CHAPTER 1 THE PROBLEM AND ITS BACKGROUND

Introduction Resource allocation is the very heart of economics: the allocation of scarce productive resources to meet the unlimited wants of the many people and groups in society. The role of the state in the economic process has increased both in poor and rich countries regarding this economic problem. Economic planning is the purposeful intention of the state to achieve a predetermined set of objectives through the orchestration of the economic decision making over time in order to influence, direct, or control the level and growth of the nations fundamental variables- income, consumption, employment, investment, savings, import, export, etc. Planning, therefore, is a direct and targeted way to economic growth and progress. An economic plan is basically a definite and explicit set of quantified economic targets to be attained within a given time frame. A comprehensive plan includes all the major aspects and sectors of the national economy (e.g. Medium Term Philippine Development Plan). Planning involves the making of a program for public expenditures over a period of time. It may entail the setting of production targets within the public or private realms and includes the manpower, capital or inputs of other scarce resources; or measured in terms of outputs. It may also set targets for the economy as a whole for the purpose of allocating scarce resources across the spectrum of the national economy. Planning is also used to describe methods by which the state enforces upon the private sector a set of previously determined economic targets. Economic planning seeks to accomplish economic goals. All goals aim, ultimately, at improving the human condition and should be viewed as instruments toward that end. Development is a multidimensional process, which necessitates the

formulation of multiple of goals. For this reason, the relative importance of each goal must still be decided. Ideally, the relative importance of each of the goals should be resolved through a democratic and participatory process.

Background of the Study The National Economic and Development Authority (Filipino: Pambansang

Pangasiwaan sa Kabuhayan at Pagpapaunlad), abbreviated as NEDA, is an independent cabinet-level agency of the Philippine government responsible for economic development and planning. It is headed by the President of the Philippines as chairman of the NEDA board, with the Secretary of Socio-Economic Planning, concurrently NEDA Director-General, as vice-chairman. A number of Cabinet members, the Governor of the Central Bank, the Chairman of the Metropolitan Manila Development Authority, the Governor of the Autonomous Region in Muslim Mindanao, the Chairman of the Commission on Information and Communications Technology, the Chairman of the Subic-Clark Area Development Corporation, and the National President of the Union of Local Authorities of the Philippines are members of the NEDA Board. The powers and functions of the NEDA reside in the NEDA Board. It is the Philippines' premier social and economic development planning and policy coordinating body. The Board is composed of the President as chairman, the Secretary of SocioEconomic Planning and NEDA Director-General as vice-chairman, and the following as members: the Executive Secretary and the Secretaries of Finance, Trade and Industry, Agriculture, Environment and Natural Resources, Public Works and Highways, Budget and Management, Labor and Employment, and Interior and Local Government. The Board is assisted by six Cabinet-level inter-agency committees comprising of the Development Budget Coordination Committee (DBCC); Infrastructure Committee (InfraCom); Investment Coordination Committee (ICC); Social Development Committee 2

(SDC); Committee on Tariff and Related Matters (CTRM); Regional Development Committee (RDCom); and National Land Use Committee (NLUC). The NEDA Secretariat serves as the research and technical support arm of the NEDA Board. It also provides technical staff support and assistance, including the conduct of studies and formulation of policy measures and other recommendations on the various aspects of development planning and policy formulation, and coordination, evaluation and monitoring of plan implementation. It is headed by a Director-General, with the title of Secretary for Socio-Economic Planning. He is assisted by three deputy directors-general each of whom is responsible for: (1) National Development Office (NDO), comprising of National Planning and Policy Staff (NPPS), Agriculture Staff (AS), Trade, Industry and Utilities Staff (TIUS), Infrastructure Staff (IS), Social Development Staff (SDS), and Public Investment Staff (PIS); (2) Regional Development Office (RDO) composed of Regional Development Coordination Staff (RDCS), Project Monitoring Staff (PMS), and Regional Offices (NROs); and (3) Central Support Office(CSO) composed of Management Staff (MS), Legal Staff (LS), Administrative Staff (AdS), Information Technology Coordination Staff (ITCS), and Development Information Staff (DIS). Other NEDA offices include the Legislative-Executive Development Advisory Council (LEDAC) Secretariat, Scholarship Affairs Secretariat (SAS) and Legislative Liaison Office (LLO). Attached offices with NEDA comprises of the Tariff Commission (TC), PublicPrivate Partnership (PPP) Center, Philippine National Volunteer Service Coordinating Agency (PNVSCA), National Statistical Coordination Board (NSCB), National Statistics Office (NSO), Statistical Research and Training Center (SRTC), and Philippine Institute for Development Studies (PIDS). Moreover, the, Philippine Institute for Development Studies (PIDS) is attached to the NEDA for policy and program coordination or integration. 3

