 2. The continuanceof goodgrowthin the agricultural sectorand a resumptionof industrial growthare necessary for the economyto experiencebettergrowthperformance in 2000.Theseneedto be aidedbya stronggrowthin demand supported by a recovery of investment growth.The first quarterresultsshow manypositivedevelopments. A definite industrial recoveryis underway andinvestmentgrowthappears to be pickingup.However, agricultural performance has beendisappointing. 3. The Govemment's effectivemacroeconomic management of the economyhas resultedin many successes. Fromthe socialpoint of view,the successin controlling inflation is a major achievement. There has also been a reductionin the rate of unemployment in the last few months. The country'sbalanceof payments is in a more securepositionnowthanbeforeandforeignexchange are at a comfortable reserves level. The largefiscaldeficitof 1999 was alsotolerated withoutcausing inflationor interest rates to rise. Withthe revival of the economy andof aggregate demand, however, pressures on the balanceof payments, throughrise in imports, and on the inflation front are likelyto be witnessed in 2000. It is thereforenecessary to carefullymonitor the fiscaldeficitsituation to see that the needsof impartinga fiscal stimulusand ensuringadequateoutlaysfor critical socialsectorsis balancedagainstthe need to maintaindomesticand extemal stability. Annex 3f Page 2 of 5 4. On the other hand,there continue areasof concem. In the budget to be several for 2000,for example, the composition of expenditures showa largersharefor defense compared to 1999,a sharpdropin capitaloutlays and a reduction in expenditures in real terms for educationand health.The shareof economicservices showsa drop and the assumptionhas been made that enhancedprvate sector activitiesin the areas of economicservicesand infrastructure wouldsubstitute for reducedgovernmentpresence in these areas. For this to happen,however, effortsare necessary moredetermined to encourageprivatesector participation. On the revenuefront, tax projections are quite modest,and much belowthose experienced of GNPprior to the crisis. as a percentage Effortsto ensurebettercollections needto beenhanced. 5. In the bankingsector,the continuanceof highnon-performing loanssuggests that difficultiescontinueto be faced by the corporatesector. This is also evidentfrom the sharp increase in the numberof dissolvedcompanies in 1999 over 1998.The new measures corporations to assistdistressed issuedby the SECin late 1999mayhelpthe sectorovercome corporate effectsof thefinancial the still lingering crisis. Also,the recent measurestaken by BSP to enforce stricter regulationson lending, introducebetter disclosurestandardsand furtherthe consolidation processwill also go a long way to the banking strengthen system. Unlesscreditgrowthpicksup in a big way, however, the of the banking problems sectorwill continue. 6. There havebeen reportsof improper tradingpractices in the stockmarket.Also, instancesof apparentirregularlendingby certaininvestment houseswhich impacted adversely banks,havecometo light. Thesepointto theverycritical on somecommercial needfor improved and regulation govemance marketand non-bank of the capital financial institutions. Reforms in this area havebeenslow.Properly functioning capitalmarkets are criticalfor investorconfidenceand enhancedprivate sector activityin the economy. RecentGovemment effortsto steerpending legislation in the areais thereforeheartening. 7. The current situation in Mindanao,if prolonged,is certain to cause severe consequences on the economy. To stop the sufferingthat it is causingto the civilian andto preventa furtherdeclinein theeconomy population of Mindanao whichhas a very highincidence it is hopedthatthe conflict of poverty, comesto an end soonandthe peace anddevelopment effortis pursuedby all parties. Mostdonors,including ADB,havebeen closelycooperating with the Govemment in thedevelopment of Mindanao. The promotion Annex 3f Page 3 of 5 of peaceanddevelopment is mutuallyreinforcing. Thedonorcommunity will continuethis effortin partnership withthe Govemment. 8. In orderthat the economycan be positioned firmlyon the path to a full recovery, eachof theseareasof concernneedto be attended to. Thedevelopment prospects of the economyover the mediumterm depend on how successfully these issues can be addressed.The Govemment'smediumterm developmentplan providesan excellent blueprintfor enabling a return to pre-crisisratesof economic growthwhile at the same time achievinga significantreduction in poverty. The plan's vision of sustainable development and growth with social equity is extremelyappropriate,given the high inequities currentlyexistingand constraining socio-economic development. The success of developmenteffortsin the mediumtermdepends, however, on fulfillment of somebasic underlying assumptions of the Govemment's mediumtermdevelopment strategy. 9. Mediumterm growthtargets,for instance,will requirea very major investment effort if theyareto be achieved. The investmentrateis projectedto increase fromaround 20 percentat present to about25 percentby the endof the Plan period. Areas needing massiveinvestment supportare agriculture, ruraldevelopmentand infrastructure. A high agricultural growthrateof 3.9to 4.7 percenthas beenprojected, basedon expectations of such investment levels,againstaround1.0 percentgrowthachievedon averagein the previous 5-yeai period 1994-98. In both the agricultureand infrastructuresectors, investmentshave beenweak by regionalstandards and this has beena criticalfactor limitinggrowthperformance. 10. Financing suchas investment level,however, is a difficult task. TheMediumTerm Development Planexpectsdomesticsavingsto riseto 22 percentof GNPin the medium term, a majorchallenge for the Govemment considering that the averagefor the last 5 yearshas beenonlyaround19 percent.The roleof publicsavingsis criticalin this effort, particularly in improving tax collection, considering that running a largebudgetary deficitis imprudent. The Planalso expectsmajor contributions from the privatesectorand local govemments in theoverallinvestment effort. 11. For instance, in the roads sector,more than half and in powermore the three- fourththe investmentsin the Plan periodare expectedfrom eitherthe privatesectoror localgovemments. Whilehigherdegreesof participation by the privatesectorand local Annex 3f Page 4 of 5 communities processis a worthyobjective in the development substantial to be pursued, groundworkneedsto preparedfirst beforesuch participation will takeplace. For private sector participation, a critical need is the further development of the capital market withrespectto the supplyof longtermfundsneeded particularly for infrastructure projects. An appropriate policyenvironment in the infrastructure sectorsneedsto be nurturedalso. As far as privateinvestments in local areas is concemed, apart from developinglocal capacities,a major stumbling block is the frequent changes in local government administration in inconsistent resulting andpriorities policies business affecting climate. 12. Meaningful of local govemments participation in the nationaldevelopment effort would also requiresubstantial reviewof policiesand institutions.The financialstate of mostLGUsremains weak,andwithouta stableandregularaccess funds, to development LGUsmaynotbe ableto fulfillthe investment responsibilities placedon them. A detailed assessmentof LGU needs and capacitiesincludingan assessment of the gap in developmentfundsthey face may needto be workedout throughregulardialoguewith them. An attemptto work out ways of meetingthe shortfalls in funds for development be made.Thesecouldcomprise shouldthereafter plansto augment revenues, betteruse of bankingresources,improvedaccessto the capitalmarket andfinallya predictable flow of developmentassistancefromthe national govemment particularly for the poorerLGUs. 13. The extent of poverty reductiontargetedin the mediumterm (i.e by from 32 percentin 1997to 25-28 percentby 2004) is similarto the actual povertyreduction achievedin the past;but considering the majorstormthe economy, the and in particular rural sector,has passedthroughrecently,attainingthis targetedreductionwould be a significantachievement. There has been little progresssince 1997, however,in this regard. Studieson the Annual PovertyIndicatorsSurveydata indicatethat poverty increasedin 1998. Of particularconcernis the lack of any significantprogresswith respectto thesubsistence incidenceof povertyin ruralareaswhichshowsthat a quarter of the rural populationare still not even being able to meet minimumnutritional requirements. Thisindicates that effortsto improve the circumstances of this core group livingbelowsubsistence levelshas notbeenverysuccessful andfactorsdetermining their situationhavebeenparticularly to ameliorating resistant measures. 14. Populationmanagementand environmentalimprovementare areas where comesonlyslowly. However, progress the importance to the population attached issueis Annex 3f Page 5 of 5 evident in Govemmentpublications On environment, which is commendable. where performance Philippines standards, is low by regional has launched Govemment several including majorinitiatives which somein MetroManilasuchas for air qualityimprovement, couldyieldresultsin a shortspaceof time. if pursuedvigorously, 15. with theeconomy In conclusion, path,it is necessary now in a recovery to consider impediments the majorsocio-economic that haveinhibited developmentin the past,andto address callfor fasterprogress themspeedily.Currentsocialnecessities in neededpolicy in economicperformance. changes and improvements is now A new determination to resolve evidentin Govemment improvements longpendingissuesandto undertake in It is hopedthese effortswill continueto be pursuedwith energyin the publicfunctioning. future. G:sc(memo.doc 2000 CONSULTATIVEGROUP MEETING FORTHE PHILIPPINESPaeIo (Embargountil June 19, 2000, 12:00p.m.) STATUS AND PROSPECTSFOR RURAL DEVELOPMENT AND POVERTY ALLEVIATION IN THE PHILIPPINES Statementof Honorable EdgardoAngara, Departmentof Agriculture Secretary, Honorable ChairpersonsJose T. Pardo of the Department of Finance, Government of the Philippines and Mr. Vinay Bhargava,Philippines Country Director of the World Bank, fellow officials in governmentand membersof the donor community, Good Morning! We wish to thank the donor community for the continuing support it had accorded the agriculture, agrarian reform and natural resourcesector over the years. This has sustainedthe government'seffort at facing the challengesof the sector,which aswe all know, have beensubstantial. We are pleased that this year's consultative group meeting for the Philippines is being held right here. This should provide us a more realistic context for our work today, servingto remind us of the urgencyof addressingthe crippling and dehumanizing poverty pervasive in our country, particularly the rural sector. Today, we are to explore the ways by which the support so generously provided the agriculture, agrarian reform and natural resource sector by the donor community, and for which we are deeply grateful, can be sustainedand enhanced. This task will be facilitated if we review the progresswe have achieved in alleviating poverty in the sector, and the plans we have of moving forward. This is my humble contribution here today - a task which I am privileged to dischargein behalf of my partnersin the sector, SecretaryHoracio Morales of the Departmentof Agrarian Reformand SecretaryAntonio Cerilles of the Departmentof Environmentand Natural Resource. The Government's RuralDevelopment Strategy As you know, about one half of the 73 million Filipinos live in rural areas and are dependenton farming and fishing asthe major if not the sole sourcesof livelihood. These farmers and fishers have little or no accessto marketsand production resources.As a consequence, poverty pervadesin rural areas.Of the Page 2 of7 * 8 million rural families in the country, 44% live in poverty. Roughly half of them live below subsistence levels. Clearly, we have to raise - and sustain- the level of income growth in the agriculture and the rural economy in general,if we are to win the war against poverty. This imperative is contained in the Philippine Medium Term Development Plan 1999-2004 which identified poverty reduction as the government's over-arching socio-economicobjective for all its policy agenda, programsand projects. Government's strategyin achieving this goal is five-fold. First, we will modernize the agriculture and fisheriessector, thus increasingthe productivity and incomes in rural areas. Second,we will speed up and fully implement agrarian reform. In so doing, we ensurethat the vast majority of the population sharesthe productivity and income gains achievedthrough the modernization. Third, we will promotethe properuse and conservationof our natural resources, thereby ensuring the sustainability of the resourcebase on which agricultural productivity is dependent. Fourth, we will better-targetthe delivery of basic social serviceswhich increasethe long-run earningcapability of the poor aswell as providing safety nets during the transition period. Lastly,we will implement institutional reformsand strengtheninter-agency cooperationin order to ensurea more efficient and effective delivery of governmentsupport servicesin the rural areas. in the Government's Progress Strategy RuralDevelopment Agricultureand Fisheries Modernization. The roadmap to agriculture and fisheries modernization is contained in the Agriculture and Fisheries Modernization Act or AFMA. This roadmap prescribesthe following strategies: (a)enhancing productivity and competitiveness; (b) widening people's accessto land and other productive resources;(c) promoting sustainableuse of natural resources and protectingthe environment; and (e)empowering stakeholders and rationalizing functions of institutions. AFMA also includes the identification of strategicagricultural and fisheriesdevelopmentzones(SAFDZs) and the focusing of government support into these areas. Substantial budgetary support for irrigation, farm-to-market roads and other rural infrastructure, research and development, extension, farmer credit, information and marketing support services,product standardizationand consumerprotection, is also prescribed. Notwithstanding severe budgetary constraintsdue to the delays in the funding of the AFMA and the current fiscal difficulties being experiencedby the government, the implementation of core components of the AFMA have been initiated. First, we have completed the formulation of regional agriculture and fisheries modernization plans and are in the processof consolidating them. -I~i Annex 3g Page 3 of 7 These plans shall be the basesfor resourceallocation and program and project implementation for the sector. We have also delineated SAFDZs, which will serve as centers of and marketingactivities.Most of the agrarianreform production, agro-processing communities (ARCs)are also in theseareas. We have also launchedthe AgrikulturangMakaMASAprogram aimed at increasing productivity in rice, corn, high value crops, livestock and fisheries through better irrigation, seedsand breeders, marketingsystems,and technology. As part of this program, we have startedthe massiverehabilitation of existent irrigation facilities and the constructionof new ones. We have likewise started the long and arduous process of creating a policy environment conducive to agriculture and fisheries modernization. We have initiated the implementationof the Agro-IndustryModernization Credit and Financing Programunder which all directed credit programsshall be phasedout over a four-year period and eventually consolidated into the new program. To boost competitivenessand improve cost efficiency of the sector, EO 133 was issuedlast year specifyingthe implementing rules and regulationsgoverningthe exemption from the payment of tariffs and duties of inputs to agriculture and fisheries enterprisesas mandated by Section 109 of AFMA. Finally, we have prepared a set of criteria in the selection and prioritization of irrigation investments, and are in the process of preparing guidelines that would rationalize irrigation servicefees. Intensifying Land Distribution and Enhancing Partnerships in Support of Agrarian Reform Communities (ARCs). The ComprehensiveAgrarian Reform Program (CARP)continues to be the centerpieceprogramof the governmentfor assetreform. As of December 1999, the Departmentsof Agrarian Reform and Environment and Natural Resources have acquired and distributed around 5.3 million hectares,65% of the total programscope. In order to strengthen the economic viability of agrarian reform beneficiaries (ARBs)and agrarian reform communities (ARCs), we have recently launched the Joint Economic Enterpriseor the MAGKASAKA Program under which joint venture arrangements between ARBs and private sector entrepreneursare promoted. The arrangements include production, processing, and marketingagreements; schemes;management, build-operate-transfer service, and leasecontract arrangements; or any combination of these. We have also expanded the ARC framework to enhance greater complementation among CARP implementing agencies in the implementation of development interventionsfor the ARBs. Annex 3g Page 40of7 Under the present administration, we have launched 192 new ARCs, bringing the total ARCs created since 1993 to 1,140. We have strengthened support to these communities. Lastyear, some 1,380 cooperativesand farmers' organizations availed of P 2.3 billion worth of credit, 33% more than the 1998 level. We have also provided the following basic social services:(a) potable water supply, (b) power supply, (c) educationalservices,(d) health services,and (e) recreational facilities. We have likewise intensified our investment and marketingassistance to ARCs,helping forge a total of 137 marketingagreements between 73 agribusiness firms and 152 people's organizationsin 112 ARCs. Promoting Environmental Sustainabiity. We have adopted several strategiesto strike a balancebetween developmentand environment. One such strategy is the Sustainable Forest ManagementStrategy,which provides the framework in addressingupland poverty aswell asforestprotection problems. Another is the Community-Based ForestResources ManagementProgram which aims to improve the well-being of forest-dependent communities, including indigenous peoples,by legitimizing their rights to peacefully occupy, manageand reap the benefitsfrom forestlandsin a responsibleand sustainable manner. Still another strategy is Coastal ResourcesManagement. This strategy addresses the need to ensurethe well being of poor communities dependenton coastal-basedeconomic livelihood activities through their empowerment in planning and managingthe developmentof coastalresources. We have also adopted a Watershed or EcosystemsManagement Approach, which aims at a holistic strategyin managingdevelopmentinitiatives to sustaintheir economic uses. affecting inter-relatedecosystems Institutional Reforms and Inter-Agency Cooperation. Speeding up the modernization of the agriculture, agrarian reform, and natural resourcessector requires new ways of thinking and doings things. Mind-sets and viewpoints need to be realigned and more efficient and effective institutional arrangements be forged to better ensure the delivery of more innovative and responsive supportto the sector. For its part, the Departmentof Agriculture has shifted its perspectivefrom that of being actual implementers of programs and projects to that of being principally facilitators, coordinatorsand providersof technical support. The new DA organizationalstructurealong functional linesreflectsthesechanges. The DA has also institutionalized counterpartschemeswith stakeholders in order to encourage more meaningful and responsiveparticipation in, and Annex 3g Page 5 of 7 consequentlyensure sustainabilityof, programsand projects. Once such schemeis "BalikatanSagipPatubig," a crashcounterpart schemeamongDA, LGUs and IrrigatorsAssociations rehabilitation (lAs) to fast-track of devolved Communal covering IrrigationSystems some500,000 hectares.The Department is also developingcounterpartschemes under which it will providefunding support for local governmentunit initiatives supportiveof agricultureand fisheriesdevelopment. Therehavealso beeninitiativesto address implementation bottlenecks. an Inspectorate For instance, General was constitutedin the DA to oversee the implementationof all infrastructure programsand projects. Furthermore, guidelineswere adoptedto rationalizethe deliveryof extensionservices in the Department. In order to strengthen synergy,the DA, DAR and DENRhave been identifyingareasof collaboration where eachindividualagencycan effectively fulfill its mandate only in cooperation in watershed- with others. For instance, irrigationsystems and in the conservationand protectionof coastal-municipal fishery ground, closer collaboration is being forged betweenDA and DENR, while in the provision of technical support servicesand infrastructure for AgrarianReform Communities (ARCs),closer cooperation between DA and DAR is beingworkedout. The DA will also be implementingthe ADB-assisted Grains Sector Development Program that both addresses policy and reforms.The institutional overridinggoal of GSDPis to attainsustainedgrowthin productivity,household incomes, and rural poverty reductionand achieve a more cost-effectiveand food security. resource-efficient for the Future Priorities in a sustainable To spur agriculturaland rural development manner,in the process reducingpovertyand attainingsocialequity, we will focuson the following initiatives: * Provision of public goods such as rural infrastructure(irrigation, farm/coast-to-market in the SAFDZ roads) so that the privatesector areas will be motivated production to supportagricultural in theseareas. This will also ensurethat productionareas are brought closer to market centers; * Undertaking and extension development of research, the to strengthen technology resource base necessary for improved agricultural Page 6 of 7 productivity. An example of this is in the field of biotechnology and humanresourcedevelopment; * of governance Strengthening in the sector; for all stakeholders * Improving land tenure through surveying,beneficiaryidentification, and landholding registration; * of supportservices Strengthening to the ARCs; * Delineation of permanent forestland boundaries to prevent illegal encroachmentinto forestzones; Development of plantation corridors, which will facilitate the reforestationof the more than 10 million hectaresof forest lands under variousstatesof denudation; - Adoption of state-of-the-arttechnology in Environment and Natural Resources Management,such as telemetry that is used to measurethe of the country and monitor environmentalprocesses; available resources * Development of managementplans for priority watersheds. These integrated and holistic plans will serve as guide for more effective, efficient, and client/people-orientedinvestment programming in the future. We Face TheChallenges The initiatives that need to be undertaken will be pursued amidst significant crosscutting challenges posed by increasing resource constraints, operationalbottlenecksin devolution, andthe recentconflict in Mindanao. As we are all aware of, the governmentis currently experiencingfiscal difficulties brought about by an inefficient and insufficient revenue collection systemaggravatedby an economic downturn. This has adverselyaffectedthe level of resources that governmentcan make availablefor the rural sector.The Departmentof Agriculture,for instance,hasgottenonly 40% of the budgetit has proposed over the past four years. This less-than-desired level of resource allocation has diminished the numberand intensityof interventionsthat can be implementedfor the sector. Moreover,despitealmost ten yearsof experience,governmenthasyet to find reasonable levels of efficiency in the devolution of authorities and responsibilitiesto local governmentunits or LGUs. At present,devolution has -~iI Annex 3g Page 7 of 7 barely progressed from theoriesand rhetoricaldiscussions. Principally,program and project identification, implementation,and monitoring are still retained at the national level. This hasbeenthe resultof the reluctanceof nationalagencies to surrenderauthorities,on the one hand,and the reluctanceof LGUsto accept responsibilities,on the other. The reluctanceof LGUsto accept responsibilities stem from what they had claimed to be insufficientlevels of both the resources provided them and the technical capabilitiesof LGU personnelto assumesuch responsibilities. Finally, we have to contend with the social, economic and political dislocation in Mindanao. This dislocationthreatensnot only food security but also the very integrity of the country. The imperativesof today and tomorrow should therefore include as one of the highestpriorities, the formulation and implementation of a comprehensive programto address the Mindanao problem. One effort toward this goal had been the proposed creation of the Cabinet ClusterM that will direct the developmentof a unified StrategicFrameworkand Action Plan for PovertyAlleviation and Rural Developmentin Mindanao. By doing this, we will be able to harmonize and coordinate all our actions in Mindanao. Remarks Concluding Ladiesand gentlemen,we hold no illusionson what elseneedto be done to achieve sustainabledevelopmentin rural areas. Clearly, the challengesare daunting, and the wherewithal we haveis lessthan ideal. We are, however, unafraid and confident becausewe know how and with what we shall proceed. We havethe vision and the frameworkwith which to proceed. We have the will. Today,we will add one final ingredientto this mixture - the support of the donor community. To this effort we look with hope, and ultimately gratitude,in behalfof the millions of Filipinosoppressedby poverty and hopelessness. We pray that, once again,the donor community will prove that generosity, and humanity, knows no political and geographical boundaries. Thankyou so much for your attention. Annex 3h Page 1 of 10 __E 2000 CONSULTATIVE GROUP MEETING FOR THE PHILIPPINES until (Embargo June19,2000,12:00p.m.) AND REACH EXPANDINGTHE CAPACITIES OF PRO-POORSERVICES Statementof Honorable Horacio R. Morales,Jr. Departmentof Agrarian Reform,and Secretary, LeadConvenor, National Anti-PovertyCommission Development is about enabling people to make genuine choices, giving them the opportunity to improve their potentials and to lead productive lives. The Estradaadministrationis explicit on its pronouncements for ensurilig that all Filipinos be given the most effective packagesof programsfor them to pursue their own interestsand to widen their choices. The key requirementto making this vision a reality is providing an enabling environmentthat shall narrow down inequality, and a basic strategy for attaining this objective is to ensure the efficiency and effectiveness of the delivery mechanism for social services, specifically basic social servicestargetedfor the poor. This is the rallying point of the National Anti-PovertyAgendaand the core motivation behind every social developmentprogram in the country. for Improving Consensus of SocialServices and Effectiveness the Efficiency All of us will agreethat there is a need to expand and adopt meaningful ways of delivering servicesfor the people and especially those who are most vulnerable to both natural calamities and socioeconomictrends, both domestic and global trends. Our thrusts for improving social development goals are reflected in the modestgainswe have achievedin the pastcouple of years. Our efforts since the start of the Estrada administration resulted in relative improvementsin key social development indicators. Accessto basic education improved with near universal participation rate and gender parity in primary education. There is also a high level of basic literacy among Filipinos. Moreover, with the calls for early childhood development,there has been substantialexpansionof day care centersoperated by local officials at the barangay level. Non-formal programs implemented nationwide through NGO and LGU participation as well as the expansion of accreditation and equivalency system reachesthe out-of-school children and adults. At the tertiary level, strong private sectorparticipation (about 80% are privately-run tertiary education institutions) in the delivery of education is positively recognized. In terms of progressmade in education quality, public - ~~~~~~~~~~~~~~ 3h Page 2 of 10 school students posted higher improvement rates in National Elementary Achievement Test (NEAT) and National SecondaryAchievement Test (NSAT) scores over their private school counterpartswith public science high schools performingwell. In the face of critical backlogs of education inputs, improving the efficiency and effectiveness of the system is warranted. Through ODA, procurement systems,especially of textbooks are being strengthened.For basic education, decentralizationand school empowerment measures are also being pilot-tested to enable schools to become more creative and pro-active in initiating measures to addressproblems on low cohort survival rates,increasing drop-out rates, and inefficient deployment of teachers in elementary and secondarylevels, among others.At the tertiary level, calls for the moratoriumon the creation of state universities and colleges (SUCs) have resulted in the creation of only one SUC in 1999 compare to ten in the previous year. Rationalization efforts of higher education towards cost-efficient SUCs is underway. Moreover, more industry-relevantcurriculum is offered at the middle-level schools as a result of greaterprivate/industry-sector consultations. This is intended to addressthe increasingunemploymentand underemployment of tertiary education graduates. Major improvements in the health sector have been observed over the years. The trends in certain health indicators show that mortality rates have declined, morbidity ratesfor certain diseaseshave<-i'nprovedand life expectancy at birth has increased. In termsof addressingpopulation and developmentissues and concerns, the Government embarked on the following: re-stating the Philippine Population Management Program (PPMP); changing the health program from purely family planning (FP)to integratingand mainstreamingthe 10 elements of reproductive health (RH) in government programs; implementation of youth innovativeprojects;and the passage into law of various policies concerninghealth servicedelivery, welfare of women, and children. Following the declarationof masshousingas the centerpieceprogramof the present administration, the Pabahaysa Bagong Siglo (PBS)program was launched. The PBSprogramtargetsthe production of 350,000 housingunits per annum, 60% of which will be constructed for socialized housing for low income groups. The repayment terms for socializedhousingunits , i.e., valued at P180,000 or below, were revised to make these more affordable to the beneficiaries. Theserevisionsinclude the reduction of interestratesfrom 16°/, to 9% and the extension of amortization payment from 25 years to 30 years. Moreover, the Home GuarantyCorporation (HGC) Act of 2000 allocates40% of HGC's guaranty capacity to socialized housing, as well as provides 100% loan-to-collateralratio for socializedhousing retail loans. I Annex 3h Page 3 of 10 Requiring Issues FurtherAction Despite these improvements,several issues remain. Poverty estimates peg poverty incidence at more than one-third of the total population. Inequality continues to widen. The income decile distribution showed decreasingincome sharesof families from the first to the ninth decile. Only families belonging to the richest group, i.e., the tenth decile, registeredan increaseof 3.8 percentage points in their income share. The changes in the income decile distribution resulted in an increasein the Gini coefficient from 0.4507 in 1994 to 0.4872 in 1997 which indicates that the income distribution in 1997 became more unequalcompared to that in 1994. In terms of accessto education, there is still a low participation rate for pre-schooleducation. The actual number of out-of-schoolchildren is still at half a million for the elementary school-aged population, and 2.25 M for the secondary school-aged population. In schools, there are critical backlogs in classroomsand desks, and shortageof teachersand school heads. Another causefor concern is the decreasing shareof the private sectorin enrolment at the secondarylevel which increases the burden for public education. There is also a low coverage of potential middle level manpower clientele. Acrosseducation levels, intensified regionaldisparity may be observedbeginning at the secondary level. Furthermore, adequatemechanismsfor quality assuranceat the tertiary level remain wanting. Teachercompetenciesin higher education needsurgent upgradingsince only 30% of the faculty have Masters/Doctorate degrees. Spatial disparity in quality is also markedacrosseducationlevels. In terms of health, while infant mortality rate and maternalmortality rate have declined, the rate of decline has slowed down in the 1990s.The country also suffersfrom the double burden of disease,i.e., even as infectious diseases like diarrhea, bronchitis, influenza, pneumonia and tuberculosis remain prevalent, the burden of chronic and degenerativediseasesis getting heavier. Largevariations in health statuspersistacrosspopulation groups, income levels and geographic areas. In all of these,the burden of diseaseis heavieston the poor. It should also be noted that the progressof the Philippines' complianceto the ICPD Program of Action, is beset with challenges like the gap between desired and actual fertility, low contraceptive use, male's low participation in fertility regulation, increasing incidence of teenage pregnancy, program sustainability,and operating mechanismfor RH/FP. M i~~~~~~~~~I1 ~~~~~~~~~~~Annex 3h Page 4 of 10 Areasfor FurtherReform Attention and Immediate New Directions for PovertyReduction The National Anti-Poverty Agenda (NAA) is our manifestofor a genuinle pro-poor responseto poverty and for the identification and provision of basic social servicesto the critical and poorestcommunities. The NAA shallserveas a crucial social contract over which the interestsof the Stateand the basic sectors can be organized and made coherent. In our struggleagainstpoverty, the NAA emphasizesthat democracyis an integral part of this effort. However,even in a democracy,the poor might not alwaysbe heardand heeded in decision making. Thus, through the NAA, we aim to create an enabling and empowering environment where the poor can exercisetheir rights and pursue their needs and aspirations and addressour social inequities with assured participative democracy. Our challenge lies in narrowing inequality by unleasingthe socio- civic entrepreneurial spirit of the poor. Our democracy, therefore, is our distinctive edge in our anti-povertycampaign. A four-pronged approach has been adopted which recognizes the multifacetedness of poverty and would ensurethat each face would merit equal emphasisand fair amount of resources. The first element of the approach is to democratizedecision makingand management of anti-povertyefforts,encourage civil society and private sectorparticipation. The secondelement is to undertake assetreform and improve accessof the poor to economic opportunitiesincluding fast tracking the agrarian reform and the implementation of the Indigenous Peoples Rights Act. It is noteworthy that agrarian reform and the delivery of support services in the Agrarian Reform Communities (ARCs)has contributed immensely to social development. A recent World Bank sponsoredstudy on agrarianreform implementation in the Philippines(Deininger,2000)cited that: * positive inter-generational improvements in human capital in education were achieved in ARCs with the mean years of schooling increasing from 3.8 to 6.2 years over a period of one and a half decadeswhich benefited mostlythe women; and * positive improvements in health including the eradication of major diseasesin the ARCs. Moreover, the mid-term review missionof the World Bank ARCDPnoted that in a span of three years,incomes improved by 61 percent in 78 percent of the sampleproject areasvisited. Annex 3h Page 5 of 10 The third component is to improve the poor's accessto "quality" basic services by preventing the exclusion of the vulnerable to merit goods and by guaranteeinguniversal accessto food, shelter, health and education. And the fourth element is to sustainablydevelopthe country's productive resources. The four-prongedapproach is envisioned to be achievedthrough six key strategies: 1) focusedtargetingtowardsthe poorestfamilies all over the country; 2) convergenceof servicesin targettedcommunities; 3) mobilization