Theoretical Framework

An economic indicator (or business indicator) is a statistic about the economy. Economic indicators allow analysis of economic performance and predictions of future performance. One application of economic indicators is the study of business cycles. Economic indicators include various indices, earnings reports, and economic summaries. Examples: unemployment rate, quits rate, housing starts, Consumer Price Index (a measure for inflation), Consumer Leverage Ratio, industrial

production, bankruptcies, Gross Domestic Product, broadband internet penetration, retail sales, stock market prices, money supply changes. The leading business cycle dating committee in the United States of America is the National Bureau of Economic Research (private). The Bureau of Labor Statistics is the principal fact-finding agency for the U.S. government in the field of labor economics and statistics. Other producers of economic indicators include the United States Census Bureau and United States Bureau of Economic Analysis. Economic indicators can be classified into three categories according to their usual timing in relation to the business cycle: leading indicators, lagging indicators, and coincident indicators. Leading indicators are indicators that usually change before the economy as a whole changes. They are therefore useful as short-term predictors of the economy. Stock market returns are leading indicators: the stock market usually begins to decline before the economy as a whole declines and usually begins to improve before the general economy begins to recover from a slump. Other leading indicators include the index of consumer expectations, building permits and the money supply. (Egan, 2010,

http://www.npr.org/templates/story/story.php?storyId=125837367. August 29, 2011)

Retrieved

Lagging indicators are indicators that usually change after the economy as a whole does. Typically the lag is a few quarters of a year. The unemployment rate is a lagging indicator: employment tends to increase two or three quarters after an upturn in the general economy. In finance, Bollinger bands are one of various lagging indicators in frequent use. In a performance measuring system, profit earned by a business is a lagging indicator as it reflects a historical performance; similarly, improved customer satisfaction is the result of initiatives taken in the past. The Index of Lagging Indicators is published monthly by The Conference Board, a non-governmental organization, which determines the value of the index from seven economic variables. These components tend to follow changes in the overall economy. The components are:

The average duration of unemployment (inverted) The value of outstanding commercial and industrial loans The change in the Consumer Price Index for services The change in labour cost per unit of output The ratio of manufacturing and trade inventories to sales The ratio of consumer credit outstanding to personal income The average prime rate charged by banks

Coincident indicators change at approximately the same time as the whole economy, thereby providing information about the current state of the economy. There are many coincident economic indicators, such as Gross Domestic Product, industrial production, personal income and retail sales. A coincident index may be used to identify, after the fact, the dates of peaks and troughs in the business cycle.

There

are

also

three

terms

that

describe

an

economic

indicator's direction relative to the direction of the general economy: Procyclic indicators move in the same direction as the general economy: they increase when the economy is doing well; decrease when it is doing badly. Gross domestic product (GDP) is a procyclic indicator. Countercyclic indicators move in the opposite direction to the general economy. The unemployment rate is countercyclic: it rises when the economy is decreasing. Abd, Acyclic indicators are those with little or no correlation to the business cycle: they may rise or fall when the general economy is doing well, and may rise or fall when it is not doing well. The importance of these economic indicators is evident with determining the future conditions of the economy of a territory, in order to make economic decisions as accurate and balanced as possible. Effective measurement of a countrys economy may be done through employing an econometric model. An econometric model is one of the tools that economists use to forecast future developments in the economy. In the simplest terms, econometricians measure past relationships between variables such as consumer spending and gross national product, and then try to forecast how changes in some variables will affect the future course of others. Before econometricians can make such calculations, they need what is called an economic model, or a theory of how different factors in the economy interact with one another. For instance, think of the economy as composed of households and business firms, as depicted on the left-hand side of Figure 1. Households supply business firms with labor services (as tailors, accountants, engineers, etc.) and earn wages and salaries from the businesses in exchange for their labor. Using the labor services, businesses produce various outputs (clothing, cars, etc.), which are available for purchase (right-hand side of Figure 1). Households, using the earnings derived from 6

their labor services, become the customers who purchase the output. The products produced by the businesses wind up in the households, and the wage and salary payments return to the businesses in exchange for the products being sold to the households.