of private sector investment; 4) strengtheninglocal governancefor poverty initiatives; 5) strengtheningbasic sectorparticipation in anti-povertypolicy formulation, and 6) effectivegovernanceof the anti-povertyprogramof the Estrada administration. Focusedtargeting towards the poorest families nationwide involves the delivery of basic social servicesto the poorestfamilies in every province/cityand the evolution of a community-based anti-povertyprogram. The convergenceof services in targeted communities ensuresthat the delivery of basic social servicessuch as health, nutrition, education is governed by coherence, integrationand inter-agencycollaboration and coordinatioll. The CIDSSoperationalizesthis objective. The mobilization of private sector investmentcalls for the promotion of investmentsin our poor communities through entrepreneurialpartnershipswith the private and businesssector. Our partnershipwith the private sector in the delivery of low cost masshousingexemplifiesthis strategy. Strengthening local governance for poverty initiatives recognizes that poverty is a local problem best attackedwith local solutions with our LGUs at the forefront. The formulation of local anti-povertyplans and implementation of local anti-povertyprogramsare our stepsin this direction. The strengthening of basic sector participation in anti-poverty policy formulation is attuned to our objective of intensifying the partnershipbetween government and basicsector in the NAPC through the Commissionen banc and the local anti-poverty committees which will be formed. This partnership has alreadyevolved in the formulation of our National Anti-PovertyAgenda. Finally, the effective governance of the anti-poverty programs of the Estrada administration is aimed at enhancingthe capabilities of our institutionsto deliver, closely coordinate, and improve the accountability of our anti-poverty interventions. X ~~~~~~~~~~~~~~ 3h Page 6 of 10 Ten flagship programs are being pursued under the overall poverty program: Agricultural Development; Fisheries and Aquatic Resources Conservation, Management and Development; the Comprehensive and Integrated Delivery of Social Services (CIDSS); Low Cost Mass Housing; Workers' Welfare and Protection; Respect, Protection and Management of Ancestral Domains; Livelihood and Enterprise Development; Expansion of Microcredit Services;Basic InfrastructureDevelopment;and InstitutionlBuildinig and Participation in Governance. Health SectorReformProgram To address the problems affecting the health sector, a Health Sector ReformAgenda was drafted in 1999. The agendaseekto institute major changes in the way health care is delivered, regulated and financed. It involves five general areas of reforms namely: 1) health care financing; 2) health regulatory reforms; 3) hospital systemsreforms; 4) strengtheningpublic health programs; and 5) local health systems. Health care financing reforms include increasing the benefits of the national health insurance program to make it more attractive. The improved benefits will be used to aggressivelyenroll more membersespeciallythe urban poor. At the same time, administrative infrastructure that can handle the increasedwork load will be developed. On health regulatory reforms, the capacity for standardsdevelopment, and efficiency will be regulation and licensingto improve quality, effectiveness strengthened. Effortswill also be geared towards reduction of the cost health servicesand products including pharmaceuticals. For the hospital system, fiscal autonomy and corporatizatioln is envisioned. Government hospitalsshould follow the lead taken by the specialty hospitals in reducing its dependenceon direct subsidiesfrom the natiolial arid local government budget by introducing socialized user fees. Critical capacities in government hospitalswill also be upgradedto enable hospitals to effectively exercise fiscal autonomy. As hospitals become more competitive anid autonomous, a progressivedecline of the subsidiesfrom the national and local budget is expected. Reforms for the public health programs include the following: 1) upgradingthe managementinfrastructure of public health programs;2) obtaining securefunding over a period long enough to eliminate certain infectiousdiseases as public health problems; and 3) investing in critical capacities in providing technical leadershipover local health systems. Annex 3h Page 7 of 10 For the local health system,the reformsinclude: 1) allocation of resources for upgrading local health facilities like health centers, district and provincial hospitals; 2) establishmentof a mechanismfor providing block grants to local government units and use this to leveragefor the establishmentof local health networks; and 3) promotion of cost sharingamong local governmentunits local health networks. Universal health insurance coverage provides the momentum for the entire reform process. Expansion of health insurance coverage makes the concept of fiscal autonomy in government hospitals viable as the health insurancesystemcovers the cost of hospital care.This will free up resourcesfor more investmentsin public health programs.Good public health programswill address those diseasesthat are highly preventable and, in turn, relieve the national health insurance programfrom the burden of paying for an increasinig number of curative services. Moreover, additional resourceswill improve the capacities for health regulation and improve the performance of local health systems thereby ensuringbetterquality in healthcare. In view of the national government's budget limitations, continuing improvementsin the efficiency of delivering healthservicesremainscrucial. The major public investmentsthrustsfor the sectorinclude: 1) hospital development plan; 2) multi-year budget processfor priority public health programs;3) block grants for establishment of local health networks and upgrading local health facilities; 4) strengthening the national pharmaceutical policy program; 5) increasing the coverage of the National Health Insurance Program (Health Passport); 6) food fortification and promotion; 7) nutrition education and advocacy;8) micronutrient supplementation;and 9) food assistance to areaswith high malnutrition rates. StrategicDirections of the PopulationProgram In responseto these challenges set in the International Conferenceon Population and Development,the Governmentformulatedthe PPMPDirectional Plan, 2001-2004 which contains strategiesin addressingthe needs on the following areas: RH/FP,AdolescentHealth and Youth Development,Population and Development Integration,and Resource Mobilization. Furthermore,the Government is taking the lead in the preparationof the State of the Philippine Population Report which will serve as an information/advocacytool focusingon unmet needsand its social consequences. It should be noted that unmet need for FPremainshigh at 19.8% as of 1998. To addressthe growing gaps in unmet needs between rural and urban areas,the national government will continue to provide for the cost of contraceptive supplies and make available other forms of contraceptives. Furthermore,it will 1511 Annex 3h Page 8 of 10 continue to mobilize community-basednetworks. Likewise, the Departmentof Education, Culture and Sports shall continue to implement its population education programto addressthe information needsof adolescents. The Governmentshall continue to exertefforts in attaining the ICPDgoals and the challengesthat remain, and in achieving Philippine goals (decreasein fertility rate, infant and maternal mortality rate; increase in contraceptive prevalence rate). For these goals to be realized, investmentsare needed for projectsthat reflect a concerteddrive to promotedevolution in the delivery of FP services, supporting community-basedactivities, harnessing non-government organizations (NGOs) for hard-to-reachtargetgroupsand optimizing the role of RH/FPservices. the private sectorfor efficient and reasonably-priced New EducationInitiatives To maintain the gains and addressthe challenges,development thrusts and strategiesin the basic education sectorinclude: (a) improving accessfor the poor and hard to reach areas;(b) raising achievementlevels and reducing drop- outs by focusing on core subjects, enhancing reading comprehension and critical thinking; (c) re-toolingof teachers;(d) increasingrelevanceof curriculum; (e) hastening decentralization of education management;(f) modernizing the school system and expanding the use of educational technology; (h) strengthening student assessment;and (I) prioritizing resource provision for primary education and expanding/increasing provisionsunder GASTPE. For middle level manpower development,the thrusts are: (a) refocusing government efforts to policy developmentand quality control insteadof direct training provision; (b) pushing for decentralization;and (c) encouraginggreater public-private partnership. For higher education, the thrusts are: (a) strengtheningthe structure and management of higher education by promoting performance-based financilig education and rationalizing the SUC system; (b) providing a comprehensive programof student assistance (throughscholarships and income contingent loan program); (c) promoting faculty development; (d) improving the quality of teaching and researchin key disciplines; and (e) improving and expanding the output of university scienceand technology. Acrossthe three levels, the governmentwill prioritize resourceprovision for basic education and middle-level manpower development over higher education; establish the National Coordinating Council for Education (NCCE) which will institutionalize educational coordination and assessment;improve equity in access and outcomes; improve educational MIS; strengthen Annex3h _ Page 9 of 10 = of LGUs, civil accreditationand equivalencysystem;and strengthenpartnerships society, industry and other stakeholders. andthe Roleof Donors SocialServices Pro-Poor Financing Our strategiesfor poverty reduction and our objectivestoward improving and expanding the accessof social servicesrequire adequatefinancial resources efficiently and effectively. and the political will to useavailable resources From 1995 to 2000, the sectoral allocation of the national government expendituresreflected a substantialshift in favor of social services. While the share of economic serviceswere reduced from 27.5 percent in 1995 to 24.1 percent in 1998 and to 25.4 percent in 2000, the share of social services increasedfrom 27 percent in 1995 to 32.6 percent in 1998 and to 34.1 percent for FY 2000. Among the social sectors,significant increaseswere noted for social welfare from 0.14 percent in 1998 to 1.02 percent in 1999 and to 0.86 percent for 2000. Alongside the increase of social development resources,national government budget allocation for basic social services(basiceducation, primary health and nutrition, water and sanitation targeted for vulnerable groups) moderately increased over the years. The present level of government expenditures for human development priorities, however, remains below 20 percent of total government budget. Moreover, official developmentassistance (ODA) resourcesspent for basic social servicesbetween 1993-1998have shown an unstable trend from 14.7 percent in 1995, substantially declining to 9.6 percent in 1996, reaching a peak of 18.45 percent in 1997 and drastically declining to 6.06 percent in 1998. Following the formation of a Presidential Task Force on the 20/20 Initiative on 6 May 1999, a ComprehensiveAction Agenda was formulated which identified four key results areas for immediate action: (1) building consensus on the operationalization of the definition of the 20/20 initiative including the identification of basic social programs; (2) enhancing political commitment; (3) accessing and mobilizing resources; and (4) provision of adequateand quality basic socialservicesfor all Filipinos. Financing remainsa key issuein education. Evenas the sector getsthe biggest share of the national budget, and the share of LGUs in financing education increasingly felt in SRAareas,resourcesare still not enough to solve the critical shortagesof teachers, classroomsand desks. This may also be becausethere are only nominal increasesin the education budget. For DECS and most SUCs, the budget is eaten up by PersonnelServiceswhile minimal share is allotted for the MOOE and CO, which are the sourcesof expenditures for improving quality and school facilities. 1 -4 Annex 10 10 of 3h ~~~~~~~~~~~~~~~~~ I-I In terms of health financing, the total health expenditure for 1997 was P88.4 billion or 3.5 percentof GNP. Around 46 percentof total health spending came from out of pocket;21 percentfrom the national health budget; 18 percent from local health budgets;7 percentfrom the national health insuranceprogram and 8 percent from other sources. In terms of how the money for health was spent, 72 percent was spent on personal health care services; 13 percent on public health care servicesand 15 percenton overheadservices.Analysisof the 1991-1997 National Health Accounts suggeststhat health care spendilig has increasedin real and in per capita terms. However,there are indicatiolis that the country is neither spendingenough nor effectively. Expendituresare heavy on hospital or curative care and not enough for preventive care. The subsidiesfor health servicesare poorly targetedwith the largegovernmenthospitals in Metro Manila getting the biggest shareof the budgetto the detriment of primary care servicesat the local level. The issueremains, however, that not enough resourcesare channeledto social services. The basic challenge is not only reallocating and refocusing within subsectorsand acrosssectors,but pouring more into social servicesso all subsectorscan achieve their respectiveobjectives and goals, and so that each program could achieve its targetswithout compromising other equally relevant programs. Alongside the efforts to keep resourcesfor basic social services and poverty reduction sufficient at the national and local levels,we needthe support from the international community to increaseofficial developmentassistance for basic social services to achieve overall social development and poverty eradicationgoalsand targets. We particularly needtheir assistance to strengthen our capability building programsfor our local government units to effectively plan, manage, monitor and evaluate anti-poverty programs and projects. Moreover, we need to pour in more resources to improve the poor's accessto basic quality social services. And more importantly, we need the donor community to consider our priorities their priorities. And the core priority of this present administration is to reducepoverty and improve the quality of life of all Filipinos, particularly the poor. I KWH Annex 3i 2000 CONSULTATIVE GROUP MEETING FOR THE PHILIPPINES THE NAPC BASIC SECTOR: Paving the Way to Effective Multi-level Governance' Ana Maria R. Nemenzo2 Your Excellencies, Ladies & Gentlemen: I welcome this opportunity to speak in behalf of the National Anti-Poverty Commission-Basic Sector. Civil society, particularly, in the Philippines is such a huge and complex community. It would be impossible for one person, organization or network to speak for the entire community. There is however within the community, continuous intermingling and interaction, and a constant reaching out to bridge differences and develop better ways of working together towards similar goals. The National Anti-Poverty Commission, created by Republic Act 8425, is, so far, the most comprehensive embodiment of Basic Sector or Civil Society participation in government in a full scale campaign against poverty. It is not an instant creation of the current administration but it is more correctly viewed as a strategic outcome of previous advocacy efforts of People's Organizations and Non-government Organizations for a stronger and more effective system of governance in Philippine society, particularly, in the planning, implementation, monitoring and evaluation of Anti-Poverty Policies, Programs, and Projects aimed to promote genuine development and to raise the quality of life of the Filipino majority. Effective Governance via Basic Sector Participation within NAPC Within the National Anti-Poverty Commission, there are 210 members of civil society organization serving as Basic Sector Representatives in the ' Speechpresented Group theConsultative during June18-19,2000,Tagaytay Meeting, Cavite. Highlands, 2 Vice for theBasic Chairperson fortheWomen & Commissioner Sector Sector g ~~~~~~~~~~~~~~~~ 3i Philippine Government. Fourteen (14), including myself serve as Commissioners of disadvantaged sectors such as Farmers & Landless Rural Workers, Artisanal Fisherfolks, Indigenous Peoples, Informal Labor, Formal Labor, Urban Poor, Women, Children, Youth & Students, Senior Citizens, Person with Disabilities, Victims of Disasters & Calamities, Non- Government Organizations, and Cooperatives. From among these 14 Commissioners, and 28 Alternate Commissioners, I was elected to serve as Vice-Chairperson for the Basic Sector. Each Sector then has a Commissioner and two Alternate Commissioners who together with 12 other representatives compose the Sectoral Council. These 210 civil society representatives make up the NAPC-Basic Sector which is basically one-half of the National Anti-Poverty Commission. The other half is composed of the heads of 13 national government agencies such as the NEDA, DOF, DAR, DA, DOH, DSWD, DENR, DOLE, DILG, DBM, DECS, CDA, PCUP; and the heads of the four (4) Leagues of Local Governments (i.e. Provinces, Cities, Municipalities, and Barangays.) The NAPC-Basic Sector is dual in character. Basic Sector representatives are partly in government, tasked to perform policy oversight and advisory functions, while they continue to operate in their base POs or NGOs. As such, the NAPC-Basic Sector has a two-fold responsibility. One is the task of organizing and mobilizing civil society to bring grassroots issues, problems and inputs as they happen live on the ground to all possible government arenas of struggle and consideration. The other is to unceasingly move, or even pressure government to manage a pro-poor paradigm shift and to muster enough political will -expressed through policies and programs that will ultimately result in the eradication of poverty. I wish to underscore however, that Basic Sector participation in governance should not be equated with the presence and involvement of these 210 civil society representatives in the NAPC. We have organized ourselves on the national level but we have to move fast on our localization and constituency building efforts. ] Annex 3i Page 3 of 7 After being sworn into office last March 29, 1999, all our efforts were focused on unifying ourselves through the formulation of the Basic Sector Vision, Mission & Goals, our BS Three-Year Plan, the Basic Sector Organizational Guidelines, and our Sectoral and Cross-Sectoral Agenda. We also invested our time crafting the Basic Sector Framework to Fight Poverty which served as our substantial input to the National Anti-Poverty Action Agenda. Building partnership arrangements with our lead government agencies also took much of our time and efforts. The big challenge for the Basic Sector, given a limited three-year term, is organizing and mobilizing the thousands of POs and NGOs in the different regions, provinces, cities, municipalities and barangays to proactively engage the government on their level and within the territories where they exist and operate. The 210 Basic Sector representatives have to touch base and convince their home POs and NGOs and base networks to lay claim on their right to craft, implement, monitor and evaluate Anti-Poverty Policies, Plans, Programs and Projects (AP- PPPPs). Only when this has been done, can we truly say that the NAPC- Basic Sector has covered substantial ground. It is only through this route that the incumbent Basic Sector representatives can multiply their presence in every province, city, municipality and barangay. After all, effective governance is not about installing ceremonial PO-NGO figures in government dishing out critiques from time to time. Nor is it about holding token consultations with selected civil society organizations just because it is in vogue to do so. Genuine and shared governance is about promoting self-organizing of the marginalized sections of the population and empowering them to advance their interests. It also has to do with educating and pressuring government to become responsive and accountable institutions of governance. It is also about the people seeing to it that resources for anti-poverty actually reach the poor. It is about ensuring the poor's sustained access to information, skills, and means for building their organizational capacities. It is also about people and their organizations being able to hold public officials accountable for their policies and actions. It is about opening up government on all levels to civil society participation and fulfilling social contracts with d ~~~~~~~~~~~~~~~ 3i Page 4 of 7 the poor that our society can move towards greater transparency and accountability in our programs to fight poverty. The National Anti-Poverty Agenda which has been the result of painstaking discussions and negotations between Government and the Basic Sector is now in the last stages of refinement. To launch a full-scale anti-poverty program, several crucial steps have to undertaken. One, is to translate this national agenda into local developments plans, programs and projects in a participatory process involving local government agencies, local government units and civil society representatives. It will entail enormous resources and negotiating time to weave in an anti-poverty focus into these provincial, municipal, and barangay development plans Two, the Basic Sector and its constituent POs and NGOs have to prepare well for this demanding interface engagement with Local Governments. This will require several provincial level assemblies of POs and NGOs to consolidate their ranks. This means that: one, they have to learn enough about NAPC, familiarize themselves with the Basic Sector Cross-Sectoral and Sectoral Agenda and, learn the National Anti-Poverty by heart; two, they have to agree on capability building requirements for Local Anti-Poverty Agenda Building, effective advocacy and engagement; and three, they have go through a democratic process to select their representatives for multi-level engagement with government. Three, POs and NGOs, have to collectively embark on the following tasks: 1. systematic reading of the economic, political an socio-cultual realities of their localities on which to base their Local Basic Sector Anti- Poverty Agenda and policy recommendations; 2. comprehensive review of existing local development plans to identify gaps and weak points related to poverty reduction and eradication; 3. development of appropriate and grass-roots friendly anti-poverty monitoring tools and reporting mechanisms 4. grassroots trainings on engagement with Local Government Units. | Annex 3i Page 5 of 7 You may ask why NAPC-Basic Sector needs to go into constituency building, localization and capability building There are several reasons. First, the PO-NGO community in the Philippines is not a homogenous structure. Civil society organizations come from different persuasions across the political spectrum. Many of them have no history of dealing with government on the negotiating table as the parliament of the streets has been the more familiar ground for them. As such, the NAPC-Basic Sector has to reach out to them and persuade them towards also considering the option of public policy advocacy and claim-making to push for social change. Second, the NAPC Basic Sector believes that it is in the local level that the war against poverty must be won. As such, national anti-poverty policies and programs should not only be translated on the local level through anti- poverty focused local development plans and priority programs and projects. They need, as well, to be closely monitored and evaluated by civil society and government, if indeed the poor get to benefit from such services and resources. Broad, persistent and well-informed civil society participation in local government processes is the only way to promote and realize the anti- poverty agenda of the Basic Sector. Third, the institutional arrangements for coordinating, monitoring and evaluating the implementation of the National Anti-Poverty Agenda call for strong civil society participation on the regional, provincial, city, municipal and barangay levels. The 210 NAPC Basic Sector representatives must take on the responsibility of adequately preparing their counterparts on these levels. Indeed, Basic Sector work within the NAPC after only a year, is developing very fast. Before getting lost in the frenzy, it may also be timely to call for an overall performance assessment of the National Anti-Poverty Commission, including the NAPC Secretariat, the Government and the Basic Sector, in the spirit of improving effectiveness and efficiency. IiI~~~~~~~~~~ low ~~~~~~~~Annex 3i ~~~~~~~~~~~~~~~~~ 6 of 7 Areas for Policy Advocacy & Enhancement The key foundations of empowering of the poor still lie in available opportunities for self-organizing, social preparation, values & commitment building, savings mobilization, training of local leaders and organizers, and continuing capability building. These are the basic prerequisites for sustainable livelihood development. Organizations, capabilities, values and commitments cannot be built overnight. The process can definitely not be shortened. It might be prudent at this point that we are attempting to enhance basic sector involvement in government that we should also assess, sum up and learn from over two decades of civil society participation in governance. This study could give us a picture of the various social movements and organizations, their modes of involvement, problems encountered as well as their unique contributions towards improving governance and promoting social reform. Another important dimension of the task in combating poverty is microfinance. However, the emergence of various government micro- finance initiatives is causing some concern among civil society organizations. Microfinance is not simply creating another of those top-down, supply- driven, and credit-focused programs that specifically target the poor and the underprivileged. The poor's microfinance starts with saving for two main reasons: First, to arouse in the consciousness of the poor, through their organizations, the notion of self-help, self-responsibility, and self- administration of their own financial affairs. Second, to concretize and further institutionalize the efforts of the poor in building their financial resources, in spite of their poverty, since we agree with the established fact that the poor do save, have savings, and capitalize on their saving in a development agenda of their own poverty elimination. Without the two prior conditions, credit provisioning for the target poor sectors would be | Annex 3i Page 7 of 7 meaningless and definitely not sustainable. Both donor and government resources could be lost in the process. Microfinance is therefore, basically, saving and eventually credit-- but only as support to what has already been built-up and accumulated at the level of the poor households through self-help initiatives. The role of the donors is to provide support to efforts of the basic sectors through programs that will upgrade their existing financial set-up, practices, customs and policies, no matter how simple and, from the point of view of experts and consultants, primitive these are. The capacity of the poor to further upgrade and systematize their financial systems through provision of necessary financial tools, financial instruments and appropriate financial products has to be supported. The capabilities of the poor, on their own to adopt improved measures, implement effectively, and institutionalize linkages with other players in the field offinance have to be supported as well. The poor need these - and not direct pouring down of credit funds that only kill the initiatives of people to save. We need to be governed by a vision of dynamic, competitive, widespread financial institutions owned, handled and managed by the poor themselves, whose capabilities and capacity are comparable to other players in the field of finance. A strengthened base of savings mobilization and financial intermediation acitivities of the various sectors of the poor when linked up with the formal banking sector can be a potent factor to stimulate a more equitable and sustained growth. And this is what we want to achieve. We call for support in these policy advocacy initiatives. Enormous questions and challenges lie ahead. The NAPC together with the Basic Sector needs your support to strengthen civil society participation in the fight against poverty and marginalization. Thank you very much. Annex 3j UN Statement for the ConsultativeGroup Meeting Page 1 of 2 19-20June, Tagaytay City, Philippines 1 REDEFINING AND REFOCUSING THE POVERTY ERADICATION AGENDA 2 Session 1: RecentSocioEconomicDevelopment: Achievementsand Chalknges. 3 Povertyeradication is at the centreof the goals set in the Medium Term Development Plan, a document 4 that was a major focus of the discussionsat the last CG meeting.As the Philippinesentersthe new 5 Millenium, the key challengelies in enhancingand sustaining the implementation of strategies, reforms 6 and actionplansto realisethe targetsset in the Plan. TheUnitedNations,in its interventions at this first 7 CG held in the Philippines, will attemptto identifyspecificopportunitiesin the four sessionsby which 8 commitment our collective to the povertyeradication agendamaybe enhanced. 9 The governmentis to be commended for sustainingits growthand strucural reformagenda,including 10 progress in many areas discussed last year. A stronger economicmanagementteam, with multi- 11 stakeholder participation,greatereffortat convergence of the workofthe variousagenciesinvolved, new 12 initiativesfor governance reform,and concerted attentionto improvingperformance in the socialsectors 13 and rural development reflect the efforts made over the past year. From a donor perspectiveissues 14 relatedto improvingproject implementation and absorptivecapacity,acceleratingthe pace of reforms, 15 and establishing the enablingenvironment for development in Mindanaoare areas whereprogresshas 16 beenmorelimited,and in the caseof Mindanao evenreversed. 17 Despitethe many constraints presentin implementing an extensiveand complexand importantreform 18 agenda, on balancethe governmenthas shown its political will in beginningto tackle many of the 19 challenges set out in the MediumTerm Development Plan.Whenviewedthroughthe perspective of the 20 aim to eradicatepoverty,severalopportunitiesmay be identifiedto redefine and refocusthe present 21 effortsin macro-economic reform. 22 23 One opportunityfor governmentto fuither enhanceits commitment to povertyeradicationwouldbe to 24 produceand reviewwith congressand other stakeholders and pro-poorbudget.We a gender-sensitive 25 welcomethe innovative mechanisms beingput in place to ensurecloserlinkagesbetweenplanningand 26 budgeting, the creation of a budget dialogue group, the adoption of performance monitoring 27 mechanisms, the multi-year expenditure framework, and ongoing efforts to reform the public 28 expendituremanagement system. We wouldsuggestthe following specificactions: 29 30 . Subjectingthe budget to a pro-poor and gender analysis,and identifyingand tackling 31 to wealthcreationbythe poor; obstacles 32 * Specifying how the government plans to realize its commitment to the 20:20 compact for 33 expenditureson basicsocialservices( nominallyat 16%in 1997,and in realtermslessthan 34 8%) 35 * Ensuringadequatefinancingfor laws that impingeon poverty, especiallynon-economic 36 poverties; 37 * Reviewing the impactofthe crisis in Mindanao on the currentand futurebudgets,especially 38 on defense expendituresand their opportunitycost in attackingpoverty, as well as the 39 prospects of increasingthe proportionof the budget allocatedto the poorest regions of 40 Mindanao. 41 42 We would be pleasedto cooperatewith governmentand otherpartnersin buildingon the workof the 43 Presidential Task Forceonthe 20:20 compactandothersuchinitiatives. Annex3j i Statement for the Consultative Group Meeting UN j Page2 of 1 ~~~~~~19-20 June,TagaytayCity,Philippinesl I A second opportunity would be in the area of employment policy. Gainful employment,as everyone, no 2 doubt, agrees, is critical to poverty eradication. Income security, integration into the global economy, 3 successful participation in society, and the quantity and quality of employment are all of concern and 4 warrant more attention by the Filipino Government, notably in the informal and rural sectors. 5 Employment, like poverty, can be tackled through growth and by targeted measures; and it needs to be 6 underpinned by an effective social safety net, mechanisms that ensure compliancewith labour standards, 7 and measures that assure labour of security of tenure. To raise the profile of employment concerns 8 within the Government, the ILO with support from UNDP will field a mission next month that aims at 9 institutionalizingthese concerns and providingnew insights through local studies. 10 11 A third opportunity would be in the area of population management. The Philippines has made only 12 modest progress in moderating population growth, and the country has still one of the fastest growing 13 populations in the region. The high rate of population growth narrows the country's developmentoptions 14 because available resources which could otherwise be spent for improving investments on human 15 development and accelerating wealth creation must be used for the provision of basic social services for 16 the yearly additions to the population. It may be opportune to consider the demographic impact of 17 various policy instruments and programme services, and to incorporate population management 18 dimensions into the allocations of resources and the determination of priorities. More specifically we 19 need to build on the fact that government is now investing resources in population and reproductive 20 health, for which it deserves our congratulations. 21 22 A fourth opportunity would be programmes that strengthen the country's capacity to manage 23 globalization that is consistent with the requirements of a national anti-poverty strategy. The country 24 could benefit from an assessment of: 25 26 . the impact of globalization on various elements of Philippine society and the role of WTO 27 and regional formations such as WTO, APEC, AFTA and BIMP-EAGA 28 . current negotiation processes, with emphasis on the extent that a pro-poor policy package is 29 reflected in the formal Philippine position to these regional and sub-regionalformations 30 . policy gaps in ensuring a pro-poor agenda, including for example social safety nets, in the 31 context of globalization. 32 33 These assessments could help the country ensure that growth is pro-poor - making growth more broad- 34 based, creating opportunities for large numbers to be productively and gainfully employed, particularly 35 in the rural and informal sectors. More specific research is needed to understand the impact of 36 globalisationon different elements in the society. IRRI is about to initiate primary research on small rice 37 farmers, and we would be pleased to contribute to this and other such efforts. Annex 3k Page I of 12 iL-_ 2000 CONSULTATIVE GROUPMEETINGFORTHEPHILIPPINES (Einbargoutitil Juine19, 2000, 3:30 p.mi.) EMBRACING GOVERNANCE REFORMSIN THE PHILIPPINES: PROMOTING COMPETITION, ACCOUNTABILITY AND SOCIAL RESPONSIVENESS Statementof HonorableBenjamin E. Diokno, Departmentof Budgetand Management Secretary, Mr. Chairman, SecretaryPardo, DistinguishedParticipants,Ladiesand Gentlemnen: Good afternoon. Improving governance has been a serious and an ongoing concerin of the Philippine Government. To successfullypursuedeeper economic, financial and social reforms and to better allocate resourcestowards rural development and poverty alleviation, the Government realizes the urgent need to continue urndertaking governancereforms. Underpinning the governance reform programs is a clear recognition that government'srole is changingfrom producerto enabler, from provider to regulator. As such, the government is moving towards a more participative form of governancewith heightened devolution of authority and increasedreliance on other partners for the delivery and financing of public services. Within this framework, it has and will continue to pursue reform measuresin key governance areas. Its programs are categorized into nine areas: (a) institutional strengthening and streamlininig of the bureaucracy;(b) public expenditure and financial management;(c) revelinue generation and administration; (d) local governance;(e) citizen and private sectorparticipation; (f) corporate governance; (g) the rule of law, involving primarily the administration and delivery of justice and the maintenanceof peace and order; (h) graft and corruption; and, (i) information and communicationstechnology (ICT). The first four constitutethe core of public sector management reforms. Let me now discussthese measuresin a little more detail, beginning with the public sector managementreforms. -I - | 2 r 1 3k ~~~~~~~~~~~~~~ Page 2 of 12 Institutional Strengtheningand Streamliningof the Bureaucracy Various dysfunctionshave beset the bureaucracy. There is proliferationof agencies bodiesand considerable and special-task degreeof duplicationand overlap in governmentmissions,functionsand programs. The skills mix is becomingless relevantto emergingneeds. The latter is further complicatedby the wideninggap betweengovernment and privatesectorcompensation, whichis especiallymarkedat managerial levels. To addressthese dysfunctions in a mannerconsistentwith Angat Pinoy 2004, the Philippinegovernmentis undertakinga two-track approach. The first track advocatesthe passage of a Reengineering Bill, which will grant the President authorityto overhaulthe bureaucracy. The second track,which is generallyreferred pursuesinstitutionalreformsthat are possible to as streamlining, within the existing legalframeworks. To ensurethe consistency and congruence of the two tracks, the Presidential Committeeon EffectiveGovernance (PCEG), which was createdby President Joseph Ejercito-Estradathrough ExecutiveOrder (EO) 165, has been tasked to providea general frameworkand to formulate guidelinesthat will govern both tracks. The PCEG is being assistedby six inter-agency Technical Teamsand their multisectoral counterpartsubcommittees organized alongthe followinglines: (a) servicedelivery; (b) organizationalstructuringand staffing; (c) financialmanagement; (d) personnel management;(e) change management;and, (f) informationand communications technology(ICT). The PCEG reports directlyto the President.The reengineering, if it couldnot be pursuedbureaucracy-wide, will be undertaken on a sectoralbasis,with priority accorded to the agriculture,socialand infrastructuresectorsduring the initialphases of the plannedreform. The PCEG is currentlyundertakingstrategicreviewsof the priority sectorsto serveas groundworkfor the prospectivesectoralreengineering. Thesestrategicreviewsare being donewith the technicalassistance of foreign and localconsultants, togetherwith the departments and agenciesconcerned. Administrative streamlining activitieshave beenproceeding in the Department of Health (EO 102), Departmentof Social Welfare and Development(EO 15), NationalStatisticsOffice (EO 5), Department of Budgetand Management (EO 95), Department of NationalDefense(EO 112) and Department of Agriculture(EO 162). Evenwithout the Reengineering Law,the triggersfor the individualdepartments and agenciesto reenergize themselves have been their ability to recognize the needto improve the delivery of services by streamliningtheir internal structures and operations. F'Wgq Annex3k Page 3 of 12 Kelatealy the President issuedAdministrative Order(AO) 100on December 1, 1999,which limits the filling of vacant positionsin the ExecutiveBranch. The move aims to arrest the escalationof personalservicesexpendituresand to generate fundsfor the implementation of the salaryadjustment. Finally,the Estrada Administrationhasadoptedthe "scrap-and-build" policy by requiringthat the creation of a new agencyor new positionsmust be matchedby unit and positionsand that increases the abolitionof an equivalentorganizational in the personnel/staffingcomponent of a department or an agency must be limited to population sensitivepositionssuchasteaching,medical and policepositions. PublicExpenditureand FinancialManagement The streamlining and reengineeringefforts are being complementedby reformsin the areaof publicexpenditure and financialmanagement.Thesereforms fall into three categories: (a) budgetingand planning;(b) procurement;and, (c) accounting and auditing. Budqetingand Plannin, A weak linkage between budgeting and planning has characterizedthe Government's public expenditure management system. Budgetingand prioritization decisionshavebeen short-termin nature. Monitoring of budgetexecutionhas been relatively inadequate. Likewise, mechanismsfor screening and evaluating the feasibility and desirabilityof agencyproposalshave not been as effectiveas could be. These deficiencies have been further complicatedby differencesin spending prioritiesbetweenthe Executive BranchandCongress. To addresstheseweaknesses, the EstradaAdministration has embarked on a number of reforms. It has initiated the mainstreamingof a Medium-Term Expenditure Framework (MTEF) to increase discipline over the allocation of government expenditures. The Budget Call for 2001 has required agenciesto provideforward estimatesof baselinebudgetsand new proposals for three years, i.e., 2001 to 2003. A BudgetDialogue Group,composed of representatives from the private sector and the ExecutiveBranchof government,has been established as a venue to discuss planned reform measuresand governmentspending priorities. Further, DBM and NEDAhave begun to conduct joint SectoralEffectiveness and EfficiencyReviews(SEERs) to update the rolling 1999-2004 Medium-Term Public Investment Plan (MTPIP) and to generate program- as well as project-level informationfor use in DBMTechnicalBudget Hearingsand Congressional budget reviewmeetings. As a result, agencyexpenditure proposalswill now be subjected to tests for consistencywith governmentprioritiesand rankedaccordingly, thus paving the way for the implementation of an ex-anteperformance accountability system. I'gjI Annex 3k Page 4 of 12 However,to close the loop between budgetaryexpendituresand planning priorities,agencyprogramsand activities-which necessarily stem from budgetary allocations-haveto be evaluatedex-post. This requiresthat both effective ex-post programevaluationprocessand performance evaluationsystembe established.To begin to reorient agenciestowards performance-based budgets,the 2001 Budget Call has requiredeachagencyto establishkey performance indicatorsfor its priority programsand projects. Further,DBMhas initiateddiscussions with the Civil Service Commission (CSC)on the development of a processfor linkingagencyperformance with personnel performance.For its part, NEDAis preparing to strengthen its monitoringand evaluationcapabilities to enableit to conductin-depthevaluationof key programs and projects. These efforts aim to exact higher levels of accountabilityfrom agenciesin the allocation and useof their budgetaryresources. To enable agency heads and managersto meet performance targets, the governmenthas begun to grant them greaterflexibility in the management of their budgetsand to providemore certaintyin the releaseof funds. The DBMhas lifted the imposition of across-the-boardmandatory reserves on government agency budgets,has adoptedthe policyof "what-you-see-is-what-you-get (WYSIWYG)" and has utilized the banking system in settling accounts payable. As ex-post accountability are mainstreamed processes and capabilities of agenciesfor managing them are strengthened,agencyheadsand managers will increasingly be given more budgetautonomy A tighter and more efficient linkage between budgeting and planning necessarily requiresintegrationof off-budget items into budgetdeliberations. Off- budget items present significantfiscal risksto the national governmentsincethey can potentiallygeneratelarge budgetary obligations. Contingentliabilitiesborne by Build-Operate-Transfer (BOT)projectsare a good example. The government is now confrontedwith substantialobligations, as somecontingentevents have becomea reality. The DOFis currentlyengagedin estimatingthe magnitude of the contingent liabilitiesof the NationalGovernment. The DBMand the Coordinating Councilfor PrivateSectorParticipation (CCPSP) are workingwith DOFin developing a systemto incorporate the considerationof contingentliabilitiesin budgetarydeliberations. PublicProcurement Differentand sometimes conflictinglaws, rules and regulationstoday govern the procurementprocessin the Philippines. This has led to confusionand delays and ultimatelyin manyopportunities for graft and corruption. Sinceprocurement is the front end of any public expendituremanagement system,the governmenthas given high priorityto addressingproblems in publicprocurement. Annex 3k Page 5 of 12 ln Marc this year, the Economic Coordinating Council(ECC),the primary economic policy makingbody of the government (which is chairedby the President himself),stronglyrecommended that procurement rules,regulations, and procedures be reviewedand that an action plan for reformsbe preparedfor its consideration. Technical workinggroupshavesinceprepareda set of amendments to relevantEOs and ImplementingRulesand Regulations (IRR)whichembodythree main principles: (a) streamline pre-qualificationto a simple eligibility check and strengthen post- qualification;(b) adopt the lowestcalculatedresponsive bid (LCRB) as a criterionfor award; and, (c) eliminatethe use of agencyestimates and, in their place,adopt the availablebudgetof an agency(for the procurement activity)as the ceilingon the bid price.' On May 31, 2000, the ECC endorsed theserecommendations and urgedthat the accompanying proposalfor legislatinga streamlinedomnibusprocurementbill (which would solidifythe procurement reforms)be fast tracked. On the sameday, the PresidentmandatedDBM to launch its ElectronicProcurement System (EPS) project. This project will establish: (a) an electronicpublic tender board; (b) an electroniccatalogue;and, (c) a supplierregistrysystem. Likewise,the EPC project will help DBMacquirethe skillsand capabilitiesto manage 2 the EPS. Account/naandAuditing An agency's accountabilityfor its budget and performance,including in particularthe procurement of goodsand services,is greatly influencedby the public accounting and auditingsystem. The Philippines'publicaccounting systemis unduly complex-thus, not particularly transparent-and is governed by weak internal (departmental)controland audit systems. This has resulted,not only in the lackof an effectivemanagement informationsystemthat can aid decision-making but also, in manyopportunities for graft and corruption. The governmenthas initiated efforts to strengthenits external and internal audit functions. The Commission on Audit (COA)is strengthening its capabilityto undertake program audits-which will include the use of value-for-money (VFM) audits-of agencyactivities. It also has begunemployingan Audit Team Approach (ATA) in various agenciesto promotegreater objectivityand to constrainauditors from colludingwith agencypersonnel to perpetratefraudulentand corrupt acts. The COA likewise has taken the lead in exploring the possibility of developingan integratedfinancial management systemthat will: (a) simplify and rationalizethe ' Shortly after the ECC's recommendations were issued, an inter-agency workshop on procurement reform was organized by DBM. The workshop recommended two sets of principles. The first would govern the procurement of civil works, goods and supplies, and consultant services. The second would govern the BOT process. Two technical working groups were also formed to work out specific recommendations (including specific and detailed amendments to current EOs and IRR) that could be brought to the ECC for endorsement and quick action. DBM is the secretariat for the first TWG, while CCPSP is the secretariat for the second. 2 A soft launching was held on June 1, 2000. The system is expected to be fully mainstreamed within a year. Annex 3k Page 6 of 12 publicaccountingsystem;(b) promotedata sharing;and, (c) streamlinethe external reportingsystemin government. RevenueGenerationand Administration Quality public expendituremanagement goes hand-in-handwith honest and efficient revenuegenerationand administration. The main problemsin this area includepoor tax collectionand low citizenand company compliance with tax laws. Establishing an efficient and effectivetax administration system is a difficult and complextask. Facingup to the challenge, the Bureau of Internal Revenue (BIR) has been gradually reforming its operations and processes. Current strategic elements of the reform and reengineering program of the BIR include: (a) restructuring of its organization; (b) improving BIR's information management system; (c) streamliningthe system of bank remittances;(d) exercisingbetter controlof largetaxpayers;and, (e) improving the wageand incentivestructure. The BIR has created in its headquarters the Large TaxpayersService(LTS) and the Excise Tax Service(ETS)to better servelargetaxpayers. It is alsoaccelerating the full rollout of its tax computerization programwhile exploringways to improvethe effectiveness of its auditsand collections. Finally,it is considering the possibilityof outsourcing the management of its informationtechnology (IT)-basedoperations, a consequence of which will be the openingof new avenues to improveand maintain data integrity. 3 LocalGovernance Publicsectorreformswould be incomplete if they did not addressproblemsin localgovernance.The Philippines confrontsa numberof pressingissues in this area. Theseare: (a) observeddependence of fourth, fifth and sixth classmunicipalities on national government assistance;(b) continued allocation of funds meant for activitiesdevolvedto LGUs to a numberof nationalgovernment institutions;and, (c) general lack of capability of the LGUsto preparefeasibility studies and detailed masterplansfor their communities. Spurred by the increasingneed by LGUsto finance the devolvedservices within the frameworkof the LocalGovernment Code,the InvestmentCoordination Committee(ICC) formulated a policy frameworkfor financing local governments' basic servicesand developmentprojects predicatedon promotingself-reliance for LGUs. The policyframeworkaims at: (a) rationalizing LGUavailmentof ODA;(b) promoting private sector financing of profitable LGU infrastructure projects; (c) encouragingLGUsto raise more locally generatedfunds; (d) building LGUproject 3A number of ODA grants have been provided to the government to help LGUs build up their capacities for improving local governance. Annex 3k man gement capacity; and, (e) improving LGU creditworthiness. The ultimate objective is to enablethe LGUsto rely less on nationalgovernmenttransfers and more on locally generatedresources as well as to increaseLGUaccessto private sector financing. To assistthe poorer LGUs,the ICC has passeda resolutionthat allowsfor the provisionof selectivegrantsto LGUs on the basisof equity,socialand environmental externalitiesandeconomies of scale. To support LGUs,the national government,through DBM,has spearheaded the developmentof an LGUDevelopmentFacility (LGU-DF). This facility aims to establish a performance-based allocationof grants and financing to LGUs. This initiative includes: (a) the design of variousschemes for channeling development funds (includinggrants and loansfrom externaland local sources) to LGUs;(b) the formulationof structures,policiesand procedures that will governthe facility; and, (c) the harnessing of collaboration amongstakeholders in the implementation of the LGU-DF. Associated training and educationalprogramsfor institution and capacity buildingof LGUsare expected to be undertaken. The CCPSP has also mounted a complementary effort to support capacity buildingof LGUs.With externalassistance, it hasestablisheda projectdevelopment facility at the LandBankof the Philippines (LBP),which can providefunds to LGUs for the preparationof feasibility studiesfor BOTprojects. The facility is aimed at reducingthe extensiveuseby LGUs of unsolicited proposals.Considering the lackof funds to prepare feasibility studies, LGUsare usually forced to take proposals, notwithstandingseriousquestionsabout the utility and integrity of such proposals. To sustainthe facility, winning biddersare requiredto replenish it with funds by the amountsspenton the associated feasibilitystudies. Citizen and Private Sector Participation The governmentrealizesthat it cannot do everything for the people. It continuesto discover that its citizens are increasinglycommittingthemselvesto participatein the developmentprocess. It has, in particular,establishedover the yearsthe BudgetDialogue Group,the LEDAC, the Economic MonitoringGroup(EMG) and the ECC,includingthe Councilof SeniorEconomic Advisers(CSEA), to provide avenuesfor private citizens to be actively involved in the formulation of public policies. The governmenthas also begunto seek assistance from civil society in the implementationof projects with significantsocial and environmental components and implications. For instance,the Presidential Committeeon FlagshipPrograms and Projects (PCFPP) has engaged the help of nongovernmental organizations (NGOs) in the resolutionof resettlement and right-of-way(ROW)issuesinvolvedin a number of large infrastructureprojectsand in the implementation of an ambitious waste recyclingand compostingprogram as part of the SolidWaste Management Annex 3k Page 8 of12 Programtor Metro Manilaand surroundingprovinces. The PCFPP also intendsto contract NGOsto monitor the performance of selectODAprojects and to heighten the accountability of line agencies in the implementation of theseprojects. Given its changing role, the government has recognizedthe need to encouragegreater private sector participationin the delivery of public services. Although sources of private capital have increasedtremendouslyover the last decade,actualprivate sectorinvestments in publicsectorfacilitiesand serviceshave been limited to (a) power generation,(b) large-scale water supply and (c) mass transit and rail transportation projects. Within this limited set, problems have emerged that highlight the importance of revisiting the BOT law and its amendments. The government is currently engaged in an effort to push amendments to the law and its IRR. The government continuesto grapplewith complexcompetitionpolicy issues whose resolution will lead to a more level playing field. In particular, it has promotedthe cross-ownership of power generationand transmission facilities and the introductionof open accessmechanisms.It continues to push aggressively for the passageof PowerSector Restructuringbills that will make the power sector morecompetitiveand efficient. CorporateGovernance Private sector investmentsare unlikely to increasesignificantlyunless the lawsgoverningcorporatebehavior are revisedto copewith the ever-increasing trend towards globalizationof businessand liberalizationof trade and finance. The CorporationCode has laid the legal and institutional foundations for corporate governance. However, the Code has become inadequate to cope with the implications of the saidtrends and its enforcement (as well as those of relatedlaws) has left muchto be desired. This has led to a numberof pathologies, which, if left unattended, will continue to undermine the efforts of government to attract productive,long-term private investments. Theseinclude: (a) recklesslendingby commercial banks;(b) riskyinvestments by managers; (c) limited recourse to equity finance; (d) connectedlending; (e) insider trading; (f) expropriationand misuseof funds by companies; and, (g) highly concentrated corporateownership. To address these problems,the ECChas recommended that the governmentpursuereformsin the managementof securities,including, in particular, revision of the laws and arrangements governingthe stockexchange as well as centraland generalbanking. The Securities and ExchangeCommission(SEC) has implemented new measuressuch as the issuanceof the New Rulesof Procedure of the SECand the promulgation of the Rules on Corporate Recovery. It also has drafted the BankruptcyRulesthat would effectivelyreducethe volumeof assetsleft idle when companieshave to closedue to financialdifficulties. Further,Philippine Congress is workingtowardsthe passage of the Revised Securities Bill, whichaims to strengthen - ~~~~~~~~~~~~~~~~~~~ 3k Page 9 of 12 the gulatory and supervisoryframeworkof the SECover the securitiesmarket. The expectedpassage of the Revised Securities Bill within the year will enhancethe protectionof minority rights, increasetransparency andfacilitateenforcement. However, there remains a glaringneed to improve the corporategovernance framework for non-listed firms. The governmentshould consider reviewing all existing studies concerningthe performance of the current legal and institutional framework for corporate governancein the Philippines,examining alternative approachesand institutional arrangements for dealingwith corporategovernance and designingnew and innovativemeasures that would be more applicableto the country. In the area of banking,the BangkoSentralng Pilipinas(BSP)is undertaking measures in four areas: (a) increasingcapital adequacy; (b) improving the framework for bank supervision;(c) requiring additionaldisclosurerequirements; and, (d) easingup variousrulesto improveflows of credit. All of theseare intended to enhancethe stability and credibilityof the bankingsector,which, in turn, would encouragemoreinvestments. The Rule of Law Reformsin public sector management and corporategovernancecan go a long way to improvingthe ability of government to deliverpublicservices efficiently, effectively and equitably. However, these reforms must be grounded in an environment where the rule of law is steadfastlyupheld and honored. In this context, perhapsthe most critical and fundamentalis the administration of justice. Where the justice system is weak, citizens become indifferent to laws and regulations,thus making it very difficult to enforcethem. This naturally leadsto high crimeratesand, in somecases,to deterioration in peaceandorder. The countrytoday facesdifficult challenges to its judicialand policesystems. Amongother things, crime rates are high; resolutionof casesis slow and sluggish; Temporary RestrainingOrders (TROs) are issued capriciously;double standards seemto applyto the detrimentof the lessfortunate. The upshotof all these is the emergenceof a deeplyrootedcultureof graft andcorruption. The SupremeCourt has recognized the urgencyof reformingthe Judiciary. Under the stewardshipof Chief Justice Hilarion Davide, it has embarkedon a program called the Davide Watch. In line with the vision and mission of this program,the Supreme Court has issuedAdministrative Circular1-99, which exacts from court officials and employees the highest ethical standards in the administrationof justice. It has also taken the initiative to secure technical assistance supportfrom donor agencies to preparea road map for vital institutional reforms. With donor support, it has completeda "Blueprint of Action for the Judiciary", a document that identifies the various gaps and correspondingbroad I Jx1 Annex 3k Page 10 of 12 policyand programactions neededto establisha well functioning judiciary, and has commissioned in-depthstudiesdesigned to providea detailedplan for strengthening the competence, integrity, efficiencyand effectiveness of the Judiciary. Oncethese studies are completed,the recommended institutionalreforms will be undertaken with the expectationthat the major efforts will be completedbeforethe end of the term of the current ChiefJustice. Other improvement efforts beinglookedinto are: (a) adoption of two-way television arraignmentsand witness examinations;(b) conductof legal researches at benchand counseltables; (c) playingof recordedor real-timetelevisedevidencedisplaybuilt in videodepositionplaybackfacilities;and, (d) automatic video recording and translation to foreign languages of case proceedings. To complement the efforts of the Supreme Court,the government has begun reforms in the police serviceas mandatedby the PNPReformand Reorganization Act. Initial actions have primarily addressed the compensation issueas the police are underpaid. A new salarystructure has beenimplemented and allowances have been increased significantly. The government intends to continue the professionalization of the police and to initiate reforms in related services-jail management and fire protection. In the area of prosecution,the nationalgovernment is exploringpossibilities for further developing and strengtheningcommunity-basedalternative dispute settlementmechanisms and establishing alternativearbitrationrecourses. On the peace and order situation in Mindanao,renewedefforts are being undertakento sustainthe initial gains achievedin restoring normalcythrough the work of the SouthernPhilippines Councilfor Peace and Development (SPCPD) andto pursue the recovery and developmentthat have already been bearing fruit in Mindanao until the recent escalation of hostilities between the Moro Islamic LiberationFront (MILF)andthe government. Graft and Corruption Institutional reformsthat improvepublic sectormanagement and the rule of law go a long way in fighting graft and corruption. In fact, they are a necessity if any progress is to be achievedon this front. However,they are not sufficient. These efforts must go hand-in-hand with significant improvements in the identification and successfulprosecutionof persons who are engaged in these activities. There is certainlymuchto do in this context. The government has begun to undertake someinitiatives. The Office of the Ombudsman (OMB)is currentlykeepinga tight watch over graft- and corruption-proneagencies.It hasinstalledResident Ombudsmen in some departmentsand agenciesof the government to monitortheir official performance Page 11 of 12 and ransactions. It also has organizedand accreditedNGOs,such as Corruption Prevention Unitsor CPUsto assistin the fight againstgraft andcorruption. PresidentEstradarecently commissioned the Development Academyof the Philippines(DAP)to preparean anti-corruption action plan for the government. In response, the DAPhasdrawn up a Ten-PointJumpstart Anti-Corruption Program. The components of the Program are: (a) the establishment of a transparent participatory process for generating nominees for Presidentialappointmentsin critical governmentoffices; (b) conduct of random checks on the lifestyles and compensationpackagesof governmentofficials; (c) publication by government agencies of citizenguidebooks on how to accesspublicgoodsand services with time tables; (d) full disclosureof public documents,including governmentcontracts, proceedings of public hearings,budgetdocuments,financialreports, among other things; (e) identificationand pursuitof anti-graft and -corruptionlegislative agenda; (f) mobilizationof investigativeand prosecutorial resources for pursuinggraft and corruptioncases;(g) simplification and streamlining of processes and procedures for availing public goods and services;(h) periodicmeasurement of public satisfaction with the delivery and availmentof public goods and services;(i) utilizationof civil society organizations as partners of government agencies in advocating for improvements in organizationaland individual integrity, as well as ensuring transparency; and, (j) entry into "integrity pacts"betweenpublicofficesand private firms to eliminateenvironments conduciveto and courting bribery, price-fixingand nontransparent procurement practices. As part of the Program,DAPwill soon be piloting report card surveysof the quality of public services at the local level. The objective is to enhance accountability and to improvethe of local publicofficialsfor budgetaryexpenditures performance of publiclyfundedprograms and projects. Technology Information and Communications (ICT) The governmentaims to utilize ICT as a productivitytool for improvingthe speed and quality of public servicedeliveryand for reducinggraft and corruption. The core strategyfor the ICT sector,as definedin IT21, is to strengthenand widen the ICT manpower base and the physical infrastructuresneeded for the highly competitive digital economy. The efforts that are being undertakenby the governmentto harnessthe efficiency gains from ICT include: (a) the adoptionof the NationalInformation TechnologyPlan for the 21 st Century(IT 21); (b) the formulationof the medium- term Government InformationSystemsPlan(GISP),1999-2004 that will containthe frameworkfor electronicgovernance and, (c) the implementation in the Philippines; of ICT-related projects, such as (i) Vehicle Registration and Licensing Computerization; (ii) NationalCrimeInformationSystem;(iii) Civil RegistrySystem; _yg Annex 3k *___- ~~~~~~~~~~~~~~~ 12 of 12 (iv) Customs Computerization; (v) Tax Computerization;and, (vi) Electronic ProcurementSystem. ConcludingRemarks I have tried to cover the wide range of issues on governance and, systematically,to outline the government'sefforts to addressthese issues. I hope that I havebeenable to demonstrate that our efforts,while seeminglydisparate, are actually being undertakenwithin an overarching(though, sometimes,not explicit) framework. Thankyou. Annex 31 Page 1 of 2 CONSULTATIVE GROUP MEETING FOR THE PHILIPPINES l .3J |Tagaytay City, Philippines June 19-20, 2000 SESSION III: DISCUSSIONON PROGRESS ANDPLANS ON STRUCTURALANDPUBLIC SECTOR REFORMS World Bank Statementon Governancefor Growth: The ImmediateAgenda by Mr. BernardFunck,PrincipalEconomist,World Bank Mr. Chairman,Excellencies,Ladies and Gentlemen: Overthe past 10-15years, the Philippineshas taken giant stepstoward establishinga governanceframeworkmore conduciveto transparency,participationand povertyreduction. The reports we have tabled to this conferenceon "Growthwith Equity"and on "Combating Corruption"recount some the major achievements.We are not alone in this assessment. Internationalsurveystalk of a secularimprovementin the rule of law, reductionin corruption and the likes,while internationaltrade statisticsshow the Philippineswinningworld market's shares. These achievements,in turn, have pavedthe way for the accelerationof growth and povertyreduction which the countryexperiencedup to the Asia crisis. More recently,however, concernshave arisenfrom various cornersthat the governance frameworkin both the private and public sectorsmightbe weakening. This is turn has limited the government's capacityto rekindlegrowthand to deliver on its povertyreduction agenda. The recent months have shown the governmentbeginningto measureup to the challenge. The ECC has been created. Tax erosionappearsto have beencurtailed. Three important pieces of economiclegislationhave beenpassed into law (I have in mindthe partial liberalizationof retail trade, e-commercelaw, and revisedgeneralbankingact). A Presidential Commissionon EffectiveGovernancehas been formedto drawup futurepublic sectorreform plans. And the DevelopmentAcademyof the Philippineshas put forwardan ambitious anticorruptionstrategy,accompaniedwith a 10pointjumpstartprogram. A minute ago, SecretaryDioknohas presentedus with a rich and worthy agenda of going forward. The questionnow is where to start. Here are, in our views, some of the priorities: The first one, as everybodywill agree,is to regain confidence. A few visiblemeasures are now overdue. Actingon them wouldgo a long way towardsbolsteringconfidence. One would be finally to pass a RevisedSecuritiesAct, enshriningthe rights of minorityshareholders and the independenceand authorityof the Securitiesand ExchangeCommission. Anotherone would be to bring afew, high visibilitycorruptioncasesto book and to try them conclusively. Once the immediateis addressed,it will be importantto show the government's steady hand by maintainingor regainingthe momentumof ongoingreform, such as on tariff reduction,bankingsector reform,fiscalconsolidationand final completionof the Annex 31 Page 2 of 2 comprehensivetax reform process in the areasof financialtaxationand rationalizationof tax incentives. On this basis, the country could move on to a few, well-targetednew challenges. In public sector reforms, the governmentwill be well advisedto heed Secretary Diokno's precept, and "get the basics first." Here are some areas, where the authoritiesmay seek to make a critical difference. (a) Intensifying anti-corruptionefforts under a strong leadership from government and with active civil society involvement. The recently completed studies by the World Bank and the DAP, which I mentioned a moment ago, offer plenty of useful ideas on how to proceed. (b) Taking steps towards creatinga meritocraticcivil service. (c) Revamping governmentfinancial managementsystems to make if a more effective tool for programand fiscal management. (d) Developing a morefoolproofprocurement system. The rapidly evolving field of e-government affords numerous opportunities for innovativeapproaches in the latter two areas. Let me also point out a few opportunitiesto advanceprivate sector participation, competition and transparency into new areas. Power sectorreform is obviously one area where everybody- executive, legislativebranch, donors- has been workinghard to put together a workablepackage. Let us hope that these reflectionsand debateswill come to fruition shortly. I would like to direct attention also to two other areas where opportunitiesexist to improve both the growth prospects and the distributionof income. One of them isfood trade liberalization. As the draft Poverty Assessmentreport which we shared with you makes clear, gradually bringing that part of the trade regime in line with progress achievedon the rest of the trade front would therefore help on growthAND equity grounds. There is no doubt that the political forces involved in this area are quite formidable. Providing effective safeguard measures for the poorest to face the transition may helptip the balance. A second area is housing. We have presented to you evidencethat recent housing policies, adopted in response to legitimateclamors for shelter, have been, not only financially ruinous, but also hugely regressive. The Medium-TermPhilippineDevelopmentPlan for Shelter (MTPDP-S)seeks to break this record. Allow us to endorse it to the new leadership in this area. Let me conclude by noting that, in many areas of reform,however, little will have been accomplisheduntil the rules which are on the books are more deliberatelyenforced. For citizens and market participants alike, this will be the litmus test that the rules of businessare indeed changing. Hence the importanceof thejudiciary reformundertaken under the leadership of Chief Justice Davide, as well as strengtheningthe independenceand diligence of regulatory bodies, more generally,as Chairman Bautista is attemptingto do at the Securities and Exchange Commission. But I am sure my friend Vipul Prakash from IFC will have more to say on this particular score. Annex3m Page 1 of 2 PHILIPPINES CONSULTATIVE GROUP MEETING Manila, June 19-20, 2000 Progress and Plans on Structural and Public SectorReforms Discussion on Corporate Governance By Vipul C. Prakash Country Manager IFC-Philippines Mr. Chairman and HonorableDelegates: 1. I would like to start by congratulating and commendingthe Governmentof the Philippinesfor embracinggood governanceand putting it as the centerpieceof their reform agenda. More we are encouraged importantly, effortto forma public-private by the government's partnershipin this area and defining a clear agenda for addressing weaknesses in corporate governancein the Philippines. In the WorldBankGroup,we are pleasedto be workingwith the government in this effortas we believe important this is oneof the bestvaluepropositions to wininvestorconfidence. 2. Wesupportthe government's effortsto adoptan enhancedcompetition policy,which wouldusherin an open, transparentand enablingenvironment and allow market forcesto hasten the adoptionof good governance. This approach runs parallel with other governmentprograms to strengthen financial,regulatoryandjudicialinstitutions that are so important for layingthe foundations for good corporategovernance. The recentpassageof the RevisedGeneralBankingAct wouldalso strengthen the centralbank'sregulatorypowers,raise prudentialstandardsand foster greatercompetition in the bankingsector. Our work with Bangko Sentral complements these efforts to improvecorporate governanceamongthe corporateclientsof commercial banks, by encouraging the banks to take a more activerole in insistingon clientadoptionof good governance throughtheir creditreviewand loanrisk classification procedures. 