Figure 1. Econometric Model

An econometric model is said to be complete if it contains enough equations to predict values for all of the variables in the model, such as C and W. The single equation C = .059W, for example, predicts C if the value of W is known. Thus, there must be an equation somewhere in the model that determines W. If all such logical connections have been made, the model is complete and can, in principle, be used to forecast the economy or to test theories about its behavior. 7

Actually, no econometric model is ever truly complete. All models contain variables that the model cannot predict because they are determined by forces "outside" the model. For example, a realistic model must include personal income taxes collected by the government because taxes are the "wedge" between the gross income earned by households and the net income (what economists call disposable income) available for households to spend. The taxes collected depend on the tax rates in the income tax laws. If the model is to forecast economic activity several years into the future, anticipated future tax rates must be made a part of the model's information base. That requires an assumption about whether the government will change future income tax rates and, if so, when and by how much. Similarly, the model requires an assumption about the monetary policy that will be pursued by the central bank (the Federal Reserve System in the United States), and assumptions about many other such "outside of the model" (or exogenous) variables in order to forecast all the "inside of the model" (or endogenous) variables. The need for the econometrician to use the best available economic judgment about "outside" factors is inherent in economic forecasting. An econometrically based economic forecast can, therefore, be wrong for several reasons: 1. Incorrect assumptions about the "outside," or exogenous, variables, which are called input errors. 2. Econometric equations that are only approximations to the truth (note that clothing purchases do not amount to exactly 5.9 percent of household income every year), which are called model errors. 3. Some combination of input error and model error. Most econometric forecasters believe that economic judgment can and should be used not only to determine values for exogenous variables (an obvious requirement), but also to reduce the likely size of model error. Taken literally, the equation C = 8

.059W means that "any deviation of clothing purchases from 5.9 percent of household income must be considered a random aberration from normal or expected behavior" one of those inherently unpredictable vagaries of human behavior that continually trip up pollsters, economists, and any others who attempt to forecast socioeconomic events. Much of the motivation behind trying to specify the most accurately descriptive economic model, trying to determine parameter values that most closely represent economic behavior, and combining these with the best available outside information arises from the desire to produce accurate forecasts. Unfortunately, the accuracy of an economic forecast is not easy to judge. There are simply too many dimensions of detail and interest. One user of the forecast may care mostly about gross national product (GNP), another mostly about exports and imports, and another mostly about inflation and interest rates. Thus, the same forecast may provide very useful information to some users, while being misleading to others. For want of anything obviously superior, the most common gauge of the quality of a forecast is how accurately it predicts real GNP. Real GNP is the most inclusive summary measure of total national production. For many purposes there is much value in knowing, with some lead time, whether to expect real GNP to be increasing rapidly, to be slowing down or speeding up relative to recent behavior, or to be declining.

Conceptual Framework The conceptual framework discussed the flow of the study to be taken. The research study used the systems approach. The system of three frames is composed of input which went through the process or operation and emerged as the output.

INPUT
Profile of the Respondents Age Gender Civil Status Educational Attainment Office Years of Service Division Present Position National Economic and Development Authority Structure Type of Government Institution Clientele Functions Services Offered Programs National Development Plans and Policies Basic Task Development Goals Policies Macro level Plans and Policies Key Targets Key Strategies Macroeconomic Model and other statistical tools for planning forecasting and policy analysis Macroeconometric Modelling Modelling Stabilization Policy Macroeconometric Model in the Philippines Macroeconomic Performance and Economic Reports Economic Indicators Economic Reports Problems Encountered and Proposed Solutions

PROCESS
Survey Questionnaire Unstructured Interviews Observations Documentary Search Statistical Analysis Frequency and Percentage Ranking Weighted Mean ANOVA Likert Scale

OUTPUT
Policy Recommendations for: Maintaining and augmenting the tools for monitoring and evaluation of programs and projects of the agency. Providing clear standards as to Project performance indicators and Impact indicators.

Define anticipated constraints regarding the emerging global trends and the manner to address them. Improve enforcement mechanisms to increase efficiency as to improving systems in facing global competition. Analyzing and increasing if necessary the economic indicators as to supply and demand in line with market analysis.