3. We would also like to thank the government for endorsingthe effortsof the Instituteof Corporate Directors,to which the World Bank group has extendedtechnicaland financialassistance. The Institute,which was foundedin 1999by formersecretaryof financeDr. Jesus Estanislao,has as its primaryobjectivethe educationof Philippinecorporatedirectors,management and shareholders in the appropriateactivitiesand responsibilities of the board of directorsto the various stakeholders. Despite its brief history, the Institute has become a high-profileadvocate for good corporate governancethrougha series of conferencesand workshopsit has held,severalwith the supportof World Bank and Asian DevelopmentBank (ADB). The IFC has also taken an active role by Annex3m Page2 of 2 encouraging the participation of the directors of its investee companies in the programs offered by the Institute. Also, in the aftermath of the Asian crisis, all of IFC's investments focus on institution building and introduction of measures for better risk management and improved corporate governance. 4. In the area of Capital Markets, we are pleased to be working with the government, the US Agency for International Development (USAID) and ADB, to establish a taskforce of the Capital Market Development Council on corporate governance, which would spearhead efforts of the securities regulators, stock exchange and the private sector to improve corporate governance among listed companies. This work supports the objectives of the draft Revised Securities Bill, which aims to strengthen the regulatory and supervisory capacity of the SEC to enhance the protection of minority shareholder rights, transparency and enforcement. We hope that this bill will be passed in the next session of the legislature. 5. Over the next year, we expect to continue working with the government, its partners and the private sector in the Philippines to address the weaknesses in corporate governance. Our work would include: A) Supporting initiatives in accounting reform, to adopt a standardized system and to train practitioners in its use along with a program to upgrade the capacity of auditors. B) Assisting the government in strengthening its competition policy. C) Helping SMEs address specific governance issues common to small, family-owned businesses including, designing a public educationprogram which would engage the media in dissemination of information on good corporate governance to businesses, investors and the general public. D) Collaborating closely with the World Bank Institute, our training arm, to create a core course in corporate governance, which could be launched in the Philippines, as well as throughout the East Asia region. E) Complementing the World Bank Group's other initiatives in governance. For instance, we expect to continue to participate in the Bank's anti-corruption efforts, by focusing on the benefits that good corporate governance can have on reducing the opportunities for corrupt behavior. 6. We look forward to our continued collaboration with the Philippine government, private sector, civil society and the multi-lateral and bilateral donors in these initiatives. Thank You Annex 3n Page l of5 jqFqp|S| 2000 CONSULTATIVE GROUP MEETING FOR THE PHILIPPINES (EmbargountilJune20, 2000,12:00p.m.) MOBILIZING ODA FOR SUSTAINABLE GROWTH AND POVERTY REDUCTION Statement of Honorable Felipe M. Medalla Secretary of Socio-Economic Planning Mr. Chairman,DistinguishedDelegates, Ladies and Gentlemen: The past two decades saw dramaticchangesin the structureof the Philippine economybrought about by reformsthat supportthe growth of a competitiveprivate sector. The ODAcommunityhas played a facilitativerole in the process. ODAhas beencrucialin financingthe government's budgetdeficitand shoringup the country's internationalreservesparticularlyduring our balance-of-payments crisisin 1992. This supporthas beenhighlightedanewduringthe Asiancrisis. Financial assistancefrom multilateral and bilateral sourcesfunded 34 percent of the national government's deficit in 1998 and 1999, thus forestalling pressuresfor governmentto borrow domestically and raiseinterestrates. ODAhas alsobeena keysourceof financingfor lumpy investmentssuch as infrastructure,freeing up governmentresources for the deliveryof socialservices. As we facethe challengeof nurturingthe economy backto its potential growth path, we expect ODA to continue supporting the country's development. ODAand the Pro-poorAgenda The fight againstpoverty,which underliesthe Estradaadministration'sAngat Pinoy 2004, the government's six-yeardevelopment plan,huescloselywith the new developmentparadigmof the donor community. Furthermore,the formulation of Angat Pinoy 2004 follows closelythe principlesof partnershipand ownershipthat underliethis new development agendafor ODA.The Philippine was Plan,for instance, prepared not by government alone but by a multi-sectoralgroup composedof government, academe civil society,business, and labor. But the reformin the ODAframeworkis alsobasedon two other principles: (a) that limited ODA be channeledto countrieswhich implementgood policies;and (b) that assistance be effectivelyand efficientlyutilized.The first principleis premised on the belief that the kind of policiesthat create a good environmentfor broad-based growth are the samepoliciesthat create a goodenvironment for the effectiveuse of donor assistance.These policies include private property rights, low level of corruption, opennessto foreign trade, macroeconomic stability, all of which are consistent with the strategiesin Angat Pinoy 2004. X Annex 3n Page 2 of 5 RPODA profile Admittedly,the Philippines hasto do moreto improveproject implementation and ODA utilization. As of the first quarter, the country'stotal ongoingODA loans portfolioreachedUS$11.4 billioninvolving178 projectsmostlyin infrastructure. Japan remainsthe biggestsourceof ODA,accounting for 52 percentof the portfolio,while the AsianDevelopment Bank(ADB)andthe World Bankaccount for 22 percentand 21 percent,respectively.However, the availmentrate for ODAloanshas beendeclining, reaching 62 percentin 1999from 74 percentin 1997.1 Basedon the recent 8 th Annual ODA Portfolio Review,about one third of ongoingprojectsexperienced an averagedelayof abouttwo yearsfrom their original timeframe.As a result,the disbursementbacklogreachedsome US$2.8 billionof the total undisbursedbalanceof US$7.7billion. To reducethe burden of commitment fees, we have cancelledsome US$378million from on-goingloans as a result of "savings" from the peso depreciationand the discontinuance of some project components. Bridgingthe Gapsin ODAUtilization Immediatesteps have alreadybeentaken to addresspoor aid absorption.A Joint ODA Portfolio Reviewwas held in December1999with Japan,ADB, and the World Bank where all partners committed specific actions for improving ODA performance. Sincethe joint review,no lessthan the President himselftook a direct hand in speedingup projectimplementation by putting ODAin the agendaof almost all meetingsof the Cabinetandthe Economic CoordinatingCouncil(ECC). At the same time, a Cabinet-levelinter-agencyworkshoporganized early this year resolvedmajor implementation issuesin 27 projectsand formulatedtime-boundaction plansfor 11 others. The problemscausingthe low availmentrate for ODAloans,however,are not entirely new. These includeright-of-way(ROW)acquisition;resettlementand social acceptability problems; procurement poorproject issues;lackof projectpreparedness; design; weak implementation capacity;poor contractorperformanceand long court litigation. Moreover,some new problemswere encountered as we expandedthe role of localgovernments in socialsectorprojects. On the other hand, the performanceof ODA grants which reachedsome These grants have largely benefitedthe social US$1.1billion remainssatisfactory. sector, the peaceprocessin Mindanao and capabilitybuilding of LocalGovernment units (LGUs). A major reasonfor low disbursement is poor project design and selection, which eventuallydistort our prioritiesand create institutionalenclaves. To address not only will be instituted.First,we will be highlyselective this, the followingmeasures ' The availment rate is the percentage of the amount disbursed cumulativelyto the corresponding scheduled disbursement. -~~1 Annex 3n Page 3 of 5 in the kinds of projects that will be implementedbut also in the choice of implementingagencies. Second, criteriain the prioritization we will strictlyadoptthe readiness of new ODA.The governmenthas identifiedspecificfilters for readiness such as advanced Investment Coordination Committee (ICC) processing,firm commitment and ownershipof implementing agencies,minimalROWand relocation issues,established implementationstructures, among others.To clean-upthe pipeline,we will continueto dropprojectsthat do not meetthesecriteria. imbibethe lessons Third, we will seriously learnedfrom projectimplementation by trying well-provenapproaches insteadof inventingnew programs. For instance, we endorse:(a) the use of adaptable programloansfor "difficult" projectsand long gestating interventions; and (b) the useof augmentationfund for devolved programs in the socialsectorwhichprovidedirectservices. Fourth,ROWand resettlement problems will be immediatelyresolvedprior to projectimplementationthru the ECCand the Flagship Committee and by the setting- up of a ROW fund in the 2001 budget. Throughthese measures, we almost completed actionon ROWandresettlement longbeforeloannegotiations issues for at least two major development projects: the Mindanao Terminaland the Container KAMANAVA FloodControlProjects. Fifth, we will enhancethe cost sharingarrangement betweenthe national government project identification and the LGUsas a way to effectivelydecentralize and ensureproject sustainability. The governmenthas also streamlined procedures to fast track the project approvalprocess. Forinstance,the MonetaryBoardis closely workingwith the ICCin monitoringeffective complianceby implementing agenciesof ICC conditionsfor projectapproval. The Philippine for Sustainable Council Development has alsobeen tapped to expedite the issuance of environmental compliance certificates. the Department Furthermore, of Budgetand Management has set up a one-stop shop bureauto handlethe budget-relatedrequirementsof foreign-assistedprojects. To address implementationbottlenecks,the coverage of the Flagship Committee has been expanded to includeall foreign-assisted projects. The cut-off amountof contractsrequiringapprovalby the Officeof the President has also been increasedto P200million,with processingtime reduced to 3-5 days. We introduced a setof procurementreformsto makeit expeditious, fair andtransparent. Even as we work harder to improvethe efficiencyof ODA use, we have reoriented our investment and budgeting processesto achieve the expected development outcomes. Multi-yearexpenditure planningestimates were introduced to facilitatethe programming as part of the 2001 budgetpreparation of investment requirements by the ICC. At the sametime, performance indicatorsfocusingon development effectiveness havebeenincorporated both in the ICCapprovalprocess andin budgetpreparation. Annex 3n Page 4 of 5 will lead to a dramatic However,it will take time before these measures increasein ODAdisbursement.But the declinein ODAdisbursement rate may have alreadybeenarrested,as lastyear'savailmentrate of 60 percentwas maintained in the first quarterODAperformance for this year. StrengtheningODAOwnershipand Commitment While governmentplaysa major role in ensuringthe effectiveuse of ODA money, many of the problems cited above could be avoided with improved coordinationwith the donor community. Allow me to highlightsome crosscutting concernsthat we think are important for successful and projects. programs First, ownership is critical in ensuring that projects will be successfully implemented. It is for this reasonthat governmentwill continue to undertake programming exercises which adopt a consultative approach. Consultations will be held with key Government agenciesto discusssectoralpriorities and projects to ensurecommitment of agencies.Priorityprojects for donorassistanceshallbe based on Angat Pinoy 2004 and jointly- craftedcountryassistance strategies. In these exercises,governmentwill take the lead in directingmulti-donorassistance to the country,particularlyin identifyingareasneeding greatercollaboration amongdonors. In this way, unnecessary such as in poverty duplicationof efforts in interventions reductionwill be avoided. The principle of ownershipalso recognizes the intrinsic characteristicsof countriesand the needto respecttheir culturesand practices.We enjoin the donor communityto understandwhy we would prefer to "unbundle"the provisionof programloanswith legislative measures because of the uniquerelationship between the Executiveand Legislativebranchesof our government. In most instances, anyway,the Executive alwaystries to facilitateresolutionof issuesin the appropriate forum (e.g., ECC,LEDAC, DBCC).We likewise askfor the donors'patience as we act on policyissuesidentifiedduring projectformulation(e.g., conduiting arrangements for two-steploans, institutionalrestructuring) and not to make these conditions for loaneffectiveness. Together with the donor community, we need to evolve innovative mechanisms for effectivepartnershipboth with the LGUsand the civil society. The involvementof the stakeholders including the communityand civil society in the designand implementation and reducerisk of of projectswill ensuresustainability projectfailure. Lastly,we recognize the needto be accountable to the taxpayers,both our own andyours. Hence, to address this, we will pay moreattentionto the governance aspectsof projectmanagement. An effectivemonitoringsystem will haveto be put in placewherecivil societycan participate and to someextent,rate how government is doing. From the donors, we would welcomethe appointmentof independent monitoringadvisers, for tied ODAfacilities. particularly -d~I 1 F 3 ~~~~~~~~~~~~~~~~~~~~A Page 5 of 5 ODAin Mindanao Finally,let metalkaboutMindanao. The ongoingconflictin Mindanao highlightsthe naggingproblemsof poverty and accessto basic servicesand the need to considerpeaceand development initiativesin the area. Thegovernment's overalldevelopment efforts in Mindanao will be guided by the Angat Pinoy 2004 framework, giving importanceto food productionand the deliveryof basicsocialservices. Whilewe fully understand the need for a comprehensive plan for Mindanao to ensurethe sustainable long-term development in the area, what we needto do for immediate resultsis to accelerate the implementation of existingongoingprograms. Thus,we are lookingat projects readyto take off rather than new projects. Moreover, our priority is to immediately implementor acceleratethe implementation of projectsthat would improveand expandthe deliveryof basicsocialservices. Accordingto our reports, as of March2000, there are about 18 ongoing foreign-assisted projectssolelyfor Mindanao with total loancommitments of US$678 million. In addition,73 projectswhichare multi-regional in scopewith or nationwide net commitmentof US$5billion havecomponents in Mindanao. Despitehow other quartersmayhaveportrayed the situationin Mindanao, there hasbeenno casualtyor damage fundedby ODA. to any facilitycurrently that the situation We remainconfident will improve. Remarks Concluding We urge the donor community to continueits unwavering supportin these timeswhenit is needed most. Development effortsshouldnotonly preventandsettle conflicts but should sow the seedsfor lasting peace. For peaceis a necessary conditionto development of everyone, and is the responsibility includingthe donor community. Restassured that whilewe focuson Mindanao, we reaffirmour commitment to reformsneeded for effectiveand efficientODAutilization. Everyprojectthat is badly implemented entailsnot only higher commitment fees but also reducedand delayed benefits to society,especiallythe poorandthe vulnerable.Werealizethat our system of checks and balancesoften get in the way of speedyand effective project implementation. But this is only much a part of our developing democracy. By workingtogether,we can provethat the democratic process with is not inconsistent betterprojectimplementation and is still the bestway to resolve the problemswe are presentlyencountering. Thankyou and Mabuhay! Annex 3o Page 1 of3 l - | CONSULTATIVE GROUP MEETING FOR THE PHILIPPINES Tagaytay City, Philippines June 19-20, 2000 ClosingRemarks by the Co-Chairman Mr. Vinay Bhargava, Country Director, Philippines, World Bank Mr. Chairman, Excellencies, Ladies and Gentlemen: My remarks will try to capture the views expressed by the donors in this meeting. This is not a comprehensive summary. Rather, it is an attempt to capture the main points of a very rich discussion. I request the honorable delegates to feel free to add any salient points that I may have missed. First of all, the donors expressed their gratitude to H.E. President Estrada for hosting Sunday night's Heads of Delegations dinner and for his personal interest in fostering the close partnership with the donor community and in a peaceful solution to the conflict in Mindanao. On behalf of the donors, I would also like to greatly thank our host, the Government of the Philippines and particularly the Department of Finance, for organizing and chairing this meeting for the first time, and also for the warm hospitality you extended to all of us. Mr. Chairman, during the discussions, the donors expressed their support to the government's development program and welcomed the encouraging macroeconomic developments experienced since the last CG meeting. While stressing the need for growth to pick up further to meet the administration's poverty reduction objectives, donors noted that economic recovery was underway, inflation under control, and the balance of payments and reserve positions strong. They welcomed the steps that the government has taken to improve investor confidence. To start with, the government has clearly shown its commitment to cut back the fiscal deficit in 2000, and indicated to this group that the additional fiscal burden caused by the Mindanao situation would be met without endangering key expenditure programs in the social and rural sectors. There was also a general agreement that, over the medium term, enhancing revenue performance should be the main avenue to achieve fiscal consolidation, as well as to generate funding for the country's development priorities. As importantly, donors commended the government for reinvigorating the structural reform process. This has largely been facilitated by the Economic Coordinating Council created earlier this year, which has been instrumental in moving important reform measures forward. They were also encouraged that a Presidential Commission on Effective Governance had been formed to develop future public sector reform plans. Moreover, they welcomed the initiative to commission the Development Academy of the Philippines to formulate an action program to combat corruption. The donors much appreciated the candor and openness which the government was showing in this difficult area. During the discussions, donors noted concerns in a number of areas and identified several priority areas for government action. These are: Annex 3o Page 2 of 3 *: Implement key measures to enhance resource mobilization, in particular improve tax administration, complete the comprehensive tax reform process and enhance contractual savings; this should allow to maintain social expenditures, and to target better public expenditures towards the poor; *: Boost investor confidence by addressing, in particular, governance at the stock exchange, by moving ahead expeditiously with the outstanding agenda for power sector reform and for Central Bank and Securities legislation, and by proceeding with privatization efforts; *: Continue the focus on rural development and the implementation of the Comprehensive Agrarian Reform Program and other asset reform programs; * Support family planning programs to reduce birth rates; *: Finalize and implement the National Anti-PovertyAction Agenda in a timely manner; *. Implement efforts initiated on Judicial Reform to improve the country's overall governance framework; * Announce and implement specific anti-corruption measures based on the reports of the DevelopmentAcademy of the Philippines and the World Bank; *. Set up a CG Working Group to have regular GOP-donor dialogue with regard to the comprehensive governance improvementprogram outlined by the government; and -: Implement commitments made during the December 1999 ODA portfolio review, in particular, apply the "project readiness filter" for new projects, involve stakeholders in the design, implementation, and results monitoring of projects, and pay closer attention to governance aspects of project management. Donors also suggested that, at the next CG meeting, the government provide a progress report on actual accomplishments with regard to these areas. The peace and economic development situation in Muslim Mindanao was discussed extensively. The government's briefings on the peace and developmentplan and the insurgency situation were much appreciated by the donors. H.E. President Estrada assured donors that the government is committed to creating the basis for sustainable peace in Mindanao and asked the donors to join in this effort. Several cabinet members provided details of on-going work to prepare relief, rehabilitation and developmentplans for the Muslim Mindanao. The donors welcomed these briefings and assurances that the government is proactively seeking a peaceful, political settlement of the on-going conflict. The donors also expressed deep concerns about the human suffering of the displaced persons and the adverse economic impact of the conflict on the overall economy. The donors underscored the urgency of resolving the conflict. The donors emphasized that stable peace and order is an essential prerequisite for economic aid from the donors. They urged the government to brief them periodically on the peace and order situation in conflict affected areas of Mindanao so that they can factor it into their operational activities. As regards economic aid for people and areas affected by the conflict, the donors expressed the following views: Annex 3o Page 3 of 3 First, providing relief to displaced persons is urgent and donors would consider this if the government can assure the necessary conditions for a needs assessment to take place and allow delivery of assistance; Second, concluding a peace agreement quickly and addressing the socio-economic needs of the large number of poor in Mindanao, particularly within its Muslim community, are essential to a permanent and lasting solution to the conflict; Third, significant amounts of ODA financed projects are already approved for Mindanao and their accelerated implementation is the most effective way to deliver assistance in the near term. However, this requires stable peace and security conditions and resolution of procurement and governance bottlenecks. Donors expressed concern that the current security is disrupting their operations; and Fourth, new projects for Mindanao can be considered in the framework of a medium- term development plan prepared with the extensive participation of local communities, particularly Muslim communities. The donors urged the government to consider these ideas and showed interest in a continuing dialogue on peace and development issues in Mindanao. They welcomed the government's suggestion to hold a post-CG meeting specifically on Mindanao. Mr. Chairman, as co-chair of the CG meeting, the World Bank is committed to help you in this meeting when the peace and order situation is appropriate. Mr. Chairnan, in the session this morning on the aid utilization, it was noted by Secretary Medalla that about US$7.7 billion of ongoing ODA is still undisbursed. Of this, about $700 million is exclusively for Mindanao. During the ensuring discussions, the Government and donors agreed to fast track the utilization of these funds. Beyond that, I am pleased to announce that the donors present here today have pledged an amount of $2.6 billion equivalent of which about $361 million is for Mindanao. Mr. Chairman, it is worth noting that the new pledges of $2.6 billion taken together with the $7.7 billion in undisbursed funds under the existing ODA commitments will put more than $10.3 billion in ODA assistance at the disposal of the government. Of this, more than $1 billion will be for Mindanao. Fast tracking implementation of this sizeable assistance package is a challenge but it provides also a huge opportunity to produce concrete results for the Filipino people. The donors requested the government to meet this challenge fully and expeditiously. Before closing, let me also thank all delegations for completing the survey form on the format of the CG meeting. Your comments and suggestions will be noted and considered in planning with the Govermnent on the next CG meeting. In conclusion, I would like to note that the government has been extraordinarily responsive in a frank and substantive dialogue with donors in a true spirit of partnership. This was exemplified most recently by the joint-portfolio review, the Pre-CG meetings and the briefings on Mindanao at the HOD dinner. On behalf of the donors, I would like to express the hope that this spirit and partnership approach will only get better to help improve the lives of Filipino people. Mr. Chairman, Maraming Salamat po and Mabuhay. Annex 3p PagelI of 4 2 3 RD CONSULTATIVE GROUP MEETING Session Concluding STATEMENTBYTHEGOVERNMENT OF THEPHILIPPINES Hon.JoseTrinidad Pardo Secretaryof Finance Republic of the Philippines We have just concludedthis 23rd Consultative Group Meetingfor the Philippines, anothermilestonein the government's with the donorcommunity. More partnership importantly,I believethat this Meetinghas heightened the level of awarenessand appreciationof donorson the evolvingdevelopment challenges whichface the country today. We, in Government, have learnedgreatly aboutthe current concernsand views of donors on the development issues affectingthe Philippines. We do appreciatethe opennessand candidness in the expression of concerns and we do recognizethat all that havebeensaid of concerns andremain faithfulto our common desireto addressthe needsof the country. On behalfof my colleagues in Government,mayI expressour sinceregratitudeto all of you who have engaged yourselvesduring the past two days for the purpose of understandingbetter our developmentcircumstances and sharingyour ideason how development work can putforwarda betterPhilippines. In responseto the statementof the Co-chairpersonof this Meeting,allow me now to present the position of Governmentvis-a-visthe action agenda presentedas the synthesisof issuesraisedbydonorsin thisMeeting: 1. Enhance ResourceMobilization. Recognizingthe importanceof boosting government revenues, the Govemment has instituted effectivereformmeasures in its revenue collecting agencies. These measures include the full computerization of the Bureauof InternalRevenue(BIR) and the Bureauof Customs(BOC)and the improvement of their informationsystems. At the BIR, we havestrengthened the LargeTaxpayers Serviceandthe ExciseTax Service (ETS). Likewise,the system of bank remittances is being streamlined. The restructuring of the BIR's organization and the improvement of its wage and incentivestructureare now beingreviewedas part of a reengineering program being implemented. As a matterof strategy, the Government is committedto rationalizethe systemof incentives and subsidiesin BOTschemesand to fast trackthe privatization of its remaining"big-ticket"items. To addressthe country'slowsavingslevels,strongmeasures are beingpursued to increasethe country'ssavingslevels. The Presidentrecentlyamended the mandateof the NationalCommission on Savingsto focus on policyadvocacy and increased private sector representation in the Commission. A Annex 3p Page 2 of 4 comprehensive review of the contractual savings and housing system is now underway to lay the groundwork for the extensive reform program for raising savings levels. Government is likewise embarking on the development of the capital markets and expanding the institution of market-oriented policy which would provide avenues through which savings can be encouraged. 2. Investor and BusinessConfidence. The deterioration of investor perception of the Philippines is largely caused by misperception resulting from heightened and relatively sustained local and international media coverage of negative developments in the country. More often than not, negative events have been overblownthereby giving the impression of the problems being more pervasive than the fact. Nonetheless,Government is endeavoringto correct this perception by addressingthe problemssquarely. In the case of the poor stock market performancecited by the donor community, reviving investor and business confidenceis being pursued through the passage of the Revised Securities and ExchangeAct. This proposed legislation imposes stiffer penalties against insider trading, contains provisionfor the demutualization of the stock exchange and allows more non-broker participation in the stock exchange, among others. To recover investor trust, Government is committedto the strict enforcementof the proposedlegislationwhen passed into law. Major progress has been attained by Government in promulgating economic legislationwhich shall have significantimpact on economicefficiency and activity, and boost investor confidence. A number of these laws are those which liberalizes the retail trade industry to foreign ownership, enables business transactions to be carried out through electronic commerce and strengthens the banking system including further opening foreign ownership in banking. The proposed legislation for a comprehensiverestructuring and privatization of the power sector is currently in the final process of passagein Congress. This power sector reform bill, which have been passed by the House of Representativesand the Senate, shall improve the sector's efficiency, bring down the cost of power which is key to long-term global competitive ness as well as provide a level playing field and market oriented-system for private sector participants. Both chambers of Congress have likewise passed the their respective versions of the Securities Act of 2000. The two versions are now being reconciled by the bicameralcommittee and we expect passage of this important legislationsoon. 3. Focusing on Rural Developmentand the ComprehensiveAgrarian Reform Program. Rural developmentand agrarian reform remain as a principalthrust of Administration in its continuing campaign against poverty. Breakthroughs in GOP's rural development strategy have recently been achieved through the enactment of the landmark legislationon agriculture and fisheries modernization. The Agrarian Fisheries and Modernization Act (AFMA) currently supports enhancing productivity and competitiveness,access to land and other productive resources, sustainable use of natural resources and protection of the Annex 3p Page 3 of 4 environmentand the empowerment of stakeholders. On the other hand, the Comprehensive Agrarian ReformProgram(CARP)continuesto a centerpiece programof the Government for landreform. To date,Government has acquired and distributedaround5.3 millionhectares, 65% of the total programscope. To assure sustainability of the programand in order to strengthenthe economic viabilityof agrarianreformbeneficiaries(ARBs) and agrarianreformcommunities (ARCs), GOP has launchedthe MAGKASAKAProgram under which joint venture agreementsbetweenagrarianreformbeneficiaries (ARBs)and private sectorentrepreneurs are pursued. 4. Population Management.Populationmanagementis key to accelerating development,a shared vision of all sectorsof Philippinessociety. Given the complexsocialand culturalmilieuof the Philippines, Government will haveto be flexiblein addressing the issueof populationmanagement. Resourceconstraints limit the abilityof the PopulationCommission and FamilyPlanning Serviceof the Departmentof Health in bringingdown the targeted total fertility rate of the Philippines. An advocacyprogramis being implemented to generateresources and gettingsupportof LGUs,the legislature andyou, the donorcommunity. To improve reproductivehealth (RH) indicators,guidelinesare being finalizedto operationalize reproductive particularly healthinterventions in local communities. Govemmentwill continue to support the delivery of family planningservices, particularlyin shoulderingthe cost of supplies.It is official policyto enjoin all sectorsto contribute in and integratedapproach to populationmanagement such as to include education and training, health care programs and providing economicopportunities. 5. Finalizing the NationalAnti-PovertyAction Agenda. The National Anti- Poverty Action Agenda which is a result of extensive discussions and negotiations betweenGovernment andthe BasicSectoris now in the last stages of refinement. It is expectedthat the holding of the Anti-PovertySummit in Augustwill formalize the adoptionof the ActionAgenda. 6. Effortson JudicialReform.The Government supportsefforts by the Judiciary by the Judiciaryfor institutional for judicialreform. Initiatives strengtheninghave been assisted by the World Bank, UNDP and USAID which the Executive welcomes. Shouldthe Judiciarydecideto seekfurtherfinancialassistance for its reformefforts,the Government willbe supportive. 7. Anti-Corruption Measures.The Ten-PointJumpstartAnti-Corruption Program drawn up from a governmentstudy commissioned by the Presidentwill be boostedby expectedearly signing of the ExecutiveOrderfor strengthening of entities. Twenty namesof candidatemembersto the existing anti-corruption anti-corruptioncouncilhavealreadybeensubmittedto the President. 8. CG WorkingGrouP.We welcome the donors' suggestionof a regular GOP- governance donor dialogue with regard to the Government'scomprehensive improvement program,with DBMas Chair. Annex 3p Page 4 of 4 9. Commitments on the December 1999ODAPortfolioReview.We reaffirm the commitments we made duringthe Joint ODA review,as well as in succeeding meetings,to improveODA performance.As we improveon disbursements, we will focus on achievingthe expecteddevelopmentoutcome,or the measurable results. 10. The MindanaoSituation.The Govemment is fully committedto implementing and sustainable comprehensive to promotepeaceand development programs in Mindanao.. In this regard, DOF and NEDA will again organizea forum to put together a concrete action plan for relief and rehabilitationprojects and acceleratethe implementation of ongoing projects. Necessarily, this will involve the stakeholders from Mindanao. The Government is strongly supporting the localization of peace and developmentinitiatives and will heavily rely on the trisectoral approach as advocatedby the PhilippineCivilSociety,Government and Business Conference at the nationallevel. We would, however,like to emphasizein no uncertainterms that never in the country'shistory has Mindanaoreceiveda higher per capita appropriation than duringthe Estradaadministration.Contraryto some mediareports,the military agendais not the Govemment's goal for Mindanao. Socio-economic overriding development takes precedence, but we must recognizethat it is very hard to undertakedevelopment projectsin areascontrolledby armedgroupsengagedin banditryor committed to secession. Government that actualfiguresreflectingthe additionalfunding has ascertained for military operations in Mindanao is not significant to cut into social expenditures. This joint effort will hopefullybe the largest buildingblock to attaining lasting peaceand far-reaching development in Mindanao. we will providea progressreporton identified On the suggestionof the Co-chairperson, priority areas for Governmentaction even beforethe next CG Meetingthrough our regulardialogues with you. Withthis response, GroupMeetingis complete.May the agendaof the 2 3rd Consultative I acknowledge with deep gratitudethe expressions made by of financialcommitments our developmentpartnersin the amountof US$2.6billion. andcommitments May I againthank you all for your participation of support. The Meetingis adjourned. Annex 4 Annex 4a Page I of 2 CONSULTATIVE GROUP MEETING FOR THE PHILIPPINES [l±J)J TagaytayCity, Philippines June 19-20, 2000 Session IV: Discussion on Aid Utilizationand Indications of DonorAssistance Statementby the World Bank on ODA Portfolio Mobilizing ODA Flows for PovertyReductionthroughBetter Performance By: Mr. Aloysius Ordu, Principal OperationsOfficer,World Bank Mr. Chairman, DistinguishedGuests,Ladies and Gentlemen: In his presentation,Secretary Medalla capturedthe impact that the Asian financial crisis and weak implementation capacity had on the performance of the Philippine portfolio and the commendable measures the Government is adopting to address the identified problems. I would like to briefly share our experience with you as it has lessons for others. Despite strong efforts of the Governmentand the World Bank, the Bank's portfolio performance deteriorated sharply in 1999 vis-A-vis1998. The number of problem projects and under-performing projects increased from 16% to 34%; commitments at risk rose from $417 million to $1.1 billion and disbursement dropped sharply from $310 million to $152 million. In response, the Government and the World Bank scaled up their "spring cleaning" efforts designed to turn around portfolio performance and to increase development impact: 9 under-performing or old loans were closed; 4 problem projects were restructured; $300 million was cancelled from 12 projects; and 5 projects were reassessed to work out the operational impact of the crisis-induced peso devaluation. And consistentwith the Government'spoverty reductionobjective,the Bank increased its financing share from around 75% to over 90%, in some cases, for poverty alleviation projects. These measures have streamlined the portfolio and the disbursements have improved. Going beyond the World Bank financedportfolio, the Government spearheadeda joint portfolio review in December 1999 in partnershipwith Japan Bank for International Cooperation, the Asian DevelopmentBank and the World Bank. In this landmarkjoint review, concrete agreementswere reached to reduce the number of problem projects, to improve disbursements and to ensure better project preparedness for effective implementation. Other noteworthy efforts by the Government were the cabinet level inter-agency workshop that was held to resolve the identified problem projects; strengthening of the role of the Office of the President's Flagship Committee in the oversight of all foreign assisted projects; and the increased threshold for Office of the President's approval of contracts from Pesos 50 million to Pesos 200 million. 7// o6, Annex 4a Page 2 of 2 Additionally, the Government has adopted a "project readiness filter" designed to improve quality at entry. While congratulatingthe Governmenton these actions, we would like to note that we are not completely out of the woods yet. Secretary Medalla rightly confirmed in his presentationthat we have not seen or felt any dramaticincrease in disbursement. Indeed, the evidence of the last 6 months indicate that some progress has been made on a number of areas but these fall short of agreedtargets. About US$ 1.4billion or 71% of the World Bank's outstandingcommitmentsremainedundisbursedas of end May 2000. These outcomes emphasize that there are clearly no quick fixes to the portfolio problems. To enhance development effectiveness and reduce poverty will require a deliberate effort by all concerned-the implementingagencies, the oversight agencies, donors and other stakeholders-to take the necessary measures expeditiously to implement these projects. Accordingly,we would like to urge the governmentto steadfastly implementfour of its expressed commitmentswhich we believe are particularly importantfor improving portfolio performance. These are: o focus on portfolio improvementand exerciserestraint with new borrowing o rigorously apply the "projectreadiness filter" to ensure better quality at entry o involve stakeholders and civil society in the design, implementation, and results monitoring of projectsto ensure sustainability u pay closer attention to the governanceaspectsof project management. In closing, let me reiterate the World Bank's commitmentto supportAngat Pinoy 2004. We pledge $264 million in the next 12 months for the following poverty alleviation projects: o Land Administration& Management($4 million) o Second Local GovernmentUrban Water Supply ($100 million) o Metro Manila Urban TransportImprovement($60 million) o Second Social ExpenditureManagementProject ($100 million). This modest lending program reflects the Government's desire to exercise restraint on new borrowing and to approve projects only when they are ready for implementation. We respect this and remain committedto scale up our assistance should the Government need it and if the portfolio and macroeconomic performance remain satisfactory. Maraming salamatpo! Annex4b Page 1 of 7 ADB-Philippine in Development Partnership Reduction andPoverty Paperprepared forthe Consultative GroupMeetingfor Philippines, 19-20June2000 1. Being headquartered in Manila,the Asian Development Barnkhas a special relationshipwith the Philippines. Currently,the Philippinesis ADB's secondlargest borrowerin termsof number of ongoing loans.ADBhas beena consistent partnerof the Government in its development effortssinceit was established in 1967.ADBassistance sofar to the Philippines exceeds $7.5billionin loansthrough175projects andover$110 million in technicalassistance grantsthrough260 projects.ADB has also responded swiftlyto specialneedsof the Government at varioustimes.ADBassisted, for example, the Govemment in mitigatingthe effectsof the Pinatubodisaster.Duringthe financial crisis,ADBquicklyresponded to Govemment's requestfor assistance for fast disbursing assistance, in addition to its normal program, to meetthe country's balanceof payments andbudgetary needs.In linewith Govemment's emphasis on development of Mindanao, ADBhas alsobeenclosely involved in development effortsin the island. 2. In 1999ADB adopted the visionof Asia and the Pacificfree from poverty,and made poverty reductionas its overarchingobjective to guide all its operations. Henceforth,all its instruments of assistanceto its developing member countrieswill be assessedon the basisof their impacton povertyreduction. This will applyto loans, technicalassistance grants,its cofinancing and privatesectoroperations. Within this overallframework, ADBis alsostrengthening its effortsto promote goodgovemance in its developingmembercountries and to promote effectivepublic-private partnership.In the Philippines,wherepovertyremains a majorsocioeconomic problem, ADBoperations with their sharperfocuson povertyalleviation will helpaddressthis significantmalady. As in other areasof support, ADB'snewemphasis on povertyreduction willthus assist Governmentin an area it has placed very high priority on, in its mediumterm strategy. development 3. ADB's lendinglevels have been rising steadily in the Philippineswith 1998 seeing the highestlendinglevel so far of $858 million. In 1999, however,although severalloanshad beenunderprocess for approval duringthe year,only one loanwas Annex 4b Page 2 of 7 approved. The highlendinglevelsof recentyears,however, havenot beenmatched by increased disbursement levels,resultingin a high undisbursedbalanceof $1.7 billion, and representing postponedbenefitson critical projectsincludingthose for poverty alleviation. Fasterimplementationis necessary to resolve thisproblem. 4. An importantreasonfor slow disbursement is delaysin disbursements under programloansto supportpolicyreformsand institutional changes. Of late, such loans have becomeimportantin ADB's portfolioin the Philippines. It is hopedthat with the emphasisrecentlybeingplacedby Govemment on passage of pending legislation and concerted efforts to undertake necessary administrative actions, speedier implementation of programloanswilloccur. 5. In addition, implementation performance of projectloanshasalso not beenvery satisfactory. Thereare oftensignificantimplementation delays,particularly at the start up,resulting in poordisbursement. As a response to Govemment's ownconcerns in this area, Government initiateda joint portfolioreviewexercise with JBIC,World Bank and ADB,in December 1999.Immediately following this,in early2000Government identified a number of measures that are necessary for bringing abouta generalimprovement in projectimplementation. A processof quarterlyreviewswas begunby Government in 2000to monitor progresson the implementation of such measures. It is heartening to notethat somemeasures havealreadybeenimplemented suchas strengthening of the Presidential Committeeon Flagship Projectsand Programs, to better monitorand effectivelycoordinateODA project implementation. It is hoped that the rest of the measures wouldalsobe implemented early. 6. TheADB program for 2000 andthe forwardprogram for 2001-2003respondsto the mediumtermdevelopment prioritiesidentified by Govemment.The programplaces very high emphasis on povertyreductionwith severalinitiativesplannedin this area. WithADB'snewemphasis on povertyreduction,all the projects in the forwardprogram will directlyor indirectlyassistin reducingpovertyin the Philippines. In additionto loan projectsdirectlybenefitingthe poor, the programhas technicalassistancegrantsfor supportinga numberof Government initiatives. Theseincludeassistance to align the Annual Poverty Indicators Survey (APIS) with the tr-annual Family Income and ExpenditureSurvey(FIES)and for the Govemment's intemalparticipatory consultation Annex 4b Page 3 of 7 process to sharpen its anti-poverty strategy. ADB looks forward to a smooth and early finalization of this process. 7. Promotinghuman developmentthrough better provision of basic social services, such as education,health,sanitation, and housing for the poor, is essentialfor achieving the Government'sand ADB's goal of poverty reduction. This is emphasized, therefore, in the lending program. Advisory technical assistance grants are also being offered to advance human developmentin the country through strengtheningthe policy framework for and institutional capacity of agencies involved in social infrastructuredevelopment. Focusing on areas of high poverty concentration,many of these projectswill also assist in maximizingthe poverty reductionimpact. 8. Good governance is a high priority of the Govemment.It is well recognizedthat much developmentimpact of public programs is lost if leakagesthrough corruptionand poor public performanceoccur. The ADB program has therefore respondedsignificantly to the Govemment's serious concerns in this area. ADB's program includes supportfor sector restructuring and improved regulatory practices in such vital sectors as power, grains production and trade, and civil aviation and railways. Another important area of support is strengthening decentralizationby assisting in the capacity building of local governments. Assisting Government in its anti-corruptionefforts is also an important part of ADB's program. Strengtheningaudit and improving procurementpractices are important areas being supported in this context. Other areas that will be assisted are judicial reform and Government'svital project implementationefforts. 9. ADB is placing considerable emphasis on environmental improvement. In addition to an ongoing project to improve air quality in Metro Manila, another major initiative for Metro Manila is planned for 2000. This is the Pasig River Environmental Management and Rehabilitation Sector Development Program for environmental regenerationof the Pasig river system.The forward programalso includes assistancefor promoting sustainablemanagementof forestry and coastal resources and development of upland communities. In addition, many of the urban development projects are expected to yield positive impacts on environment, particularly through improved sanitation, and cleaner and environmentfriendly technologiesfor solid waste disposal, and water supply services. Annex 4b Page 4 of 7 10. throughits operations ADB is committed to assisting peace the Govemment's and development effortsin Mindanao.ADB'soperations in Mindanao beganright from its inception,and with 37 completed and 12 ongoingprojects focusingon Mindanao, ADB's involvement in Mindanaodevelopment has been immense. In the forward program,in addition, five moreprojectswill focuson Mindanao. Theseincludeprojects in rural development, powertransmission, basic education,urban infrastructure, and airportdevelopment. The successfulimplementation these projects need will, however, progress in theclimate of peaceandorderin the island. 11. For 2000,ADB's lendingpipelinecontainsfivefirm projects for a total of $495 million.In addition,three standbyloansfor another$215millionhave beenproposed. ADBalso intends to providetechnicalassistancegrantsof $8.7millionin 2000from its regularresources. Additionalgrantsare also beingsoughtand may be available from the Asian CurrencyCrisis SupportFacility.For the period 2001-2003, the program includes16 firm loanswith a lendinglevelof about$300millionannually, with technical assistance grantsof about$8 millionperyear. 12. With the concerted efforts that have been initiatedby Govemment to improve projectimplementation,it is expected that ADB'spro-poor programwill be successfully on lessonsof the past,ADB looksforwardto a periodof stronger delivered. Building cooperationwith the Government to reducepovertyand betterthe lives of all Filipino people. SC'abc/speech.doc Annex 4b Page 5 of 7 AsianDevelopment Bank Intervention onPoverty 1. Povertyreductionis the overarching objectiveof the Asian Development Bank. We are thereforeparticularly concerned with povertyreductionin the Philippines, our home. institutional 2. ADB is in the processof completinga studyof povertyin the Philippines using the 1998 Annual Poverty IndicatorSurvey (APIS).The study is titled Povertyand Wellbeing in the Philippines with a focuson Mindanao. It has beenmade availablein draftformfor today'smeeting andcomments. for yourfeedback 3. Thestudyrevealsmuchof whatis alreadyknown: the pooraredisproportionately locatedin Mindanao, the childrenof the poorare lesslikelyto be in school,particularly in highschool,thepoorhavelessaccessto safewatersupply and sanitation less facilities, accessto electricity, and lessaccessto credit. 4. We wouldlike to drawthe attention of this Group,however, to someof the new findingsthat haveemerged:whileARMMis byfar the poorestregionin thecountry, it is closelyfollowedby Caraga,and WesternMindanao. Furthermore WesternMindanao and Caragaare by far the poorestin termsof the povertygap ratio and the severity of poverty.Extreme povertyis not confined to Mindanao; CentralVisayasfollowsCaraga andMindanao in termsof the povertygapandseverity of poverty. Thismeansthat most of the poor in these regionsare well belowthe povertyline. Concerted emphasison investments in socialservices,healthandeducation, andattentionto income generation, land reform, extensionservices,infrastructure, and microfinance will be neededto providethe poorwith the means to lift themselves outof poverty. 5. Other findings from our study show that being poor has inter-generational implications.Whilethe gap betweenchildrenof the poor and non-poorin elementary schoolparticipationrate is relativelymodest, the gap widensat the high schoollevel. This condemns a largeportionof the childrenof the poorto a lifetimeof low eamings and self-perpetuating poverty.It is crucial that Govemment find waysto promotegreater Annex 4b Page 6 of 7 consciousnessregarding the importance of a high school educationand find improved methods to attract and retain the children of the poor in the classroom. 6. Although a shortage of infrastructure is unquestionably a factor in limiting children's access to school, poor quality is an equally important constraint. Lack of interest was cited as the single largest reason for non-attendancein school given by, poor and non-poorparents in the APIS, ahead of the high cost of education,distance to schools, and needingto work. This suggeststhat far greater attentionneeds to be paid to teachertrainingand incentivesas well as to the relevanceof the curriculumtaught. 7. Public health facilities are enjoyed proportionallymore by the poor than the non- poor who are more likely to use private clinics and private hospitals. The Rural Health Units are the most popular choice for treatment for the poor but the Barangay Health Stations are under-utilized.This implies that spending more on expanding the former and improvingservices in the latter will have very favorable impact on the health of the poor. 8. The MediumTerm Philippine DevelopmentPlan notes Government'ssuccess in reducing povertyfrom 35.5 percentto 31.8 percentbetween 1994to 1997. However, it is noteworthythat subsistencepoverty fell only by 2 percentduring the same period. This means that even before the crisis and the economic slowdown, the plight of the ultra- poor, one out of 5 Filipinos, who do not earn enough to meet basic food needs, remained virtually unchanged. The Medium Term Philippine Development Plan also provides targets for overall poverty reduction to 2004. As poverty by all indications increased in 1998 over 1997, however, these targets will require massive efforts if they are to be attainedin the remaining period. 9. To this end, the ADB, together with the UNDP and World Bank, is supporting the National Anti-PovertyCommission to develop a National Anti-PovertyAction Agenda. We have been very impressedby the experience and commitmentbrought to this effort by both the Governmentand the Basic Sectors and look forwardto the results as these will be crucial to the formulation of our own investmentprogram in the Philippines. We would like to note here as we have noted to NAPC in the past that such a plan must have detailed targets for outputs as well as the inputs requiredto achieve the outputs. Annex 4b Page 7 of 7 As we all recognizethat poverty needs to be measured using more than just the income criterion, other targets such as enrollment in school, immunizationcoverage, etc. will give a broader indicationof success. 10. The cost of the National Anti-Poverty Agenda must be assessed together with the sources of funds. Only in this way can the Govemment be sure it has mobilized adequate resources to implementthe plan. We are aware that the LGUs are expected to fund a large share of poverty reduction. It is necessary to ensure that they have adequate supportto enablethem to carry their share. ADB has assistedthe Department of Budget and Management develop the concept of a Local Govemment Support DevelopmentFund to enable LGUs better undertake their developmentrole devolvedto them. Government may consider further examination of this concept to put it into operation. 11. ADB is committed to promoting poverty reduction. Although it has several ongoing projects that will help reduce poverty, it is concerned that implementationhas not been on schedule. ADB has 17 ongoing projects with poverty interventions in agriculture, natural resources, urban development, education and health. All these projects are designed to benefit the poor by helping them improve the productivity of their occupations and gain better access to basic social services. However, over 70 percent of these loans, remain undisbursed. It is necessary that the implementationof these projects be expedited to avoid further erosion of their potential development impact and to ensure that the intendedbenefits reach the poor in time. 12. With its overarchingpolicy objective of poverty alleviationin Asia and the Paoific, ADB will continue to support Government's own initiatives in this vital area. We are confident that with our joint efforts towards this goal a major impact on povertyreduction will be achievedwithin the mediumterm. Annex 4c Page I of2 UN Statement for the Consultative Group Meeting 19-20 June, Tagaytay City, Philippines I Session 3: Progress and Plans on Structural and PublicSector Reform 2 3 The United Nations welcomes the governmentsmore concerted efforts to address critical elements of 4 governancereform, particularlybecauseof their potential impacton reachingpoverty eradicationgoals. 5 We recognise that such efforts require long-term sustainable interventionson the part of a variety of 6 stakeholders and we therefore encourage government to bring together interested parties in the 7 formulation of such strategies, to ensure commitment and the applicationof adequate resources. The 8 United Nations gives priority to three of the eight elements of governancepresented at the pre-CG 9 meeting, as follows: 10 11 Decentralizationand Convergence. 12 13 The envisagedrevision to the Local GovernmentCode and the expectedNational Anti-PovertyAction 14 Agendapresents an opportunityto localizethrough legislationthe national anti-povertyprogramme,and 15 to build local capacities for its implementation. It becomes opportunethus to 16 17 . Build the capabilities of LGUs to assess, prioritise and implement anti-poverty and 18 localizedservices, and developmentassistance. 19 . Reform NGA policies and procedures,towardsstreamlinedmandatesthat focus primarilyon 20 providing policy guidelines and setting technical standards, with resources allocated 21 accordingto agreed poverty monitoringindices. 22 . Ensure that local governmentsput in place participatorymechanismsfor private sector and 23 civil society involvement 24 . Develop ODA strategies for decentralization by exploring mechanisms where local 25 governments are able to mobilize counterpart funds and benefit from incentives for good 26 performance. 27 28 The present informal coordination group on local governance should be expanded to include all 29 stakeholders and its work institutionalised in various ways. UNDP would be pleased to support such an 30 effort. 31 32 Enhanced Oversight of Public sector management reform 33 34 The important initiative of re-engineering government deserves full support from the international 35 community, which should also recognise the importance of sustained commitment to what is a long-term 36 process. It is also important to build from the beginning strong elements of ownership within the 37 bureaucracy through effective change management processes, while at the same time providing 38 opportunities for strategic guidance and oversight from other stakeholders,including the trade unions. 39 The goals of poverty eradication and giving priority to devolution should guide the process of reform. 40 41 Effectiveoversightand internal commitmentwould provide alsothe capacityto build islandsof integrity 42 within the government for anti-corruption interventions. We welcome the governments intention to 43 finalise and implement an anti-corruption action programme to address this important aspect of 44 governance, not least because of the impact it would have on eliminatinganother cause of poverty and 45 marginalisation. We support the citizens as customer, indeed as owner, movement to enhance 46 accountability at all levels and to improve performance. Tri-sectoral plans to localise this agenda deserve 47 support. Annex 4c Page2 of 2 UN Statementfor the ConsultativeGroup Meeting 19-20June, TagaytayCity, Philippines I Within the machinery of government it is important also to focus on the oversight agencies and 2 strengthentheir capacity to guide change and provide incentivesfor good performance.For the United 3 Nations the followinginterventionsdeserve priorityand will be supported: 4 5 . Congressional oversight: work with NEDA/PIDS and policy institutes to strengthenthe 6 oversight role and effectiveness of congress members and staff in reviewing budget 7 documents, the anti-poverty agenda and governance init;qtives, including appropriate 8 monitoringsystemsfor assessinggovernanceperformance 9 . Strengthened audit systems: by buildingthe capacity of COA to conduct performanceaudit 10 for anti-poverty programmesand to involvecivil society in monitoring implementation of 11 programmesand projects. Audit systemscan benefit from innovationssuch as participatory 12 audit and investigative journalism cum dialogue with local governments. The rights of 13 volunteers and others involved in such activitiesshould be suitably protected from negative 14 influenceson their work. 15 . Justice system reform: with the publicationof the Blueprint of Action for the Judiciarv, a 16 framework is now available to guide interventionsto improve important elements of the 17 justice system. Special efforts are needed to ensure that changes in the system promote 18 equity and social justice. Effective leadershipof donor support for reform is necessaryto 19 avoid duplication and inconsistenciesand gaps in the reform process. 20 . Coordinationof ODA: given the priorityof governancein donor programmes,it is important 21 to put in place a government led mechanismfor informationsharing and dialogue,to ensure 22 policy consistency and programmaticcoherence with government and other initiatives.The 23 pre-CGmeeting providedevidenceof the demandfor such a practicalmechanism 24 Annex 4d PageI of 2 UN Statement for the Consultative Group Meeting 19-20 June, Tagaytay City, Philippines I UN STATEMENTON PEACE and DEVELOPMENT in MINDANAO 2 3 Peace and Development in Mindanao. 4 5 The issue of Muslim Mindanao has been a critical area for governancefor decades. The inherent 6 complexity of working in that region is reinforced today by noting that all phases and aspects of the 7 conflict to developmentcontinuumare in operation at one and the same time. It is also recognisedthat 8 dealing with these issues internationallyis a very sensitive matter, and requires close consultation 9 between the government and its partners. In the interest of finding appropriate avenues to rebuild 10 confidencein peace and developmentin the region,the followingaction agendais suggested: 11 12 1. The hostage crises. It is importantin the context of rebuildingconfidence in the peace process to 13 clearly distinguish between the parties involved in the Sulu and Basilan incidentsand the other 14 aspects of the crisis on the main island of Mindanao. A developmentsolution to avoiding similar 15 incidentsin the future is necessaryand feasible with sufficientfocus, resourcesand time recognising 16 that these are two of the poorestprovincesin the Philippines. 17 18 2. The militaryoffensives: In the current intensiveseries of clashes betweengovernmentand MILF 19 military forces, justified as necessaryto restore public order on the highways and to reduce the 20 militarycapacity and territorialreachof the MILF, the govemmenthas demonstrated its capacityto 21 win battlesin the field and to takecontrol of territory. The governmentcould considerat this point 22 to declare a cease-fire, or limit hostilities,and agree on zones of peace, both to give impetusto 23 meaningfulpeace talks and to quickly solve the problem of some half a millionevacueesfrom the 24 Mindanao landscape. Involvingreputable national third parties in the peace talks would be a 25 confidence buildinginitiativeand improvethe transparencyof the process. 26 27 3. The evacueesand relief & rehabilitationneeds: Although there may be some uncertaintyabout 28 numbersthere are certainlyan uncomfortablylarge numberof people in centralMindanaowho have 29 beenforcedto leavehome as a result of the militaryoffensives.What informationis availableat this 30 time indicates a worseningof conditions in some centres and the need for a more focused and 31 intensiveeffort to meet the needsof the displaced.The governmentmay wish to clarifyits approach 32 communitvon the questionof supportfor relief and rehabilitation. to the international 33 34 Any sensible plan for rehabilitation should be put in the context of a cease-fire or similar 35 arrangement to halt or limithostilities.Declaringzones of peace in areas clearedof conflict,without 36 involvingeitherthe other partiesto the conflict or the intendedbeneficiariesmay not be productive. 37 It may be appropriatefor government to rethink its approachif communitiesare to be confidentthat 38 it is safeto return home andto begin to rebuildtheir lives. 39 40 Anotherreasonto put in place the conditionsfor a return to normalcyis the impactof the fightingon 41 communityrelations.The dangersof inciting communityconflict will heighten, shouldthe conflict 42 continuefor much longer andshouldthe mediacontinueto portraythe conflict as a strugglebetween 43 different cultures. A positive governmenteffort to provide evidence of the success of the peace 44 process with the MNLF and the capacities shown by communitiesto live in harmony would be 45 importantat this time. 46 47 communitylies in 4. Peace and development initiatives: Another importantrole for the international 48 supportingpeace and developmentactivities,to rebuild confidenceand to tackle the root causesof 49 the conflict, the poverty eradicationand good governanceagenda. There are three windows of Annex4d Page2 of2 UN Statement for the Consultative Group Meeting 19-20 June, Tagaytay City, Philippines I opportunity in the peace and developmentprocess that collectivelythe national and international 2 partnersmay pursue in the immediateterm. 3 4 Meaningfulautonomy. The solution to the conflict in MuslimMindanaois recognised 5 to involve meaningfulautonomyfor the areas involvedand the governmenthas been 6 positive in pursuing such autonomy. The experience since 1997 is reflected in the 7 frustrations within the MNLF, while for the MILF some form of more meaningful 8 autonomyis a possiblesatisfactoryoutcometo the peace process.Concertedefforts are 9 required therefore to review the draft revised organic law and to identify with the 10 interested parties elements of more meaningfulautonomy,including where necessary 11 the revision of other laws under the present constitution.An inclusive think tank or 12 similar bodycould be chargedwith revisingthe law in consultationwith all partners. 13 14 Transparencyin governance.Serious concerns exist in Muslim Mindanao with the 15 transparencyand accountability of governanceinstitutions. Suitableopportunitiesshould 16 be identifiedto correctthis situation, includingthe electionsnow less than a year away. 17 Donor partnersmay be effective interlocutors and supportersof these efforts. 18 19 Developmentframework for ARMM and SZOPAD. The core areas of conflict match 20 provinces characterisedas the poorest in the nation. Current government efforts to 21 formulatea development frameworkfor Mindanaoare laudableand necessary,but it is 22 importantto also focu§nationalefforts on transformingthe ARMMprovincesand other 23 areas in SZOPAD.A specificcapacity to concludeand implementa new development 24 strategy for these areas would likely encourage higher levels of donor support being 25 called for by government.In the meantime,we agree that such a capacity could also 26 focuson fast-tracking the implementation of existingdonor commitments within a more 27 coordinatedand better-manaaed structure. The proposedforummentionedyesterdayby 28 Sec. Angara wouldbe a usefulfirst stage. 29 Annex 4e PageI of2 UN Statement for the Consultative Group Meeting 19-20 June, Tagaytay City, Philippines I Session 4 Report on UN Indication of Assistancefor 2000 and 2001 2 3 Aid Coordination 4 The governmentand World Bankare to be congratulatedon organisingthe CG in the Philippinesand for 5 doing so also by respondingto the findingsof the survey last year on how to improvethe effectiveness 6 of this meeting. The holding of four pre-CG workshops has improved understandingand dialogue 7 between the governmentand the donor community.We would like to express our appreciationto the 8 governmentfor the leadershipprovidedin the process, for the presentationof usefuldocumentation and 9 for the substantiveand candid exchangeof views that took place. 10 11 The effectivenessof the pre-CGworkshopsand the lessonsfrom other coordination effortsover the past 12 and agrarianreform, provide povertyalleviation,the environment, year, especiallyrelated to Mindanao, 13 substancefor a discussionof how to furtherenhancethe partnershipbetweengovernmentand the donor 14 community.The benefitsof regulardialoguesinclude: is 16 . exchanginguseful informationfor programmingand establishingpermanentdata basesand 17 informationrepositories 18 . addressingoverlapsandensuringefficiencyin the use of donor resources 19 a developing areas for complementation,as in the case of Mindanao. In spite of adverse 20 political conditions,no dqnor has decided to leave Mindanao.The experienceof working 21 together since 1997,has provided us with lessons that can be useful in enhancing further 22 effortsby government, the church,civil society,businessand combatantsto build peace. 23 . jointly assessing problemareas and developingsolutions, in partnershipwith govemment. 24 Under the leadershipof DAR,the working group has establishedthe foundationfor a frank 25 and objectiveassessmentof the bottlenecksinhibitingprogressin agrarianreform. 26 27 Regardingspecific mechanismsfor enhancingthe dialogue between donors and government,we could 28 considerthe following: 29 30 Strategicallylink the multi-yearexpenditureframeworkto the way donorsrespondto countryneeds.An 31 agenda for the future would be to explore sector wide approaches that take into account resources 32 mobilizedby national government,local government and the ODA community.Also identify cross- 33 cutting issuesto do with developmentcooperationthat could be the focusof consultation. 34 35 Regularize under government leadership the dialogues on agrarian reform, governance, poverty 36 alleviation, and the various elements of basic social services. Perhaps, one can envision semi-annual 37 meetingsto ascertainprogresson the measuresagreed upon by government and the donor community. 38 39 Adopt a variety of approaches in other areas of developmentcooperation.building upon existing 40 informalmechanisms,in such areas as local governance,food securitvand nutrition,gender,indigenous 41 peoples,child labour,and HIV-AIDS. 42 43 Explorethe use of internet technologyto enhance coordination.Perhaps, we could combine the web 44 page of NEDA. with the planned developmentinformation portal of the UN CountryTeam, and the 45 video conferencinafacilities of the World Bank. Posting donor programmesgeographically can help. 46 Listing implementationrateswould also be useful. In supportof government. U-NDP wouldbe happyto 47 convene a steeringgroup aroundthe ideaof a developmentinformationportal to give impetusto meeting 48 this need. 49 Annex 4e Page 2 of 2 UN Statement for the Consultative Group Meetincg i, Lft_2yv19-20 June, Tagaytay City, Philippines I Report on Assistance for 2000 and 2001from trle United Nations 2 3 We are pleased to report that through their regular resources the UNDP, UNICEF, UNFPA, ILO, FAO, 4 WHO and UNAIDS will be providing US$15M for 2000 and $12M for 2001 in support of government 5 programmes related to human development, basic social services, environmental regeneration, rural 6 development and governance. The reductions in regular resource's allocated to the Philippines are a result 7 of global shortfalls in donor contributions to the funds and programmes. 8 9 Please note that these figures only reflect the allocation of our regular or core resource to the Philippines. 10 To avoid double counting, we have not reported the contributions that UN agencies receive for specific II projects and which we manage on behalf of bilateral and other multilateral institutions. 12 13 We are pleased to announce that the ratio of core resources from the UN vis-a-vis trust funds or 14 cost-sharing mobilized from bilateral and multilateral institutions is approximately 1:1. UN 15 agencies are managing close to 16M of cost-shared or trust fund resources put at the disposal of 16 the UN by governments and multilateral institutions For last year's post-conflict programmes in 17 Mindanao, the ratio was close to 1:2. This year, we hope to increase the ratio to 1:4, in preparing 18 a US$12 million programme for peace and development, in support of government and the 19 SPCPD. 20 21 We would like to use this opportunity to express our appreciation to bilateral and multilateral 22 governments for their continued trust in the capacities of the UN to manage their resources effectively 23 through various programmes and activities led by government. 24 25 . In support of UN-government programmes on peace and development in Mindanao, we wish to 26 thank Australia, Canada, Netherlands, New Zealand, Norway, Finland, Spain, Switzerland, Belgium, 27 Turkey and Sweden. 28 . In promoting the rights of children, we are grateful for the support of AUSAID; the Canadian, 29 German, Spanish, UK and Japan Committees for UNICEF; the Netherlands and Norway 30 . In the area of reproductive health, we wish to acknowledge the support of Netherlands and Spain 31 . In the area of agriculture, rural development and agrarian reform, we are grateful for the support of 32 Netherlands, Belgium, Italy and Australia 33 . In the area of child labour, Germany, USA, Japan and Finland 34 . For indigenous peoples, Denmark, Netherlands and the AGFUND 35 . For governance related programmes including the Integrated Rural Accessibilitv Planning the 36 Netherlands and AUSAID 37 . For specific environmental programmes, Netherlands, Switzerland, Japan, World Bank, ADB, EU, 38 USAID and OPEC 39 . For microfinance, AUSAID and GTZ 40 . For poverty monitoring, the EU through ASEM and the World Bank 41 . For technology-transfer related projects, Japan 42 . For HIV-AIDS, Australia 43 44 45 We look forward to further collaboration in support of the government's anti-poverty agenda. 46 47 48 Annex4f PageI of4 PHILIPPINESCONSULTATIVEGROUP MEETING 19-20 JUNE 2000 MANILA STATEMENTBY MR DAVID SWAN ACTINGASSISTANTDIRECTORGENERAL EAST ASIA BRANCH AUSTRALIANAGENCY FOR INTERNATIONALDEVELOPMENT THE GOVERNMENTOF THE PHILIPPINESDESERVESPRAISE FOR THE MANNER IN WHICH IT HAS SUCCESSFULLYWEATHEREDTHE ASIAN FINANCIALCRISIS AND RETURNOF THE ECONOMYTO POSITIVE GROWTH.THE BANKING SECTORIS IN RELATIVELYGOOD SHAPE, FISCAL IMBALANCESARE UNDER CONTROL,EXPORTS ARE PERFORMING WELL AND TRADE REFORMSHAVE CONTINUED THROUGHOUTTHE 1990S. ONE NOTABLE MAJOR MACROECONOMIC POLICY ACHIEVEMENTIS THE TRANSFORMATIONOF THE CENTRALBANK INTO A MORE COMPETENT AND INDEPENDENTINSTITUTION,OPERATINGWITHIN THE CONTEXTOF AN OPEN CAPITAL ACCOUNTAND PERFORMINGMUCH BETTER IN ACHIEVINGITS GOAL OF LOW INFLATION. WITH THE ASIAN FINANCIALCRISIS AND EL-NINO INDUCED AGRICULTURALCONTRACTIONNOW BEHIND IT, THE PHILIPPINE ECONOMYMIGHT HAVE BEEN EXPECTEDTO RECOVER STRONGLYIN 1999 AND THIS YEAR. WHILE THEREARE SIGNS OF RECOVERY,GROWTH IS LITTLE FASTER THAN POPULATIONEXPANSION.IN REAL PER CAPITA TERMS,THE PHILIPPINEECONOMYIS HAVING TROUBLE IN RAISINGPER CAPITA INCOME. ACHIEVINGA SUFFICIENTLEVEL OF ECONOMIC GROWTH BEYOND THAT REQUIREDTO KEEP PACE WITH POPULATION GROWTHREMAINS A MAJORCHALLENGEFOR THE GOVERNMENT. AUSTRALIARECOGNISESTHAT ECONOMICREFORM IS NOT WITHOUT ITS SOCIAL COSTS. THE PHILIPPINES-AUSTRALIA VULNERABLEGROUPS FACILITYASSISTSMAINTAINAND EXTENDKEY PHILIPPINE GOVERNMENTSOCIAL SERVICEPROGRAMSFOR VULNERABLEGROUPS MOST AFFECTEDBY STRUCTURALAND ECONOMICCHANGE,WHERE THE PROGRAMSARE IN JEOPARDYTHROUGHBUDGETCONSTRAINTS. AUSTRALIAHAS COMMITTED$30.0 MILLIONOVER 3 YEARS FOR THIS PURPOSE. MUCH HAS BEEN ACHIEVED BUT EFFORT IS STILL REQUIREDON A NUMBER OF FRONTS. FOR EXAMPLE,THE SAVINGS RATE CONTINUES TO BE LOW. THIS INEVITABLYHOLDS BACK GROWTH.THE GOVERNMENT'SFISCAL POSITIONCONTINUESTO CAUSE CONCERN. WHILE DEFICIT LEVELS ARE JUST MANAGEABLE,THE TAX COLLECTION EFFORT IS VERY POOR. THIS, COMBINEDWITH THE CONTINUINGDEBT OVERHANG,RESULTS IN A CONTINUINGSQUEEZE ON VITAL PUBLIC Annex 4f Page 2 of 4 SECTOR GOODS - INFRASTRUCTURE,EDUCATIONAND HEALTH SERVICES,FOR EXAMPLE. GOVERNMENTAT THE LOCAL LEVEL CONTINUESTO BE HIGHLY DEPENDENTON REVENUESTRANSFERREDUNDER THE INTERNAL REVENUE ALLOTMENT.AUSTRALIAHAS OFFEREDTO ASSIST WITH THE REVIEW OF THE IRA TRANSFERFORMULAIN AN EFFORTTO ENSURE THAT THE POORER LOCAL GOVERNMENTS RECEIVE THEIR FAIR SHARE OF NATIONALREVENUES.LOCAL GOVERNMENTSTOO CAN TAKE ADVANTAGEOF THE REVENUERAISING POWERSGRANTEDTHEM UNDER THE LOCAL GOVERNMENTCODE OF 1991. AUSTRALIATHROUGH THE PHILIPPINESREGIONAL MUNICIPALDEVELOPMENTPROJECTHAS BEEN ASSISTING SEVERAL CITIES TO IMPROVETHEIR REVENUE RAISING CAPABILITY. REGIONAL DYNAMICSAND DECENTRALISATIONHAVE BECOME A CRITICAL ISSUE FOR DEVELOPMENT IN THE PHILIPPINES.IN AUSTRALIA'SCASE THIS HAS MEANTTHAT, FOR THE FIRST TIME, A LOCAL GOVERNMENTUNIT IS THE PHILIPPINECOUNTERPARTAGENCY FOR A MAJOR AUSTRALIANAID INITIATIVE.THE PHILIPPINES- AUSTRALIALOCAL SUSTAINABILITY PROGRAMAIMS TO HELP THE PROVINCIALGOVERNMENTOF MISAMIS OCCIDENTALIN REGION X BETTER PLAN FOR, AND MOREEFFECTIVELY,DISCHARGEITS RESPONSIBILITIESUNDER DEVOLUTION.THE PROJECT IS EXPECTEDTO PROVIDE AUSTRALIAWITH A PROTOTYPEFOR WORKINGAT THE LOCAL LEVEL IN THE PHILIPPINES. BECAUSEANECDOTAL EVIDENCESUGGESTSA HIGHLY VARIED PATTERN AND EXPERIENCEBETWEENAND WITHIN REGIONSIN THE PHILIPPINES,AUSTRALIAAGREESTHAT IT WOULDBE TIMELY TO COMMISSIONAN INDEPENDENTEVALUATIONOF EXPERIENCEWITH IMPLEMENTATIONOF THE CODE. SUCH AN EVALUATIONWOULD BE A USEFUL INPUT INTO INFORMINGDONORS ABOUT WORKINGWITH LOCAL GOVERNMENTUNITS. AGRICULTURE'SPERFORMANCEREMAINS THE KEY TO IMPROVINGTHE LIVING STANDARDSOF POOR FILIPINOS.ASSISTINGPHILIPPINE EFFORTS TO RAISE RURAL INCOMESWAS THE SUBJECTOF A RECENT JOINT AUSTRALIA-PHILIPPINESSTUDY.THE STUDYPROPOSES: ASSISTANCEIN STATISTICS,INFORMATIONAND ANALYSIS;AND ASSISTANCETHAT ADDRESSTHE "SYSTEMIC"CAUSES OF LOW PRODUCTIVITYIN THE RURAL SECTORS,ESPECIALLYAS THEY AFFECT THE POOR. SOME AREAS IDENTIFIEDFOR POSSIBLE ASSISTANCE INCLUDE: RURAL FINANCIALSERVICES;RURALENTERPRISE DEVELOPMENT;MARKETAND TECHNOLOGYINFORMATIONFLOWS; RESEARCH,DEVELOPMENTAND EXTENSION;IRRIGATIONWATER USE EFFICIENCY;LINKAGESBETWEEN ENVIRONMENTMANAGEMENTAND PRODUCTION;AND LOCAL INSTITUTIONSTRENGTHENING. Annex 4f Page 3 of 4 PEACE IS A NECESSARY PRECONDITIONFOR DEVELOPMENTIN MINDANAO,THE GEOGRAPHICFOCUS OF AUSTRALIA'SAID EFFORTIN THE PHILIPPINESSINCE 1996.AUSTRALIA'SCURRENTASSISTANCETO MINDANAOTOTALS SOME $A60.0 MILLION.IN ADDITIONTO SEVERAL SIGNIFICANTPROJECTS,AUSTRALIAHAS PROVIDEDDIRECT SUPPORT FOR THE PEACE PROCESS IN THE FORM OF A CONTRIBUTIONTO THE UNDP EMERGENCYPROGRAMFOR MINDANAOAND THE ESTABLISHMENTOF PASCATS,THE PHILIPPINES-AUSTRALIA SPECIAL COMMUNITYASSISTANCETO THE SPECIALZONE OF PEACE AND DEVELOPMENT(SZOPAD).UNDER PASCATS, AUSTRALIAHAS PROVIDED SOME $2.0 MILLIONIN SUPPORTOF COMMUNITY-BASED LIVELIHOOD INITIATIVES. THE SECURITY SITUATIONIN MINDANAOIS A CONCERN.IT IS HOPED THAT THE PRESENTDIFFICULT SITUATIONCAN BE OVERCOMESO THAT THE EFFORTS MADE SO FAR TO ACHIEVE A LASTINGPEACE, SUPPORTEDBY THE INTERNATIONALDONORCOMMUNITY,ARE NOT LOST. AUSTRALIA SHARES THE PHILIPPINEGOVERNMENT'SCONCERNABOUT THE EFFECTS OF GRAFT AND CORRUPTION.GENERALECONOMIC REFORMS CAN DO MUCH TO COMBAT THE PROBLEM.FOR EXAMPLE, THE DISAPPEARANCEOF THE BLACKMARKETIN FOREIGN CURRENCY AS A RESULT OF THE OPENINGOF THE INTERNATIONALCAPITAL ACCOUNT,AND THE REMOVAL OF MOST NON-TARIFFBARRIERSAND SUBSIDIZEDCREDIT SCHEMES,CAN BE CREDITEDWITH BRINGING ABOUT AN APPRECIABLEREDUCTIONIN CORRUPTIONIN THE PHILIPPINES.THE EXISTENCEOF A FREE PRESS ALSO PLAYS AN IMPORTANTROLE. THE PHILIPPINE GOVERNMENT'SEFFORTS TO MAKE THE GOVERNMENT SERVICE MORE CREDITABLEAND EFFECTIVEARE APPLAUDED.WHILE REFORMS SUCH AS THE RE-ENGINEERINGOF THE BUREAUCRACY,THE MOVE TO RESULTS-BASEDMANAGEMENT,AND AN INCREASING EMPHASIS ON SERVICEPROVISION,ARE MOVING AHEAD,REFORMS LIKE THESE WILL TAKE SOME TIME AND EFFORTTO BE FULLY INSTITUTIONALISED.TRANSPARENCYAND PUBLICACCOUNTABILITY ARE ALSO IMPORTANTFEATURESOF ANY ADMINISTRATIVE REFORM PROCESS. A KEY ROLE IN THE GOVERNMENT'SEFFORTS AGAINSTGRAFT AND CORRUPTIONIS PLAYED BY AGENCIES SUCH AS THE COMMISSIONON AUDIT. AUSTRALIAHAS BEEN ASKED TO ASSIST THE COMMISSION STRENGTHENTHE PUBLIC ACCOUNTABILITYSYSTEM IN THE PHILIPPINESUNDER THE PHILIPPINES-AUSTRALIAGOVERNANCE FACILITY.AUSTRALIA,THROUGHTHIS JOINTLY MANAGEDFACILITY, SEEKSTO SUPPORTPHILIPPINEEFFORTS TO PROMOTE GOVERNANCEIN THE PHILIPPINESBY EXTENDINGASSISTANCETO GOVERNMENTAT ALL LEVELS AND TO CIVIL SOCIETY,INCLUDINGBUSINESS,WHERE THEY ARE THE DEVELOPMENTPARTNERS OF GOVERNMENT. Annex4f Page4 of 4 WHEN THERE IS A TURNOVEROF ADMINISTRATIONS, WHETHER NATIONAL OR LOCAL,LOSS OF INSTITUTIONALMEMORY(AND THEREFORE POLICY CONTINUITY)CAN OCCUR. IT IS IMPORTANTTHAT CHANGES IN ADMINISTRATIONARE MANAGEDTO PROVIDEFOR GREATER CONTINUITY,PARTICULARLYWHEREDONORASSISTED PROJECTS ARE INVOLVED. REFORM OF THE PUBLIC SECTORIN THE PHILIPPINESREMAINSAN IMPORTANTLONG-TERMGOAL. AN EFFICIENTAND EFFECTIVEPUBLIC SECTOR REQUIRESCOMPETENTAND COMMITTEDSTAFF WHOSE EXPERTISEAND EXPERIENCEARE SUITABLYRECOGNISEDAND REMUNERATED.AUSTRALIAPROVIDESSCHOLARSHIPSIN SUPPORTOF THIS REFORM AGENDA.SOME 224 FILIPINO SCHOLARSHIPHOLDERS, PREDOMINANTLYSERVINGPHILIPPINEGOVERNMENTOFFICIALS,ARE CURRENTLYUNDERTAKINGPOST-GRADUATEACADEMICSTUDIES AT AUSTRALIANTERTIARY INSTITUTIONS. ASSISTANCETO MEET PUBLIC SECTOR SHORT-TERMTRAININGNEEDS IS ALSO BEING PROVIDED UNDER THE PHILIPPINES-AUSTRALIA SHORT-TERMTRAININGPROJECT. THIS IS A CRUCIALTIME FOR THE PHILIPPINES.IN A COUNTRYTEEMING WITH TALENT, AND GIVEN THE RIGHT MIX OF REFORMS,IT IS POSSIBLE TO LIFT FURTHER THE COUNTRY'SECONOMICFORTUNES.AUSTRALIA HAS BEEN A LONG-TERMDEVELOPMENTPARTNERIN THE PHILIPPINES. AUSTRALIA'SAID PROGRAM WILL CONTINUETO ASSISTPHILIPPINE EFFORTS TO IMPROVETHE LIVING STANDARDSOF THE POOR, PARTICULARLYIN RURALAREAS, AND TO PROMOTE SUSTAINABLE AND ECONOMICDEVELOPMENT. Annex 4g Page 1 of2 CONSULTATIVEGROUP MEETINGPHILIPPINES Tagaytay City, June 18-20,2000 STATEMENT BY THEGOVERNMENT OF THE KINGDOM OF BELGIUM The Governmentof the Kingdom of Belgium extends its gratitudeto the Governmentof the Republic of the Philippines for its invitation to this Consultative Group Meeting and would like to commend the Governmentof the Philippinesfor the excellent organization of this meeting in this beautiful setting of Tagaytay City and for the presentations made to the Consultative Group. . Although the Philippines was recently deleted from the list of 25 privileged partner countries for direct bilateral development assistance by the Belgian Government, a substantial aid package from Belgium will continue to be extended to the Philippines. The on-going programmes and projects will be implemented as committed. The total budget still available for this direct bilateral assistanceamounts to about 775 mio BEF, while the implementation of this aid programme could last for another five years or so. The bulk of this amount will be earmarkedfor the further implementationof the Belgian Integrated Agrarian Reform Support Programme(BIARSP) in Region VIl (Central Visayas ) and Region IX (Western Mindanao). This programme is directed at the integrated development of ARCs and the population of the surrounding areas, encompassingagriculturaldevelopmentand food security, social infrastructurebuilding, basic rural infrastructure, primary health care, water and sanitation, basic education and small enterprise development. In this way, the programme comes in full support to the poverty alleviation programme of the Philippine Government. In connection with this, the Government of Belgium reiterates its willingness to continue the implementation of BIARSP in the provinces of Basilan, Zamboanga del Norte and Zamboanga del Sur. The indirect developmentassistanceto this country will continue as in the past, mainly through long-term programmes initiated by Belgian NGOs and implementedjointly with local NGOs/POs. The on-going NGO programmes and projects, with a total budget of 320 mio BEF, are mainly focused on poverty alleviation both in rural and urban areas and on capacity building of the civic society. Annex 4g Page 2 of 2 Also on-going is a programme on institutionalcooperationbetween the Flemisch Council and the BenguetState University Interuniversity in La Trinidadand the Saint Louis Universityin Baguio City. Both universitiesare targeting the students of the Cordillera.This interuniversityinstitutionalcooperationis programmed for four years and hasa total budgetof 120mio BEF. Regarding the multilateralcooperation,the Belgian Governmentwill continue its support to the Philippinesindirectly through internationalorganizationslike IRRI, ICLARM,the Belgian TechnicalAssistanceGrant Fund at the Asian Development Bank,IOMandthe like. The programme SZOPAD - NEDA - UNDP / Multidonor will remain a priority for the in Belgian Governmentas it aims at the promotionof Peace and Development Mindanao. direct and indirectdevelopment It mightbe worthto note that all the abovementioned assistanceis givenon a untiedgrantbasis. The Government of Belgiumhas equallycontributed to the economicdevelopment of the Philippinesby granting severalstate-to-state loans in the past, and is willing to continueto do so in the future.This, however, can onlybe achievedby full cooperation of the Philippine Government througha timelyidentification acceleration of projects, of the appraisalprocessand early implementation of the approvedprojects.All too often bureaucratic proceduresand lack of inter-departmental consultation has lead to unnecessary delays and often outrightcancellation of worthwhileprojects.It is sad to note that since 1996 no new state-to-state loan could be grantedto the Philippines, whilefrom 1970to 1996 loansworth BEF 1,5 billionin total have beengrantedfor 14 projects. Another windowfor assistingin the economicdevelopment of the Philippinesis the financing facility through providing Supersubsidies for developmentprojects. This window will also remainavailablein the future. Sucha packageof Supersubsidy has been made available for the project "Cleaningand deepeningof the Pasig River throughdredging", for the amountof BEF 345mio,whileanotheronefor the installation of CentralSolarElectrificationsystems in remoteareasis underdiscussion. Finally,the Government of Belgiumsharesthe concernof the donorcommunity on the peaceandordersituation,a prerequisite socio-economic for a sustainable development for all effortstowardspeacein of the country.Therefore,Belgiumcallswith insistence the entirecountry. Annex 4h Page I of 4 STATEMENT OF THE CANADIAN DELEGATION CONSULTATIVE GROUP MEETING FOR THE PHILIPPINES JUNE 19-20,2000,TAGAYTAYCITY, PHILIPPINES Mr. Chairman, distinguished delegates, ladies and gentlemen, on behalf of the Government of Canada, I join others in thanking the Government of the Philippines and the World Bank for coordinating this annual dialogue between the governmentand donors. Canada is pleased that this year's annual meeting is being held for the first time in the recipient country. It brings us closer to reality. In particular, it provides us with a better understandingand exposure to the development challengeswe are all workingtowards addressing. At last year's CG meeting, we listened to the key elements of the newly-crafted Philippines' medium-term development plan. We hailed the government's plans to reduce poverty, pursue market-friendly reforms, and improve governance. It is very fitting that this meeting focuses on progress achieved on implementation and future plans and directions. Canada notes the economic recovery begun in 1999, with GNP growth of 3.6 percent and GDP growth of 3.2 percent. However, recent developmentssuggestthat the Philippinescould end up as Southeast Asia's underachiever this year. Indeed, sustaining the growth momentum is a critical challengefor this administration. In this regard,there is a needto restoreconfidencein the economy by ensuring a stable environment,conducive to development. In early February this year, CIDA's President,Mr. LeonardGood, had the opportunityto travel to western Mindanao. He was generallyimpressedby the developmentthat was taking place in many areas, in particular in the small town of Datu Paglas where a combination of leadership, commitment,and investmenthas brought developmentto the area. Canada's comments at this meeting will focus on three key areasof real concernto us. We believe that addressing these issues will be central to the governnent's success in reducing poverty and accelerating growth. Private sector development The success of any poverty reduction initiative lies in the government's capacity to provide an enabling environmentfor greater private sector participation. The private sector, as the engine of growth, can provide capital, develop skills, use appropriatetechnology,and manage information to raise productive capacity, generate employment opportunitiesand increase family incomes. Annex 4h Page 2 of 4 Statement of the CanadianDelegation, CG Meetingfor the Philippines, 19-20 June 2000, Philippines To expand private sector participation,Canada will continue to work with viable institutions and organizations that can address the constraints facedby small and medium enterprises(SMEs) and cooperatives in their effort to add value to the national economy. We believe that SMEs have tremendous potential to createjobs and contribute to growth. Effective, transparentand accountablegovernment We commend the Government of the Philippines for commissioning the World Bank study, "Combatting Corruption in the Philippines". The government recognizes that inadequate governance, lack of transparency and corruptiondivert scarce resources from productiveactivities and pro-poor programs. The public sector is faced with serious problemsof overlappingmandates of departments/agencies,low employee morale, relativelylow client satisfaction,slow passage of key legislation, and slow application and enforcementof existing policies. Affirmativeaction by government in these areaswill inspireconfidence and createan enabling environmentfor sustained growth. There remain arbitrarymeasuresin Philippine statutebooks, datingback to the Marcosdictatorship, which limit growth and yet are entirely within the power of the Philippine government to remove. We urge the governmentto move towardsthe speedy passageand implementationof key legislation to eliminate uncertainty, influence peddling and potential for corruption which collectively undermine confidenceand discourage private sector participation. The recent passage of the E- commerce bill is a step in the right direction. Graft and corruptionremain major constraints to equitable development in the Philippines. They divert scarce resources, disadvantage the poorer groups within society and deny the benefits of development to a large portion of the population. Graft is not only an issue of governmentbut also of the private sector, as it is often a partner in bribery. Canada is pleased to note that a national anti-corruption framework and strategy have been developed. We call on the political leadership to translate the frameworkand strategy into time- bound and performance-basedactions, make available the necessary resources for its effective implementation and put in place a reporting and monitoring system that allows the participation of civil society and interest groups. We are also pleased to note the heightenedcommitmentand interest of the judiciary at the highest level to pursue judicial reform. Upholding the rule of law and ensuring that justice is served expeditiously and fairly are fundamentalprinciples that should guide the reform process. The Governmentof the Philippinescould do so much to raise public confidenceif it were to show resolve in dealing with some high-levelcases of corruptionand theft of state assets. As noted in the Annex 4h Statement of the Canadian Delegation, CG Meetingfor the Philippines,19-20 June 2000, Philippines Page 3 of 4 World Bank study, only by "flying some big fish" will the Philippines convince foreign and domestic investors that progress is being made. We are encouraged by the measures being taken by government to strengthen expenditure management, particularly the installation of a performance-basedbudgeting system as these will ensure greater transparency, accountabilityand optimumuse of resources. We likewise call for a comprehensive,strategicand decisiveapproachto governmentreorganization and reform of the civil service. New institutional arrangementsand practicesto pro-actively deal with a new and changing environmentare required. With reorganization, there is a critical need to meet the needs of government personnel for knowledge and skills, to deal with new paradigms. Consolidationand mergers in the bankingand finance sector, for example, pose new challenges for regulatory policies and practices. Lack of exposure to technologicaladvancementhas blocked initiatives for innovationand the upgradingof public services. The success of the medium-term plan rests on an expressed recognition of the daunting responsibilitiesbestowed on LGUs in bringing about meaningfuldevelopment. This requiresnot only a willingnessby the LGUs to assume these responsibilitiesand increased resources from the national government but also and, more importantly, a tremendous change in mind-set that will allow the transition to a more effective devolution. In this respect, we believe there is a needto invest in massivecapabilitybuildingto achieverenewed agency mandates and allow devolution to take place. We also urge government to adopt an integrated approachto development at the local level in step with decentralizationand devolution. This will enable government to feel the pulse and be more sensitiveto the communities' needs and priorities. We are preparedto collaboratewith governmentand other donorsto bring this integrated approach to fruition. Of course, as lower levels of government assume greater responsibility,they too are feeling the crushing burden brought on by an unsustainable rate of population growth. All services, but especially health and education,are falling behind. The numberof poor is increasing as those least able to afford more children are denied - through cost, inadequate supply and lack of proper education - the means to control their family sizes. Canada is pleasedto note that we will continue to supportgood governanceby workingclosely with national government agencies, LGUs, and civil society organizations,facilitating dialogue and encouraging greater coordination and collaboration amongthem. We expect our assistancein this area to lead to more effective social and economicplanning, policymakingand implementationin a number of sectors and a more participatory decision-makingprocess. Annex 4h Statement of the Canadian Delegation, CG Meetingfor the Philippines, 19-20June 2000, Philippines Page 4 of 4 Peace and order in Mindanao The problem of peace and order in Mindanao is impactingupon the nationaleconomy and thus all parts of the country. It has stalled development activities in the area and has undoubtedly discouragedsome investment in the country. We are concernedwith the consequentdestructionand waste the conflict has brought to the lives and property of many families, especially women and children. We support the quest for a peaceful solution to the decades-longconflict in Mindanao. The 1996 Peace Agreement,which has opened the doorsto increaseddonor supportand investment,must be implemented. Peace is a pre-requisiteto development. And, with developmentis the promise of a more lasting and sustainingpeace. Canada reiteratesits long-term commitmentto developmentin Mindanao,wherepovertyisprevalent and the need for increased and better basic social services and rural development is greatest and where more than 60 percent of CIDA's resources to the country are invested. In closing,we would like to confirmonce again our supportto the Philippines' developmentagenda. We will continue to make every effort, in partnershipwith government,business, other donors and civil society, to provide a positive contributionto the realizationof its agenda. Annex 4i Page 1 of 4 Consultative Group Meeting for the Philippines Tagaytay City, June 19-20, 2000 Statement by the French delegation Mr Chairman, distinguished delegates, ladies and gentlemen, When we met last year in Tokyo, in March 1999, the Philippine economy was just emerging from a period of turbulence, caused by the economic and financial crisis in the region and the effects of the El Nino phenomenon. We then commended the efforts made by the Government to curb the effects of this crisis, and underlined the resiliency shown by the Philippine economy in the face of this shock. However, the donor community made it clear that there was no room yet for complacency, and urged the Philippine Government to speed up the implementation of the reforms in order to consolidate the recovery and meet the medium-term growth targets of the Development Plan. Several areas of reform were listed as vital for the success of the growth strategy of the Government, in particular the improvement of revenue performance and the consolidation of public finance, the fight against corruption in the administration and the private sector, the development of an efficient and competitive environment for foreign direct investments and the improvement of basic social infrastructure to support poverty reduction. What has been done since then ? 1. The macroeconomic performance of the Philippines has been mixed. * GDP growth has strongly recovered in 1999, from 0,7 % in the first quarter to 4,9 % in December 1999, thanks to a strong agricultural recovery, the buoyancy of exports, and some fiscal pump priming. However, a slowdown has been registered in the first quarter of 2000 (3,4 %), domestic demand is still sluggish, and the country is now lagging behind many of its Asian neighbors in terms of growth. The conflict in Mindanao, and its impact on agricultural production and investor confidence, as well as the ongoing consolidation of public finance will make it difficult to meet the growth target of 4-5% for this year. Annex 4i Page 2 of 4 * Notwithstanding a recent acceleration (4,1 % in May 2000, compared to a historical low 2,6 % in January), consumer price inflation has remained remarkably under control, in spite of the economic recovery, the surge in oil prices and the rise in wages. With the recent rise of 125 bp in BSP interest rates, it should remain within the target of 5-6 % this year. * The fiscal performance has been rather disappointing in 1999. The national government deficit target was increased several times to take into account shortfalls in tax revenues, but none of the revised targets has been met. The deficit finally reached 3.6 % of GNP, more than 1 /2 point of GNP than the initial target, and government revenue has declined from 18.5 % of GNP in 1997 to 15.2 % in 1999. These developments damaged the credibility of the Government, and weakened market sentiment. In this respect, the method chosen for the preparation of the 2000 Budget (i.e. disbursements of public expenditure conditional to revenue performance) seems appropriate, and we strongly applaud to the commitment by the Government to stick to its deficit target of 62.5 billion pesos (1.8 % of GNP) for 2000, and to reach a budget balance by 2003. The results on the first four months of this year were encouraging, but this effort needs to be sustained, as shown by the disappointing results of May. In particular, once again, we encourage the Philippine Government to press ahead with the reform of tax administration, in order to improve revenue collection: some progress has undoubtedly been achieved since last year, but the BIR clearly needs more to become more efficient and be cleared of remaining suspicions about the quality of its governance. + Vibrant export growth and weak domestic demand have provided for a strong improvement in the country's external position: the current account surplus reached 9 % of GNP in 1999, compared with 2,3 % in 1998, and the balance of payments registered last year a surplus of USD 3.8 bn. Gross external reserves are now close to USD 16 bn, or 4.8 months of imports. The local banking system has shown a better resiliency to the crisis than in other countries and is being strengthened by the central bank, through a consolidation process and regulatory reforms we strongly support. However, this situation is still vulnerable, because of the very low domestic savings rates of the Philippines: as soon as the recovery strengthens, the trade surplus will vanish; moreover, as shown by the net outflows of portfolio and direct investments in January- February 2000, the decline by 37 % of FDI in 1999, the weak performnanceof the Philippine stock exchange or the depreciation of the peso in the last few months, foreign investors seem to be losing confidence in the prospects for the Philippine economy. Annex 4i Page 3 of 4 2. Are they right ? We do not think so: the Philippine economy has undergone large-scale structural changes since the mid-1980ies and it is now a relatively competitive economy. There is no compelling reason why its long-term growth prospects should remain below those of its Asian emerging neighbors. However, the problems that account for the sluggishness of the Philippine economy in the last few months need to be addressed as soon as possible. First, weaknesses in governance need to be dealt with very quickly: the allegation of stock price manipulations on the local stock market have taken a heavy toll on investor perceptions, and raised concerns about the authority of market regulators and transparency. The Government has strongly emphasized the need to address the issue of governance, and asked the World Bank to make recommendations with a view to devise a comprehensive strategy against corruption. The Bank submitted a very useful report on this issue, but it is now urgent for the Government to draw up its own strategy and implement it with determination. The more the rules of the game will appear clear, stable, resolutely and independently enforced, the more the country will be able to draw foreign savings to finance its development. Second, the pace of structural reforms needed to open the economy and create an investor-friendly environment needs to be accelerated. Many delays have been registered in the implementation of major economic reforms, due to slow enactment of legislation. If the Retail Trade law and the New General Banking Act have finally been signed, several key measures are still awaiting the approval of the Congress, among which the Securities Regulation and Enforcement Act, and the Omnibus Power Sector Bill, that will allow for the privatization of the National Power Corporation. Creditor protection remains low, in spite of the new rules for SEC-administered process for suspension of payments. Finally, with a growing public sector debt, a depreciating peso and declining government revenues, too many resources are now devoted to debt service, at the expense of more useful social expenditure. As pointed out by the World Bank, there are some weaknesses in the provision of public goods: in particular, there is still a lot to be done to enhance the access of the poor to education and basic health care services, and to improve the quality of urban infrastructure. Therefore, on the medium term, priority should be given at enhancing internal revenue rather than cutting social and investment expenditure in the fiscal consolidation process. Much could also be done to improve the efficiency of the delivery of public services, by reforming the civil service and rationalizing procurement. Annex 4i Page 4 of 4 To conclude, Mr Chairman, France is confidentin the ability of the Philippine economyto rebound and get back on a path of strong and sustainableeconomic growth. A lot has already been done, but more efforts are still needed to regain the confidence of foreign investors. We strongly support the efforts of the Filipino Governmentto implementits program of reforms. Thank you Mr Chairman. Annex 4j Page 1 of 4 ConsultativeGroup Meetingfor the Philippines Manila, June 19-20,2000 Statement by the Representativeof the GermanGovernment Mr. Lothar Zimmer Director South-EastAsia Division Federal Ministryfor Economic Cooperationand Development(BMZ) Ladies and Gentlemen, The Philippines was within the group of those five countries heavily affected by the Asian crisis. However the initially less negativeeconomic impact was due to the relatively its quite stable financial sector and to the more reform-oriented policies of the past years. Consequently,it seemed that these favourable for economicrecovery. But unfortunately,the positive ingredients for an accelerated normalisation are far from being effective. Most macro-economicdata - except from exports of electronic and software goods - are currently developing rather disappointing. One of the main concernsin our view is the weak propensity to invest of domestic and foreign companies and remarkable problems regarding public revenues and deficit spending. Tendenciesof weaknesswithin the domestic financial markets and losses on the Peso exchange rate are reflecting the growing domestic and foreign concernson the economicand political developmentof the Philippines. Another concern is that the process of structuralreforms is nearly coming to a standstill.The opening statement for the pre-CG workshop on economic and corporate governance by Secretary Diokno gives a detailed account on all those key areas where performance falls short of expectations.Similarlythe World Bank report "Philippines-Growth and Equity: The Remaining Agenda" draws a rather gloomy picture if the following will not be dealt with vigour: * Increasing of public revenues, particularly by improving the tax administration- a very critical issue which was already raised at previous CG meetings. * Reform of public administration, including administration and timely absorption of foreign assistancewhere problemsseem to increase. * Improvingthe efficiencyand predictabilityof justice. Annex 4j Page 2 of 4 Without an active response to these areas,the Philippinesrisks falling short in comparisonto its neighboring countries. Markets inspite of good potentials will be lost with all the consequencesfor the labourmarket and socialpeace. There are some critical issues on the bilateral project levelwhich I needto raise briefly: * procedural issues still lead to significant delays in a number lot of projects especially regardingfinancialcooperation * budgetary constraints have led to considerabledelays and even to the cancellationof bilateraldevelopmentprojects * approvalprocedures, in particularICC approvalneed streamliningand shortening Mr. Chairman,there are encouragingdevelopmentssincethe last CG meetingin Tokyo which I would like to mention. First, a most difficult issue affecting a large part of our Co-operationProgramme has been solved in a very co-operativeand responsiveway. I am referring to the system of Community Based Forest Management, as introduced some years ago by the DENR. A constant, constructive dialogue with the Government and representatives of DENR contributed substantiallyto define acceptablesolutionsto the problemof sustainableforest management.I would like to particularly to thank Secretary Cerilles and his staff for having provided the possibility to pursue a policy, which seems acceptable was by all international partners involved. This is a good example of how a constructive dialogue and early co-ordination among donors and the govermnent can contributeto identify viable solutions. I do hope that this avenuewill serve for comparablesolutions. Secondly, our endeavors to improve impact, significanceand efficiencyof our cooperation received last year an important boost. Our two governmentsmet for an intensive, cordial review of the overall bilateral DevelopmentCo-operationProgramme.We discussedways to improve planning and preparation of projects as well as resource management.Furthermore we succeededin agreeing on focal areas for future Financialand TechnicalCo-operation. Annex 4j Page 3 of 4 Hence we will concentratein futureon: * basic health (includingreproductivehealth), * urban and industrialenvironmentprotection, * water supplyand sanitation, * vocationaltraining * natural resourcesmanagementand * rural development We also agreed to strive for a better interrelationshipand complementarityof the two main instrumentsof bilateral co-operation,i.e. technicaland financialco-operation. During the same venue with NEDA we also met our major co-operationpartners in various line agencies and ministries which contributedto a better understandingof NEDA's role in the Governmentstructure.I am particularlygratefulto SecretaryMedalla for havingprovided this useful forum and also for havingpersonallymoderatedits proceedings. Similar venues do bear good opportunities to open new perspectives on potentials and problems in our co-operation.They also provide for [ ], true ownership.We do know that this process will even be more arduous in times of rapidly changing personnel,of reduced government "plantillas" and severe competition between the private sector and the public service to successfully attract the best and the "brightest". The early preparations of potentiallynew project withinthe scope of agreed focal areasand taking into accountspecific comparableadvantagesof certain aid investments- and also their limitations- create a good starting point when it comes to allocate funds amongst recipient partner countries. In many ways it will take not less than the best and the brightest, to overcome existing or remainingproblemsespecially real povertyalleviationand social stability. This includes also our commitmentto contributeto the peace process in Mindanao. We feel that the efforts of the donor communitiesand GOP so far have gone in the right direction,but the political and social gaps within and with the rest of the countryremain immense and need active attention by all. This includes also the gradual building up of a functioningcivil society as a defense mechanismagainst mischeckeduse of power. This can, only be done in a joint effort with the Philippine Governmentand its legitimatelocal co-operationpartners.Needlessto say that this Annex 4j Page 4 of 4 is only possible in an environment that will, at any time and in any place, guarantee the securityof external and local personnelalike. Last, but not least and for some of us more importantthan all other contents of the speeches held, the pledging figures: Subject to parliamentaryapproval, it is foreseenthat my government will negotiate with the Philippine Governmentnext year for a 2 year period an ODA amount of 73 million DM (51 million DM for Financial Cooperation, 22 million DM for Technical Cooperation)which is nearly the same level as for the period 1999/2000. Thank you. Annex 4k Page1 of 4 Remarksby Ambassador of Japan YoshihisaAra on the Occasion of The ConsultativeGroup Meetingfor the Philippines DistinguishedDelegates, Ladiesand Gentlemen... Magandangumaga po sa inyong lahat. (Good morning to you all.) I would like to begin by saying that it is my great pleasure to be able to participate in the first Consultative Group Meeting held in the Philippines, and speak on the subject of aid utilization and indicationsof donor assistance. AID UTILIZATIONAND INDICATIONSOF DONORASSISTANCE 1. BASIC POLICYOF JAPANESECOOPERATIONWITHTHE PHILIPPINES Japan has long regarded the Philippines as one of the top priority countries in terms of ODA assistance, and has actively provided assistance to the Philippines to promote its sustainable economic development. Recently, since the beginning of the Asian currency crisis, Japan has initiated its New Miyazawa Initiativeand Special Yen Loans Facility to supportthe recovery of the Philippines. On the other hand, given Japan's difficult economic situation and budgetary austerity, the Japanese people are becoming less generous with Japan's Official Development Assistance (ODA) budget. To convince the Japanese public on the necessity and importanceof ODA, it is indispensablethat our ODA must be implemented effectivelyand efficiently,with transparency and accountability. In this regard, I would appreciate the continuation of the recent efforts undertakenby the Philippine government to improve ODA disbursement. It is understoodthat ODA disbursementproblems cannot be resolved over a short period of time, and that they need to be followed-upin the longer term. 11.INDICATIONSOF ASSISTANCE Japan considers it important to not only work out and implementsound macroeconomicpolicy, but also to take measures in favor of the general public, in particular, the socially vulnerable,in order to attain sustainable economic growth in the Philippines. From this point of view, Japan will continue to carry out well-balanced assistance efforts to contribute to the social and economicdevelopmentof the Philippines. The emphasisof our assistance will be put on the followingfour priority issues and areas set out in the recent High-Level Consultation on Economic and Technical Cooperation between Japan and the Philippines; (I) strengtheningof the economic structure for sustainable growth; (2) mitigationof disparities, including poverty alleviation and mitigation of regionaldisparities; (3) environmental protection and disaster management; (4) human resources development and institutionbuildingas a cross-cuttingarea. The assistanceefforts that follow reflect these priority issues and areas: Annex4k Page 2 of 4 A. Loan Aid For the 24 'h Yen Loan, Japan is prepared to give prior notification of pledges totaling 59.987 billion yen to 10 projects in the previously mentioned4 fields (sustainable economicgrowth; mitigation of disparities, including poverty alleviation and mitigation of regional disparities; environmentalprotection and prevention of disasters; and human developmentand institution building). First, to assist in strengtheningthe economic structure for sustainable growth, we are going to extend yen loans to three projects: the Arterial Road Links Project (Phase V), the Metro Manila InterchangesProject (Phase V), and the SelectedAirports DevelopmentProject (Phase 11).These projects will strengthen the economic infrastructurefor the transportation sector, and make economicactivitiesin rural areas more efficientand productive. Second, to assist in mitigating disparities, yen loans will be extended to the followingthree projects: the Rural Road Network Development Project (Phase III), the Help for Catubig Agricultural Advancement Project, and the Sustainable ARC Settlements Agricultural DevelopmentProject in Mindanao. These projects will contribute to the mitigationof regional disparitiesand poverty alleviation by assisting in the developmentof rural areas. Third, we are also financing three projects designed to assist environmental protection and disaster prevention. The first project is the Northern Palawan Sustainable Environmental Protection Project, which will cope with the urgent need to prevent the destruction of the environment,particularly the destruction of coral reefs in the Philippines. This project will contribute to not only the preservation of the environment, but also to the creation of new employment,and, as a side effect, increased regional development. The other two projectsare the Agno River Integrated Irrigation Project (Phase II-B) and the Laoag River Basin Flood Control and Sabo Project. These projects will improve living conditions by reducing flood damage in rural areas. Fourth,to assist human developmentand institution building, we are undertakinga project: the Expansion of the National Maritime Polytechnic Institute and the Upgrading of Tacloban Training and Facilities Project. This project will expand and construct training centers in response to the 1995 revision of the STCW treaty (the conventionon the Standardsof Training, Certification, and Watchkeeping). We expect that this project will improve the abilities of Filipino seamen by improving training systems, which will lead to a reduction in maritime accidents,as well as contribute to the preventionof ocean pollution. With all of these new commitments for the 24"' Yen Loan, and together with the Special Yen Loan alreadycommitted since the last year's CG meeting,the Governmentof Japan is extendinga total of 134.1billion yen to the Philippines. B. Grant Aid Now I wish to explain to you the grant aid disbursed by the Government of Japan to the Philippines in fiscal year 1999. The grant aid extended in fiscal year 1999, which included technicalcooperaton and developmentstudy programs is expected to amount to about 16 billion yen. The details of the projects involvedare as follows: Annex 4k Page 3 of 4 1. Grant-AidProjects Grant-aid projects are carried out to improve the medical-care system, educational facilities, regional medical services, and they also cover non-project grant aid, projects to increasefood production,and projects for flood management. 2. Technical Cooperationand DevelopmentStudyPrograms In regard to technicalcooperation,in fiscal year 1999,Japan accepted more than 400 trainees and has dispatchedabout 125 experts. In addition, more than 15 projects under project-typetechnical cooperationare now underway. Specifically,we have been implementingprojects for health care, including AIDS prevention, projects for the improvement of living conditions in rural areas, and project-type technical cooperation for agricultural development. Moreover, we have recently started projects to improve the administrativecapacity of the province of Cebu, as one of the implementationof "ObuchiPlan,"aimed at human resourcesdevelopmentin Asia. With respect to 1999'sdevelopmentstudy programs, 15 projects are now being implemented,of which seven havejust begun. These new projectsare being conductedto improve transportation, flood management, agricultural production, general waste processing,mining industry,natural gas processing,and urban drainage systems. Lastly, I would like to draw once again your attention to the problems surroundingthe VAT in the implementationof grant-aid projects. I will appreciategreatly the early and positiveresponse to this problem of the PhilippineGovernment,as on its solution dependsthe furtherand smoother continuationof grant-aidprojects. III. , Conclusion As conclusion, I reiterate that the Government of Japan will continueto supportthe Philippine government'sefforts to achieve sustainablesocial and economic development,as in the past, in view of the importance of the Philippines not only for Japan but also for the developmentand stabilityof this region. Thank you. Maraming salamat po. Annex 4k Page 4 of 4 CORRECTION In the Remarks by Ambassadorof Japan YoshihisaAra on the Occasionof The ConsultativeGroupMeeting for the Philippines, "The Agno River IntegratedIrrigationProject" shall be read as "The Agno River IntegratedFlood ControlProject." Annex 41 Page I of 4 SpeakingNotes CG. Meetiig 19-20June 2000 Delegation Netlherlands I. As this is the first time I take the floor, let me join other delegations in comnplimenting the Govermnent of the Philippines and the World Bank for organising the C.G. in the Philippines, and thank the Government of the Philippines for the excellent arrangements and hospitality. 7. I would also like to compliment the Govermnent of the Philippines and the World Bank for the excellent documentation and last but not least for organising the pre-C.G. neetings, which provided an excellent opportunity to exchange views in depth on the various topics on the agenda today and have therefore greatly facilitated the preparations for this meeting. 1. Recent Socio-Economic Developments, Achievements and Challenges 1. The good news is that the presentations made this morning on socio-economic developments present a picture of fairly sound economic fundamentals. 2. The bad news is that the picture is much more complicatedand alarming due to the security situation in Mindanao and other parts of the country, even Manila, and its consequences for tourism, agricultural output as well as business and investor confidence. One may add to these the perception of cronyism, corruption, a weak judiciary system and a slow process of structural reforms and privatisation. One of the greatest challenges the Government is facing is how to repair the damaged image of the Philippines, which has completely neutralised the positive developments since we met in Tokyo last year. 3. These efforts should not only be based on sound policies and good intentions, a general characteristic of the C.G. meetings, but also on measurable objectives and results. If policy objectives are not met by budget provisions and transparencyon resource allocation and as a result lack quantifiable results, no government can be successful on the road to sustainable development. 4. This is in particular valid for the Philippines where the incidence of poverty is relatively high and the lack of political will to implement an effective population policy is hampering development efforts with serious consequences for the quality of basic services, such as housing, education and health, now and in the future. The military operations in Mindanao will put even extra pressure on the budget. 5. This underscores the need for income generation through privatisation and tax reform, a matter, which, although the need is recognized by this and previous governments, does also not receive sufficient political support. There is also a need for maldng the Philippines more attractive for foreign investors by expanding the scope for incentives and by reducing the limitations on foreign ownership. J. Under these circumstances the need for donor support from international financial institutions as well as bilateral donors is of even greater importance for implementing governmental policies. The increasing awareness by the donor community of the imnportance of good governanceas a prerequisite for successful developmentefforts, presents the Philippine Government an additional challeihge. Annex 41 Page 2 of 4 7. We recognizegovernment's effortsto furtheropen up the economy throughliberalization, enhancingcompetitionand easing barriersfor the entry of more participants to the economic act,), sectors (e.g. bankingact, retail liberalization however, there is a need to continuously ensure minimaldislocation and adverseeffectsof economic reformsto the poor and other vulnerablesectors of society.Furtheradequate information on the background of and objectives liberalization are requiredto limit the growingresistancetowardsglobalization. is of crucialinportance.Strengthening Units in development 8. The role of the Local Government the institutional capacity and increasing income generation capacity of LGUs will be essential to utilizethese decentralizedagentsof development to the fullestextent.The weaknessof the institutionalcapacityin the Autonomous Regionfor MuslimMindanao (ARMN) is one of the main reasonsfor the slowdeliveryof tangibleresultsin the ARMM 9. TheNetherlandswouldlike to supportthe observations madeby the UN on the challenges the Governnentof the Philippines is facingin the implementation and coordination of the National Anti-PovertyActionAgendaand in particularmonitoringprogressin povertyreduction. The UN-systemand the WorldBankcouldplay an important role in assistingthe govemrnmentin developinguseful tools to track progress on poverty alleviationand decide with greater transparencyon resourceallocation. H. Progressand Planson PovertyReductionPoliciesand Programs 1. We concurwith the Government's focusto directpovertyprogramsto basic socialservices which will enable the vulnerablesectorsto participatein the economyand improvetheir living conditions:enablingthe poorto help themselves 2. One of the most pressingissuesin implementing povertyreduction policiesand programmes is the inadequatelevel of resources,and thereforethe high dependency on donor support as long as improvedincomegeneration by the Government is no reality.In fact the manydepartments responsiblefor basic socialservicescompetewith each otherfor funding. 3. What I miss is an analysisaboutthe allocations and actualdisbursementfiguresto thesebasic servicesover the past 10years, for instancein the WorldBank report.Is the pro-poorapproach of the Estradaadministrationindeedreflectedin the budgetallocationsand actual disbursements? 4. In this context, greater private sector participation in addressing poverty goals should be gearedtowards conduciveto investments encouragedthroughan enablingenvironment employment and incomegeneration. 5. Whilewe agree with DAR'scommitment to strengthenits supportservicesto the agrarian reforn communities(ARCs),continuingconcemto land transferactivitiesshouldbe by exploringotherapproachesto fast track the CARPprogram cornplemented Annex 41 Page 3 of 4 III. Progressand Planson Structuraland PublicSector Reforms 1. Whatthe WB report Combating corruptionin the Philippinesclearly showsis that there is a widespread perception that corruptionin the public and privatesectorsis pervasiveand deeprooted. 2. In additionthere is perceptionthat the "big fishes" are not fried and can escapeprosecution. It remainsa low-risk,high rewardactivityin which even the legislativeand judiciaryare involved.A societyevena democraticone, which allowsthis to continue;is doomedto disintegratefrom within with seriousrisksfor democracy. 3. Againstthe background of this rathergloomypicture,it is heartening to note that the Estrada Administration has taken initiativesto fight corruption.However,we agreewith the WBthat these initiativesmust nowbe unified underone concertedprogramwith a strongleadership and management structure.Indeedhow do the variousinstitutions such as the Office of the Ombudsman, the Civil ServiceCommission, the Presidential Commissions on GoodGovernment and againstGraft and Corruptionand the Inter-Agency Anti-GraftCoordinating Council, how do they coordinate their interventionsand policies.One personin chargeof spearheading the Government efforts, as recommended by the WB may give moredirection.As the documentprovidedby the Government "A snapshot of Philippine Governance" rightlystatesunless initiativesto combatgraft and corruptionare effectivelyimplemented, they will remainmeaningless. The document does not comment howeveron the issueraisedby the WB on coordination and leadership. 4. Last but not least, my delegation would like to suggestthat Good Governance be placedas a permanent subjecton the agendaof the CG,allowingdonorsto assessthe effectiveness of the Government's anti graft and corruptionefforts, as an importantelementin assessing the effectiveness of their ODAto the Philippines, as well as Foreign DirectInvestments.At the end of the day it is not talk but actionthat setsthe standard. Annex 41 Page 4 of 4 IV. Aid Utilization of DonorAssistance and Indications 1. The discussionsover the past 2 days have clearlyindicated the need for continuing ODAto meet the development prioritiesof the PhilippineGovernment. I agree with the World Bank that for assistanceto be forthcoming, however,there is a need to restore the record of aid utilization,which has deterioratedsharplyin recentyears,a concern that has been expressed over and over againduringthe past C.G.meetings. 2. I mentioned of 'good govemance' the other day the importance as a prerequisitefor effective development programs,and increasingthereforee.g. a conditionfor sectoralsupport. 3. It is clear that the securitysituationin someparts of Mindanaohas an impacton the progress of implementation of ongoingprojects,in particularin ARMM A delayof the peaceprocess and continuation of militaryoperationsagainstcertainmuslimfactionswill createa situation whichwill requirein the first place humanitarian assistance for the hundredsof thousands displacedpersons.Requestsfor donorsupportfor new projectsin Mindanao and especially ARMMwill thereforemeet some reluctance, althoughthe lack of development in ARMMis one of the imnportant causesof the presentunrestin the area. 4. Duringone of the pre-C.G.sessionsthe questionwas raisedhow donorfunds shouldbe channelledto ARMM It seems to me that autonomy means first and foremost a say in the allocationof resources,which doesnot necessarily mean a blank cheque. In view of the weak capacity,the assistanceof for instancethe UN family institutional could be sought to assistin implementing development programswith the full participation of the target groups and local NGO'sand specialemphasison institution buildingthroughHRD.This is actuallythe approach the Netherlandshas been following. UNDP,UNFPAand ILO have receivedfinancial contributionsfrom the Netherlands Government for this purpose. approach. to the Moreprogrammatic/strategic 5. In general,there is a shift from a project-based With plans for a gradual phasing out of ongoing activities in the other sectors, possibilities will be exploredfor the adoptionof a sectoralapproachin the environment / (with biodiversity protectedarea management and integrated water management as priority subsectors)and Private SectorDevelopmnent. Futurecomrnmitrnents of the Netherlandsaid programmein the Philippines will focus on the environment sector, with emphasis on biodiversityand watem-anagernent. The level of our financialcommitments will depend on conducive conditions to sustainable development, such as aid utilizationand good governance. 6. I shouldalso mentionthe considerable voluntarycontributions to UN and specialized agencies and funds,as well as throughthe EuropeanUnion,the BrettonWoodsInstitutions, the Asian Development Bank etc. Furthernore,I should like to mention the successful Netherlands Fellowships Programne,which is alreadyfor morethan twentyyears open to post-graduate studentsfrom the Philippinesand of which morethan 2,000Filipinoprofessionals haveavailed. I also refer to the considerablesupport that has been given by Netherlands NGCYs in strengthening and cooperating with counterpart organizations,helping to create a strong civil society,which is an importantelernentof any democracy. Total disbursement levels of the Netherlands Govemrnent and DutchNGO's in the Philippines will reach a level of at leastUSD 15 mnl in 2001. Annex 4m Page 1 of 2 STATEMENT BY HE GRAEME WATERS. NEW ZEALAND AMBASSADOR CONSULTATIVE GROUP MEETING: TAGAYTAY: JUNE 18-20. 2000 New Zealand is pleased to participatein this meeting of the ConsultativeGroup for the Philippines. I wish to add our thanks to the World Bank and the Government of the Philippines for the excellent preparations and arrangements for the meeting. I would also like to say I am very pleased to see it taking place here in the Philippines. New Zealand is celebrating the 25th year since it first opened an Embassy in the Philippines. During those 25 years our bilateral Overseas Development Assistance (ODA) programme has been an important part of our relationship and we remain a committed donor. We are also a relatively small donor, but are very pleased to be able to announce an increase for the next financialyear to $3.3 million or US$ 1.6 million. We like to focus our assistance in areas where we have particular expertise, and of course we want to ensure our programme is consistent with the Philippine Government's objectives. We are pleased to note that the Govermnenthas made some progress since we last met on its economic reform agenda. A number of key items of legislation in the Governmient's reform programme have recently been passed. We appreciate this process is often difficult, but believe maintaining the momentum of reform is important to keeping the Philippines on a sustainable growthpath. We also commend the strong statementsof commitmentby the Philippines Government to the eliminationof poverty, the peaceful developmentof Mindanao and the combating of corruption. We look forward to seeing tangible progress towards achieving these goals. I have said New Zealand is a committeddonor. Our largest project in the Philippines is the Bukidnon Forests Inc (BPI), a commercial sustainable plantation forest in Mindanao. In New Zealand ODA terms this is not only a large, but a very long-term project. The plantation is an impressive sight. It was intended to be a model based on the premise that, if the Philippines wishes to reverse the process of deforestation, it needs to attract private investors to plant trees for commercialbenefit. BFI has illustrated some issues relating to forestry in this country and donor-assisted projects more generally. Most of the problems we have faced with BFI have not been technical ones - we have shown that trees can be grown on a commercialscale here - but regulatory and political. It is importantto have a strong commitment and political will from Philippines Governmentagencies. But even more importantly,there needs to be a regulatory environment that provides a helpful framework to operate in, rather than a hindrance. There also needs to be quick disbursement of counterpart funds and a commitmentto solving problems as they arise. In that context we were very pleased to see President Estrada endorse the outcomes of a Forestry Forum sponsoredby New Zealand, the Finnish Embassy, the ADB and DENR Annex 4m Page 2 of 2 earlier this year, which outlined an action plan for sustainable forestry in the Philippines. We hope this will translate into a practical effort to ensure the policy environmentfor forestry is one that attracts investors and new plantings. We also need to confront the reality that a rapidly growing populationplaces new strains each year on forests and other natural resources. Over the past 25 years we have had a longstanding commitment in the Geothermal Sector, and will continue to provide HRD assistancein this area. Looking ahead we are focussing on a few other areas where we believe we can provide effective assistance. One is in the area of Governance. We are hoping to work with the Department of Budget and Managementto set up a facility to help them carry out streamlining of the public sector. We believe increasingcapacity in the public sector, and ensuring it is run efficientlyand without corruption,is as critical in the Philippines as it is elsewhere. Governance issues have come to the fore in many donor strategies. Combating corruption,undue influenceand lack of transparencyin decision making is a concern for all of us. Failure to do so not only undermines investor confidence, but also that of donors. It translates into project delays and ineffective disbursement, and can be a deterrent to outside involvement. There needs to be assurance that assistance is reaching and benefitingthe people at whom it is targeted. We are also now in the beginning stages of a project on coastal resourcemanagement on Camaguin island and are looking at helping the Departmentof Tourism with its goal of producing a strategy for eco-tourism. We will be hoping to coordinate with the other donors who we know are already working in these areas. A large percentage of our ODA programme goes towards human resource development and education and training. We recently completed a five year In-Country Training Programme (ICTP) to build up planning and project preparation skills of local government units. Traditionally our tertiary study awards scheme has concentrated on scholarshipsto New ZealandUniversities,but we are now offering a much wider choice of courses. This includes not only University courses, but also a wide variety of subjects on offer at our Polytechnics. Filipino scholarship students travelled to New Zealand to study a range of subjects including Environmentaland Development studies, Nutrition, Applied Science, Business and Administration,Journalism, Animal Science, public healtlh,plus others. This is an important part of the programme and we are continuing our commitmentto it. A statementthat does not mention Mindanaowould not be complete. Like most donors, much of our bilateral programme is focussedthere. Two of our larger projects are in the Mindanao region. We contributeto developmentefforts in support of the peace process through contributions to UN agencies. We have also provided a number of one-off grants under our Head of Mission and Small Projects funds to people in the region. We strongly believe that this is a region with much potential, which should be the food basket of the Philippines. We look forvard to the restoration of a peaceful environment there, and to working with the Governmentand local communities to enable Mindanao to realise its full potential. Annex 4n Page I of 4 CONSULTATIVEGROUPMEETING SPANISHSTATEMENT Thank you Mr. Chairman: First of all p ease allow me to commend the Government of the Philippines and the World Bank for organizing the 23Id Consultative Group Meeting and the excellent organization,documentationand hospitalityextended. Spain, in the recent years, has experienced a close partnershipwith the governmentof the Philippines to undertake the challengingtask of addressingpoverty and providingquality of life to the Filipino people. Consistent with both countries' priorities and due to this promising ccoperation, the Philippines has become the main beneficiary of the Governmentc(f Spain's Official non-refundableDevelopmentAssistance (ODA) in Asia. Our cooperation and development assistance is now a substantial part of the bilateral relations between the Philippines and Spain, and during the most recent years there has been a constaat tendency to expand the scope and increase the number of programs. In 1999 alone, g:ants extended to the Philippines amountedto approximatelyten millionUS Dollars, 580/c of which was directed to our main focus of intervention, Poverty Alleviation.The rest of the mentionedamount was allocated mainly to the modernization and assistanceto institutions related to our common historicalheritage (18%), technology transfer (10%>and to educational cooperation(14%). This year we expect to conduct a joint review of our developmentcooperationresults and define future directions and sectoral priorities to generate Spain's future country strategy for the Philippines which we hope to conclude before the end of this year and to have approved dur.ng the Fourth Joint Commission2001-2004. We have idertified the following sectoral priorities: Basic Social Needs for the Poor, Improvement of Private Sector/Strengtheningof Economic Structure, Modernization of Institutions ead Support to the Peace Process in Mindanao. Each of these priorities is reinforced by the following horizontal principles: the fight against poverty, equal rights and opportunfties,sustainable environment,humandevelopmentand good governance. It goes witho it saying that those sectoral priorities are closely related to the socio- economicagenda of the Government of the Philippines. Annex 4n Page 2 of 4 1. Poverty alleviation is constantly highlighted in President Estrada's government program as a major goal and Spain takes note of the efforts by the present Administration to fight poverty as well as its macroeconomicreforms. NTevertheless, the magnitude and high incidence of poverty continue to prevail in the country affecting the urban and rural population and allowing inequalities in the distribution of income. We believe that continued acceleration of the main socio-economic reforms is considered indispensablefor the successof this joint effort. 2. We commend the Philippine government for its commitments to fig-t graft and corruption in order to achieve the necessary environment for the desi-e economic development of the country. 3. We are please to see the emphasis placed by the government in improving access to affordable family planning service to the Philippine people. 4. We are encouraged by the action undertaken by the National Governmentto carry out the necessary devolution and decentralization of its departments 3 0 the local governments.We are also helping some of those local govermnents. 5. The Government of Spain considers a successful peace process in MAindanao as fundamental for a sustainable economic and social development not only in the area but also for the rest of the country. In this endeavor, the Government o Philippines has also Spain's support. 6. We are in line with other delegations in the emphasis for the need of mrodernization within the Bureau of Internal Revenue. And now I would like to give the floor to my colleague from the D:partment of Economy. Thank you Mr. Chairman: Over a year has now passed since the last CG meeting was held in Tokyo, and where all the delegationspledged their official support to the Philippinegovernment and praised its economic team on how they managed to minimize the negative effects of the Asian financial crisis. Today we can clearly observe which countries, among those which were seriously affected by the financial crisis, are finally on track to full recover,. Hopefully we can learn from their experience, especially on how they are moving forward towards economic,and in certain cases, political stability. In the case of the Philippines, it is clear from the economic standpointthat it has not been a bad year. Annex 4n Page 3 of 4 On the other hand, it is only fair to state that it should have been a better one. It is true that the economic fundamentals are moving in the right direction, GDP is within the targets set by the medium and long term economic program showing a real growth rate during the first quarter of the year of over 3%. Inflation is lower than predict2d, with the Central Bank (BSP) playing a major role in securing a stable financial system. And the export performance, principally from the special economic zones, has proven quite impressivewith some help from the strengthof the US dollar. In addition to the economic fundamentals,another key factor which all donors consider prior to designating funds for development assistance is the level of confidence. In this respect, we would like to stress that Spain is confident in the future of t-2is country. However, if we wish to spread this confidenceto reach not only the policy makers,but also our foreign businessmen, then we believe that certain issues have to be addressed, and we should learn from our experiencesin the past. Confidence is a critical component which is difficult to erect, but can very easily be destroyed, even if the causes may be somewhat unfortunate circumstances. It is our humble opinion that the best way to sell the country overseas is by giving clez;rsignalsto the economicagents in this globalizedworld. We know that the Philippine gcvernment is moving in the right direction, but it is a matter of concern that some incidents in the recent past, especially in the financialand capital markets sector, could erode :heconstant efforts made by the Government to achieve its goal of giving all the Filipino people a better quality of life. In addition, allow me to indicate some other specific i:sues which have proven to be of a concern to us. The first is related to the (electric bill act) Power Privatization Act. All t e countries involvedwere informed by mid May that the act would be signed. We all uncerstand that the delays are due to important factors and circumstances,but in this respect we urge the Philippine government to speed up the approval process. We believe that this law will, in the long run, pave the way to a more level playing field among companies. benefit the Philippine citizens and the corporate users through lower power rates, and is likewise expected to fuel more confidence in the country by showing that the go ;ernment is sincere in pushing through with the structural reforms that the country needs in order to improve the economic environmentand, as an ultimate goal, to reduce poverte. Furthermore, we applaud the efforts being made by the World Bank tc encourage structural reforms as a conditionalityin their developmentprograms. We stroniglybelieve that only if the appropriate conditionswithin the appropriateenvironmentare created can this country be in a position to tackle the much needed economic developr.ientagenda which is based on the goal of poverty alleviation. In this context, we fully endorsed the conclusions made by Secretary Diokn- at the pre ConsultativeGroup Workshop on economicand corporate governance last June 5. It was stated very clearly where the problems lie. We offer all our support to assist in finding solutions to these problems. Annex 4n Page 4 of 4 Finally Mr. Chairman, on the bilateral side, allow me to commend the collaboration provided by NEDA in the developmentof the Spanish assistance program. We concur with NEDA's goals of pursuing transparency,fairness and the best project value through a bidding process. Recent pronouncementsfrom the EconomicCoordinating Councilthat they are studying ways to improve the current process proves that the top Government policy makers are cognizant of the problems and are moving in the right direction towards resolving these concerns.In line with this effort, we would like to stress that we are ready to collaborate with the Philippine government in identifying and reducing the bottlenecks experienced with some executing agencies in the implementation of the selection process: bottlenecks that, if left unremedied,may eventually influence on the disbursementsof finds in certain projects. May I likewise state that we are also ready to participate in the development of specific areas of the country, especially in Mindanao. At the same time, we urge the government to find ways to stabilizethe political situation in this rich but underdevelopedregion so as to create the appropriateconditions for the ec'onomic sustainabilityof the area . To conclude, I wish to announcethat the Spanish pledge for the year 2001 is divided in two parts: one is related to development cooperationwhere Spain is going to provide grant assistancefor an amount of 10 million dollarsand the second portion is a pledge for disbursementof soft loans of 50 MUSI) for 2001. Thank you very much and good day. Annex 4o EMBASSY OFSWEDEN Page I of 3 MANILA 2000-06-15 Remarks by the SwedishDelegationat the ConsultativeGroup Meetirn for the Philippines19-20 June 2000 I would like to join those congratulating the Government of the Philippines for the very solid preparatory work being done for this CG meeting. The preparations have been characterised by a high degree of co-operative spirit on the part of the Government as well as commendable frankness in a continuous dialogue with donors on how to strengthen the pace of reforms and to address remaining structural obstacles in the Philippine economy. I will limit my remarks to a few observations of interest to my Government based on the excellent background material prepared by the World Bank Economic policies pursued over the last decade have shown positive results and recovery after the financial crisis seems to be under way. But this has not yet in any substantial way translated into development which benefits the poor. Official statistics indicate that poverty incidence remains high, particularly in rural areas. Sweden would like to see the stated intentions by the administration being translated into concrete action and the obstacles to successful implementation of the poverty reduction programs, not least at local government level, overcome. Closely linked to the poverty reduction is the management of natural resources and the protection of the environment For Sweden this is an area of high priority in the development co-operation with the Philippines. Poverty in rural areas and increasing population pressure has accelerated the degradation of forests, watersheds and marine resources. This in turn has accelerated urbanisation and thus also contributed to growing urban health hazards such as air and water pollution, the risk of infectious diseases etc. To enhance the capacity at both central and local level to protect the environment and to ensure compliance with the environmental laws seems to us to be of urgent priority. Annex4o Page2 of 3 2000-06-15 To secure successful implementation of these policies a strong commitment by the Government to create an environment that will breed good governance is essentiaL The continuous strengthening of institutions and effective law enforcement are necessary measures. The Government also needs to take the lead in changing the political culture and the perception at different levels of society of what constitutes good governance. The report by the World Bank on corruption gives an excellent overview of the situation and the measures that need to be taken to address the problem. The strong commitment of the administration to carry out in fil World Bank recommendations is encouraging. Mindanao I would like to voice my concem over the extremely difficult humanitarian situation presently experienced by the civilianpopulation of the conflict- ridden parts of Mindanao. The recent resumption of peace talks between govemment officials and those of the Muslim groups involved will hopefuLy lead to a lasting improvement of the current situation on Mindanao. The Swedish Govemment hopes that the recent escalation of violence in Mindanao as well as on the neighbouting islands can be resolved peacefully. We support the Philippine Government in its endeavours to reach a peaceful solution of the conffict in Mindanao which is a prerequisite for development and economic growth in the region. Together with her partners within the European Union, Sweden is ready to continue the current co-operation with the Philippine Govemment in its efforts to create conditions to carry out necessary reforms and combat widespread poverty in the Mindanao region. Bilaterally,Sweden has supported the first phase of the SPCPD-NEDA-UN multi-donor program and will assess the possibilities for future engagements within the current country programming exercise. Sweden's development co-operation Sweden's development co-operation with the Philippines is not based on any annual allocation, but each project is judged on its own merits. Consequently, Annex4o Page3 of 3 2000-06-15 the disbursement figures have tended to vary considerably during recent years, from a high of 24 million USD to a low of 4 million USD in 1998. For the calendar year 1999, development co-operation disbursements amounted to some 32 million SEK (1 USD = 8,70 SEK/April 2000). Swedish assistance comprises contract-financed technical co-operation, concessionary credits and support through NGO's. Within the technical co- operation program, priority is currently given to projects supporting processes and institutions which are essential for a continued positive economic and social development, consolidation of democracy and ecologically sustainable development. The current projects aim at broadening of relations between Sweden and the Philippines transfer Swedish know-how and technology to the Philippines. An increasing share of the co-operation programme has been devoted to environmental projects. Assistance has so far been given in fields such as Water Resources assessments, Civil Aviation, Air Quality Control, Support for the Agrarian reform programme, environmental management programmes, national statistical information systems etc. Sweden is presently assessing its future development co- operation with the Philippines. Annex 4p Page I of 3 United States DelegationStatement ConsultativeGroup Meeting for the Philippines Tagaytay, Luzon: June 19-20,2000 Mr. Chairman,the U.S. delegation is pleased to take part in this ConsultativeGroup Meeting for the Philippines.A more appropriatefocus for the meetingcould not have been chosen: alleviatingpoverty in the Philippines. The Philippines canreduce the root causes of poverty by increasing the pace of economic growth. The Philippines was slow to recognizethe trend toward a global economy as it gradually emerged from the 1960s through the 1980s. As a result, some of the Philippines' neighbors -- the famous "AsianTigers" -- embracedthe new opportunitiesearlierthan the Philippines and pulled ahead in terns of income growth and poverty reduction. But with the restoration of democracy and stability over the past two decades, the Philippineshas begun to catch up. It weathered the Asian Financial Crisis more easily than some of its neighbors and has maintained one of the world's highest rates of export growth for several years. The challengenow is to maintain the pace of progress.In an increasinglycompetitiveglobal economy,the Philippinesmust not risk falling behind again. In today's economy,the penalties for failing to keep up are much more severethan in the past. We would like to commend the Philippines for its investmentin education.We believe that its highly educatedworkforce will be key to its futurecompetitiveness.However, if the Philippines is truly committedto alleviating poverty, it must devote attentionto three key issues: governance,family planning, and stability. Governance In today's global economy, investors have choices. They demand stable economic and legal conditions, as well as promise of significant return on investment.If investors feel these conditions are absent,they move their money elsewhere.Improvedgovernance can attract investmentthat will lift more Filipinos out of poverty. The United States is increasinglyorienting its assistancetowards anticorruption,pro- transparency efforts. We are emphasizingthe areas of procurementreform, customs administration,tax administration,competition, and judicial reform. Sustainedefforts in these areas must be complementedby continued progress in the whole range of pro-competition initiatives that are moving forward, including securities and banking regulation,energy generationand distribution, telecommunications,shipping,aviation, and grainmarketing. We note that the SupremeCourt recently approveda blueprint for reform that shows great promise for streamliningcourt procedures,reducing corruptionin the judiciary, and improving relations with executive agencies that have regulatory and enforcementresponsibilities.If fully implemented,such legal reform will help encourage investmentand economic growth. Annex 4p Page 2 of 3 Family Planning and Health Another great challengeto alleviatingpoverty in the Philippinesis the country's rapid population growth. The mid-year 1999 Philippine population of 79 millionwill increase to 127 millionby 2030 even with moderate fertility decline. Under this scenario,the equivalent of 46% of the current populationof the United Stateswill live on 3% of its land area. This demographic situation will have grave consequences for the Philippines'economicgrowth, social welfare, and environment.It is therefore vital for the Philippinesto support individualfamilies in reducing fertility. We believe that two management innovationsare needed in the family planning program. The first is expandingprivate-sector provision of family-planningservices. In 1999,USAID helped establishthe FriendlyCareFoundation Inc., a private-sectorfoundationthat provides financially sustainable,demand-drivenfamily planning and health servicesto lower-middleand middle- income groups.The second innovation is to focus on providinginformationand services that accompanyaccess to birth control products. More informationand services will reduce perceived risks and improve maternal-childhealth. The third innovation is to work in partnershipto promote entrepreneurialleadershipin the mobilizationof domestic funds for financing contraceptives. Specifically,we believe that the Governmentof the Philippines could best demonstratecommitmentto sustainability of the country's family planning program by including a line item in its national budget for the procurementof needed contraceptives. From our perspective,this single measure would go a long way towards achieving self reliance in family planning and deepening the Filipino sense of national pride in its achievement of population, health, and developmentgoals. Finally, we would like to commend the Government'shighly effective efforts in HIV-AIDS prevention and management, along with new efforts in tuberculosisand malaria. Stability Finally, violenceand regional strife act as obstaclesto economicgrowth and poverty alleviation. Recent eventsin Mindanaohave injected a note of uncertaintyinto the prospects for the Philippine economy.Instability in Mindanao hurts not only Mindanaobut the country as a whole, as potential foreign investors divert resources to countriesperceived as "safer bets." Governmentalone cannot manage an economy that remains competitive.Without private sector investment,development and poverty alleviationwill remain incomplete. We hope that a negotiated settlement in Mindanaowill restoreconfidence soon. In the meantime, USAID is acceleratingits efforts to assist the Governmentin providing services that will help prevent any serious downturn in Mindanao.As you know, the United Statesbelieves it is importantthat the Government of the Philippines and the intemationaldonors redouble efforts to foster stabilityin unstable areas of Mindanaothrough economicassistance and programs to spur economicand social development there. We look forwardto discussionsduring this ConsultativeGroup session about strategies to increase the effectivenessof programs designedto reduce tensions. More broadly, we hope to discuss ways to reduce bottlenecks and bureaucratic obstacles that are holding up programs in Mindanao and elsewhere. The U.S. Delegationwould like to emphasizethe urgency of acceleratingimplementationof projects in the pipeline for Annex 4p Page 3 of 3 Mindanao.This is badly needed to offset the impacts of the recent kidnappingsand bombings on the economy and improve the well being of the region. We are aware that the security situation may make program implementationdifficultin some cases. However, with the pipeline estimated at over $1 billion, we believe there is a substantialopportunityto respond to recent events.We should take full advantageof this opportunity. Conclusion In Conclusion,Mr. Chairman, the U.S. delegationwould like to emphasizeour belief that the Philippines is poised to become a strong player in the global economy. However, it must ensure that the conditionsthat attract and retain investmentare in place. Effective and accountable governance,renewed efforts in family planning, and security and stability are preconditions for lasting economic growth. The United States is helping and is poised to continue providing support in these areas. Thank you. Annex 4q Page l of 3 Asian Development Bank Intervention on Reforms 1. The Asian DevelopmentBank's (ADB's) lending operationsin recent years have emphasized increasingly reforms supportfor Government's in vitalsectorsof the economy.With increased the Government's emphasis on speedingup economic sincethe reforms,particularly mid-1990s,ADB's lendingprogramhas begun reflectingincreasedpolicy-based lending,in supportof Government'sefforts at usheringin neededpolicychangesin criticalareas. The reformprocess obtained a furtherimpetusduringthefinancial weaknesses crisiswhensystemic were exposed in thefunctioningof the economy request, in severalkeyareas. At Government's severalnewprogram loanswere approvedby ADB. Thesereflectthe importance Govemment attachesto bringingabout structuralchangesin the economyto improveoverall economic andbetterlivingconditions. performance 2. Severalof ADB's programloans in recent years havebeen of particularsignificance. These include support for such diverse areas as capital market reforms, power sector of the NationalFoodAuthority,and grainssectorreformsincludingrestructuring restructuring, reformsto improve the environment.Reformsin these areasimpacton the functioningof vital sectorsof the economy, and thereforetheir smoothimplementationis a matterof concernof andthe ADB. boththe Government 3. ADB's Capital Market Development ProgramLoan approvedin 1995, for instance, helped the Governmentin its efforts to improvestock marketfunctioningthrough greater transparencyand disclosure, improve govemance in the workingof the stockexchange,better andstrengthen protectinvestorinterests, regulation.Several on of the reformswerecontingent the enactment Act, whichalthough of the Securities delayed,has madeconsiderable progress finalpassageby Congress. towards recently 4. sector,ADB'sPowerSectorRestructuring In the power Program Loanapproved in 1998 supportsthe Government's of initiativesin the sector.Theseincludeprivatization restructuring power generation, development of a competitive market in electricity, strengthening and distribution. transmission The restructuringis expected to improvethe efficiencyof the powersectoras a whole and result ultimatelyin lowertariff for consumersthat are high by Annex 4q Page 2 of 3 regionalstandards. process,however,involvesseveralprior executiveand The restructuring legislativeactions.TheOmnibusPowerSectorReformBill, whichlays outthe basic legislative process,is now likelyto be enactedsoon.Actionis necessary frameworkfor the restructuring on improving still, however, PowerCorporation's the National (NPC's) positionpriorto financial the sale of NPC's assets. Releaseof loan tranchesfrom the PowerSector Restructuring ProgramLoanhave beendelayedpendingaction on thesefronts.ADB'splannedinvestment area could also be delayedif theseneededactionstake supportfor 2000in the transmission time to be implemented. 5. Program,which will assist ADB recentlyapprovedthe Grains Sector Development Government of the NationalFood in overallreformin the grainssector,includingrestructuring Authority (NFA)by separatingits regulatoryand tradingfunctions. The reformsin the grains sectorenvisage of rice pricesat marketlevels,implementing stabilization a targetedsafetynet programfor the poor,maintenance of adequatebufferstocksand adopting a transparentrice import policywith abolitionof NFA'smonopolyover rice imports. The reforms will helpfarmers obtain better prices for rice, improveproductivityin grains productionthrough support for researchand development andinvestmentsin ruralinfrastructure. 6. ADB'sprogram sectorprovidesupport loansin the environment for reformsthat bringin changes in environmentpolicy particularlyfocusing in their impact on improving the conditions environmental of MetroManila. ADB'sMetroManilaAir QualityImprovement Sector DevelopmentProgram Loanapproved in 1998andthe PasigRiverEnvironmental Management SectorDevelopment and Improvement for approval Programbeingprocessed soonin 2000are expected impacton the metropolitan to makea substantial Government's environment. speedy its determination action to enact the CleanAir Act demonstrates to act quicklyin this area. of necessaryinstitutionalmeasures, However,actualimplementation a such as establishing controlsystem,is takingtime. vehicularemissions 7. hardshipsfor While structuralreformsare necessary,they do oftenentail temporary some affected thereforeto see that speedy groups.It is necessary measures ameliorating are put in place to reduce such hardshipsand enable those affectedto adjust quickly. The mayalsoconsiderimprovedinformation Government to the publicat largeabout dissemination the benefits of these reforms. Often, owing to partial information being available, Annex4q Page 3 of 3 misconceptions about the intent of the reformsarise which leadsto difficultiesin mustering supportfor the reformmeasures, delaying themto the detrimentof the public. 8. Government'sreform initiativeswill continue.The ADB's support for implementing Government has soughtfurtherassistancein severalareas such as in the nonbankfinancial sector,exportdevelopment, andhealth.ADB looksforwardto continued education cooperation with the Government and poverty in theseareasin our commonquestfor speedydevelopment reduction in the Philippines. Annex 4r Page 1 of 2 PHILIPPINES CONSULTATIVE GROUP MEETING Tagaytay, 19-20 June 2000 STATEMENT BY THE EUROPEAN COMMISSION The European Commission wishes to compliment the Government of the Philippines and the World Bank for the organisation of the Consultative Group Meeting and the excellent documentation. The year that has passed since the last CGM in Tokyo has brought to the Philippines much needed economic recovery after the Asian financial crisis but has put the present administration to a difficult test. On the economic front, we note the positive (GDP) growth of 3,2% achieved by the economy in 1999 that followed the slight decline in 1998. Agriculture has been the driving force behind last year's economic growth. The industrial sector, which resumed its recovery by last year's end, could become the main engine of economic growth of the present year. Also, the continuing dynamism in exports will underpin a modest acceleration in growth during the current year bringing it to the 4 to 5% range. One of the pillars of growth of the pre-crisis years in the Philippines was investment. In recent years, 1998 and 1999, investment has been falling in real terms only to see a slow resumption in the current year. In order to fully exploit your country's opportunities we believe that more could be done to enhance investors' confidence. The Philippines certainly offers a significant number of advantages for potential investors like a skilled population, a democratic society, a world language, English, spoken broadly by its population and relatively liberal trade and capital regimes. Substantial improvements in the Philippines' infrastructure including telecommunications, environment and energy can be envisaged. Business hesitations to invest in the Philippines, often based on the perception of a complex environment to operate, could be overcome by a continuous reform process. We note the important reforms recently announced by the Government. However, we have the impression that the pace of reform in the Philippines has not been sufficiently sustained. There seems to be a need for further institutional reform, focusing in the areas of structural, regulatory and macroeconomic policy management, including judicial procedures, accountancy practices and taxes. As the recent Asia crisis demonstrated, relations between economic and social policies are not clear-cut: to operate properly, sound economic policies need also an enhanced socio- economic balance. Economic reforms should be complemented by a social policy framework, both to ensure a capacity to address the social consequences of inevitable cyclical downturns and to foster a flexible labour market and to upgrade the investment in human capital necessary for growth. Annex4r Page2 of 2 Failure to properly address growing inequalities between rich and poor, or between urban and rural populations facilitate an environment propitious to social and political unrest. In this connection, the improvement of socio-economic conditions in the Mindanao region requests particular attention. The persistently poor human development indicators, in spite of efforts to boost its development, show that there is still great scope for improvement. Government and the international community could together examine development programmes and take stock of best practices in order to seize opportunities for improved efficacy of assistance. I think that we all agree on the fact that development interventions, if they are to succeed, need a minimum level of stability. In the same spirit, the participatory approach to development requires that the beneficiary communities are free from threats of violence and are allowed to voice their needs. The transfer of technologies and the brining in of outside experience, for which Technical Assistance is mobilised, require that their safe passage be guaranteed. Delivery mechanisms for the development assistance need to be restored in places where they have been rendered unworkable Recent resumption of peace negotiations between Government representatives and those of the Muslim insurgent groups raises prospects for a lasting improvement of the current situation in Mindanao. Achieving an equitable peace agreement could make a significant contribution to political stability in the region and positively impact on growth perspectives for the Philippines' economy. The European Commission is following events in Mindanao and the neighbouring islands closely. I should only express our concern for the safety and health of the hostages, but although I do not want to elaborate in this context on this humanitarian problem we note that the escalation of violence has resulted in the loss of civilian lives, human rights abuses and the hundreds of thousand displaced people. The Commission is supporting through its humanitarian aid and rehabilitation assistance the needs of the most vulnerable civil population. Moreover, a new development project, STARCM, is being launched with the aim to support alleviation of rural poverty and economic disparities in four provinces of Central Mindanao. The Commission wishes to reinforce its co-operation with the Philippines. Enhancing our overall relation should be achieved through an evolutionary approach, taking into account the progress realised by the Philippines Government in addressing the internal conflicts peacefully and reforming the economy. We will endeavour to support, within the limits of our possibilities, the economic reforms and poverty alleviation. I can assure you that'the European Commission will explore all possibilities for co-operation with the Government of the Philippines and with other major donors in order to support the necessary reforms. Traditionally, the Commission never pledges at CG meetings. The argument has always been that we work on a project by project basis rather than allocating multi-annual programmes to our Asian partners. On this basis we have, over the period from 1995 to 1999, made available Euro 90 million in development project funding for the Philippines as well as funding through a number of regional economic co-operation programmes. This approach will continue to be followed and therefore, while we make no new pledge today, the European Commission remains ready to assist the Government of the Philippines to meet its difficult challenges. Annex 4s Page 1 of I CONSULTATIVEGROUP MEESlNG FOR THE PHLIPPINES MANILA, 19-20 JUNE 2000 STATEMENT OF THE EUROPEANINVESTMENTBANK The operations, whichthe EIB has carriedout in Asia since 1993,have steadilygrownin magnitude. Thefirst two mandates, coveringthe period1993- 1999, are now behindus and involveda total commitment of EUR 950 m, whichhas now beenfully allocated. The third mandate,for an amountof about EUR 1250 m earmarkedfor Asia, which was approvedby the European Ministersof Finance(ECOFIN) earlythis year andrunningfrom February2000 - January2007, will be effectivefrom mid-2000. While the Bank will continueto support a numberof public sector projects,the focusof its operationsis nowin the privatesector.In this respect, we.are particularly lookingat projectsbeingundertaken as European - Asian joint ventures,includingthoseon a BOTor BOObasis,aswell as concessions, for instancein the sectorsof watersupply,wastewater treatment,energy,etc. In the Philippines,the marketfor these types of projects has been growing rapidly, and has not been materiallyaffectedby the onset of the regionaleconomic crisis.Duringthe last two years,the EIBhas supported two importantBOT projectsin the Philippines, namelythe new 1000-MW Santa Rita power plant in Batangasand the Water and SewerageManila West project.Together,these two loans total EUR 122 m, which is a significant amountin the lightof thelimitationsof the Bank'sfinancial mandate for Asia.At the sametime,the Bankis continuing its support, togetherwiththe ADB,to the extension and improvement of the airportsof DavaoandPuertaPrincesa. The Bank intendsto continueto finance projectsof this type in the Philippines. At the sametime,possibilities to supportsmall and mediumscale joint ventures, possiblythrough a line of credit to a first class financial institution, are being studied. In the public sector projects, the EIB is particularlylooking at projectswhich have a beneficialimpact on regional development (as the airport projects), involve a transfer of European technology and improve the communications betweenthe Philippinesand the European Union. IFAD FIDA FIDA IFAD JL INTERNATIONAL |FUND FOR AGRICULTURAL FONDS INTERNATONA DEDMVELOPPEMENT FONDO INTERNACIONAL DEDESARROLLO _ J DEVELOPMENT AGRICOLE AGRICOLA * Annex 4t Page I of 2 THE PHILIPPINES ConsultativeGroup Meeting Manila, 18 - 20 June 2000 IFAD Delegation's Statement Mr Chairman,Distinguished Delegates, Ladies and Gentlemen, I am honoured to represent the International Fund for Agricultural Development at this meeting. It is heartening to note that, like other countries of the Region which were affected by the financial crisis, the economy of the Philippines is recovering fast with a projected growth rate of 4 percent in 2000. However, on reflection,we in IFAD have learnt many lessons. From the point of view of the poor, the crisis has demonstrated the weaknesses of a developmentapproach that does not pay adequate attention to the problems of uplands and mountainous areas which are home to the millions of indigenous people and other minorities. In response to the crisis, EFADhas formulated a programme for the upland poor in Asia, which will also include the upland areas of the Philippines. This programme is designed to provide improved and increasingly resilient livelihoods to the marginalised upland poor through secure access and control over their natural resources. The focus will be on developing and implementing projects that promote regenerative and non-extractive agriculture and forestry, using locally adapted, resource-conservingtechnologiesthat have tended to be sustainable. Priority will be given to the transformation of gender relations in ways that emphasize women's transformationalrole through the control over resources and through their involvement in household and community decision-making. Systematic and widespread use of participatory techniques will be promoted includingparticipatory monitoringand evaluationof project impacts involving beneficiaries.Also, there will be a focus on local institution building through a process of participatory learning and networking. Collaboration with grass-roots level NGOs will constitute an important part of partnership building. We are glad to have initiated this process in the Philippines and we are learningmany useful and practical lessons. IFAD's operations in the Philippines started in 1978, and since then eight loans for developmentprojects have been extendedto the Governmentof the Philippines for a total lending of USD 89.2 milliondollars. Three of them are still ongoing and a fourth is in the pipeline. The purpose of these projects ranged from the development of livestock sector to the rehabilitation of irrigation schemes, from rural micro-enterprisefinancing to institutionsbuilding FOR FLNID IFAD - INlEIJA]CNAL DEDCiELOPEF&NAGCOLE * FIDA - FONCIINTEIWWaCAL AGRCLlU.PLDXELOPNcENT Annex 4t Page 2 of 2 --but for all of them the aim is to reduce poverty among the ultra-poorrural people, encouraging self-help groups, women groups, income-generatingactivities; promoting sustainable resOUM managementpractices, protecting the environment and improving beneficiary's access to fornal and informal credit. These activities are underlined by a general policy of beneficiaries' participation and gender sensitivity. The new project which is going to be appraised soon and presented for approval by the end of this year, will be located in Northern Mindanao and Caraga Regions and is intended for the development of coastal and uplands communities. The project was conceived as a wide-ranging intervention in geographical and sectoral interest terms. Indigenous people, marginal fisherfolks and uplands dwellers need support in seeing through their plans for community and natural resource development. The stress is on the critical and fragile ecosystemson which their way of life depends; the paucity of aid assistance and revenue allotment in relation to needs; and in the absence, in many cases, of rights and control of assets of landand sea involved. IFAD-funded projects have always had a specific focus on the rural poor. We, in IFAD believe that involvementof stakeholdersfrom the outset and throughout the project evolution and realisation processes result in greater long-term impact and several of IFAD-fundedprojects have demonstrated this. However our recent experience particularly in the uplands do bring out the message that we need to be more sensitive to the vulnerability of the upland poor. We need to pay more attention to their social capital. IFAD's programme and projects will be designed in close collaboration and consultation with all stakeholders including other donors active in the country. These will take into account the best practices in the programmeareas and the promising initiatives of NGOs and community organisations. IFAD will also try to establish partnership with local champions who have a known commitment to the rural poor and who have legitimacy in the country. We hope to closely collaborate with the new initiatives of the United Nations Development Assistance Framework, ComprehensiveDevelopmentFramework and the Poverty Reduction Strategy Paper. We have been established for the ruralpoor and as an institution that has been specificallycreated only for them, we welcome the new focus on poverty reduction in organisations such as the World Bank, AsDB and indeed the whole intemational community.We stand today to play our part for the upland poor of the Philippines. Thank you very much. Annex4u Page 1 of 2 MR. CHAIRMAN, EXCELLENCIES, DISTINGUISHED DELEGATES, LADIES AND GENTLEMEN, I WOULD LIKE TO EXPRESS MY SINCERE THANKSANDGRATITUDE FOR THE KIND INVITATION EXTENDED TO SFD TO PARTICIPATE IN THIS IMPORTANT MEETING. I WOULD LIKE ALSO, TO THANKTHE GOVERNMENT OF PHILIPPINES AND THE WORLD BANK FOR PREPARING THE EXCELLENT DOCUMENTS AND ORGANIZING THIS MEETING. WE ARE PLEASEDTO JOIN THE GOVERNMENTS AND INSTITUTIONS THAT SHARE WITH US THE DESIRE TO SUPPORT THE PHILIPPINES GOVERNMENT IN IMPLEMENTING ITS AMBITIONS DEVELOPMENT PROGRAM. THIS MEETING PROVIDEDTHE OPPORTUNITY FOR THE DONORS TO DISCUSS THE RECENT SOCIO-ECONOMIC DEVELOPMENTS AND POVERTY REDUCTION POLICIES. MR. CHAIRMAN, THE KINGDOM OF SAUDI ARABIA & REPUBLIC OF THE PHILIPPINES ENJOY WARM & FRIENDLY RELATIONSHIP BASED ON STRONGCO-OPERATION & MUTUAL UNDER STANDING. BOTH COUNTRIES HAVE BENEFITED FROM THEIR CO-OPERATION. HUNDREDS OF THOUSANDS OF FILIPINO NATIONALS ARE LIVING & WORKING IN SAUDI ARABIA. WE APPRECIATETHEIR ROLE. WE ARE SURE THAT THEIR CONTRIBUTION TO PHILIPPINES ECONOMY IS HIGHLY VALUED AS WELL. MR CHAIRMAN, Annex4u Page 2 of 2 THE KINGDOM OF SAUDI ARABIA HAS EXTENDEDVARIOUS TYPES OF AIDS TO THE DEVELOPINGCOUNTRIES. THE SAUDI ASSISTANCE AIMS TO HELP THE DEVELOPING COUNTRIES TO REDUCE POVERTY AND TO IMPROVE STANDARD OF LIVING THROUGHDEVELOPMENT. WITH RESPECT TO THE PHILIPPINES ASSISTANCE, THE CUSTODIAN OF THE TWO HOLY MOSQUES KING FAHAD BIN ABDULLAZIZ DONATED A RELIEF ASSISTANCE FOR THE REVACUEESIN THE AFFECTEDAREA IN THE PHILIPPINES, LAST WEEK, CARGO PLANES LOADED WITH RELIEF MATERIALS LANDED IN MANILA AIRPORT, AND IMMEDIATELY IT WAS DISTRIBUTED TO THE PEOPLE IN THE AFFECTED AREA. MOREOVER,FOR THE DEVELOPMENTASSISTANCE,SAUDI FUND FOR DEVELOPMENTWILL PROVIDEA LOAN IN A TOTAL AMOUNT OF US$ 20 MILLIONS. THIS AMOUNTWILL BE PROVIDEDIN FORM OF HIGHLYCONCESSIONALLOAN TO FINANCEPROJECTSIN THE SOUTHERNREGIONS OF MINDANAO. OUR FOCUS WILL BE TO CATER FOR THE NEEDS OF THE POOR, IN SECTORS SUCH AS HEALTH,EDUCATION& RURAL DEVELOPMENT. THANKYOU MR. CHAIRMAN U-A A<nnex5 I'UM 5 Annex Page I of 2 PRESS RELEASE NEW ODA COMMMITMENTS UP TO US$10.3 BILLION Tagaytay City, Philippines. New pledges by the international donor community today increased total available official development assistance (ODA) commitments to US$10.3 billion, Finance Secretary Jose Trinidad Pardo, Chairman of the 23r Meeting of the Consultative Group for the Philippines announced. With fresh pledges of US$2.6 billion from participating donors in the CG meeting added to the US$7.7 billion in undisbursed commitments for ongoing projects, Government expects to disburse annual ODA of US$2 billion in the next five years. "We are heartened by the fact that the international donor community has kept their faith in the country," Secretary Pardo said, adding that the meeting, held in scenic Tagaytay Highlands, was marked b y candidness and constructive dialogue. "While we admitted to temporary disruptions in our development efforts, we were also able to explain to our donor friends the intricacies of our socio-economic and political system," the Secretary explained, pointing out that even as the donors indeed expressed apprehension over the Mindanao problem, they remained bullish to peace and development efforts for the island. Mr. Vinay Bhargava, the Head of the World Bank delegation, and co-chairman of the CG meeting, commended the Government for assuming a greater role as chairman of this year's CG meeting which he said is in line with the Bank's Comprehensive Development Framework. Mr. Bhargava also praised the Government for holding pre-CG workshops, which enabled Government and donors to discuss the topics substantially and afforded more focused discussion during the CG sessions. The co-chairman of the CG meeting highlighted the following four crucial areas which the donor community wishes to be addressed: "(i) how to boost sagging investor confidence and accelerate GDP growth to 5+ percent in the remaining years of the Medium Term Development Plan; (ii) how to make growth more equitable, particularly in Mindanao through a focused development program; (iii) how to improve governance in the private and public sectors; and (iv) how to make better use of ongoing and new ODA commitments." The Government presented policies and programs in the areas of basic social services, rural development, economic and corporate governance, and efforts at improving performance of projects and programs being implemented with Official Development Assistance (ODA). The donors expressed their support to Government's undertaking, and likewise discussed their concerns about the Philippines' economy including poverty alleviation and governance, and concerns on ODA performance. Annex 5 Page 2 of 2 The Governmentand donor communityhad fruitful discussionsthat led to identificationof donorsand the Government. action areas that concernthe international As a resultof the general discussionsin the meeting sessions,the donors presented the followingaction agenda to which Governmentduly responded:(i) enhanceresourcemobilization;(ii) raise investor and business confidence; (iii) keep focus on rural development and ComprehensiveAgrarian Reform Program; (iv) population management;(v) finalize the National Anti-PovertyAction Agenda; (vi) support for judicial reform; (vii) enhance anti-corruptionmeasures; (viii) activate CG- Working Group on governanceimprovement;(ix) deliver commitmentson the December 1999 ODA PortfolioReview;(x) the Mindanaosituation. The 23rd ConsultativeGroup (CG) meetingfor the Phippines was held June 19-20,2000 In Tagaytay City, Philippinesunder the chairmanshipof the Governmentof the Philippines,with the WorldBank as co-chair. The meeting was attended by delegationsfromAustralia,Austria, Belglum, Canada,Denmark, Finland, France, Germany,Italy, Japan, Korea, Malaysia,Netherlands,Norway, Singapore, Spain, Sweden, Switerland, and the United States of America. The international organizationsparticipating In the meeting Included the Asian Development Bank, European Commission, International Finance Corporation, International Fund for Agricultural Development,InternationalMonetaryFund, Saudi Fundfor Development,UnitedNationsAgencies (including UNDP,ILO, INICEF, UNFPA) and the WorldBank. NGO represntatives also participated. The last CG meetingfor the Philippines was held on March 24-25, 1999 In Tokyo. The ConsultativeGroup Meding is a regular meeting of major donors to the Philippines;It serves as a forum for policy dialogue between the government and the donor community and provides a mechanismfor moblizing official developmentassistance to support the public investmentprogram.
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Philippines - Consultative Group meeting, June 19-20, 2000 : summary report of the proceedings by the Chairman
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