Feedback

Figure 2. Conceptual Framework

10

The input contains the leading variables regarding Economic planning. It includes the profile of the respondents, national economic and development authority structure programs, national development plans and policies, macro level plans and policies, macroeconomic model and other statistical tools for planning forecasting and policy analysis, and problems encountered and proposed solutions. It also presents the significant differences among variables. The second frame includes the method and procedures to be used to analyze those variables by making questionnaires, by observation, conducting interview, research, and the use of statistical tools. The third frame is the output. It contains policy recommendations that the researchers suggested for the improvement of economic planning in establishing targets for economic growth and macroeconomic goals. The arrows include the workflow of information in the research process. The feedback loop connects the output to the process involved as well as to the input. It made the system continuous.

Statement of the Problem This research sought to determine the evaluation of the appropriate economic planning in establishing targets for economic growth and the macroeconomic goals of National Economic and Development Authority. Moreover, this study sought to find out the profile of the respondents; NEDA structure; national development plans and policies, macro levels plans and policies, macroeconomic models and other statistical tools for planning forecasting and policy analysis, macroeconomic performance and economic reports, problems encountered and proposed solution and any significant differences among the lead variables. Specifically, this study aimed to answer the following: 11

1.0

What is the profile of the respondents from National Economic and Development Authority in terms of the following: 1.1 Age; 1.2 1.3 1.4 1.5 1.6 1.7 1.8 Sex; Civil Status; Educational Attainment; Years of Service; Office; Division; and Present Position?

2.0

What is the National Economic and Development Authoritys structure in terms of the following: 2.1 2.2 2.3 2.4 2.5 Type of Government Institution; Clientele; Functions; Services Offered; and Programs?

3.0

How are the following national development plans and policies viewed by the respondents in correspondence with Medium-Term Philippine Development Plan 2004-2010: 3.1 3.2 3.3 Basic Task; Development Goals; Policies?

4.0

How are the following macro levels plans and policies assessed by the respondents as to congruency to appropriate economic planning set by the National Planning and Policy Staff: 12

4.1 4.2

Key Targets; Key Strategies; 4.2.1 Improving Tax Collection Efficiency; 4.2.2 Expenditure Management; and 4.2.3 Other Significant Public Sector Reform?

5.0

What are the macroeconomic models and other statistical tools used for planning forecasting and policy analysis used by the agency: 5.1 Macroeconometric Modelling;

5.2. Modelling Stabilization Policy; and 5.2.1 Analytical Aspects; and 5.2.2 Model Specification; 5.3 6.0. Macroeconometric Models in the Philippines?

How are performances evaluated and monitored: 6.1 6.2 Economic Indicators; and Economic Reports?

7.0 8.0

What are the problems encountered and the proposed solutions thereto? Is there a significant difference between the profile of the respondents and the lead variables?

Hypothesis The null hypothesis tested in this study is: There is no significant difference between the profile of the respondents and the lead variables.

13

Scope and Limitations This study covered the following areas: national development plans and policies, particularly addressing the issues on economic growth and job creation, energy, social justice and basic needs, education and youth opportunity, and anti-corruption and good governance; macro levels plans and policies congruent to appropriate economic planning set by the National Planning and Policy Staff; macroeconomic models and other statistical tools used for planning forecasting and policy analysis used by the agency; and how the performances are evaluated and monitored. Also, The respondents of the study were composed of 30 personnel of the National Planning and Policy Staff Office of the National Economic and Development Authority. A survey was conducted by the aid of questionnaire on September 2011 and retrieved on the following day of survey via e-mail. The researchers used survey questionnaires as primary sources of data.

Significance of the Study This study is an addition to the few other researches which have dealt with the aspects of valuation and reporting of biological assets in the industry. It was anticipated to benefit various stakeholders including but not necessarily limited to the following: Philippine Government. The thesis would aid most especially the higher government officials in terms of overall planning and allocation of economic resources, monitoring and control, provision of technical advice and assistance for the lower authorities concerned in effectively directing the Philippines towards a better economic condition. National Economic and Development Authority and Its Employees. This study will be beneficial as it captures and emphasizes the primary concerns of the

14

agency, particularly its economic goals, policies and strategies, as well as the problems encountered, and the proposed solutions to those problems. Economists. This study will make way for additional exploration to obtain essential information both to make way for better valuation and management of resources and to contribute to overall improvement of the countrys economic condition. General Public. Readers of this study classified as general public will better understand the contents of other economic narrations, thus will be enlightened with the true economic condition of different entities. Researchers. This study fulfilled an evident part of the researchers course requirement. This research has provided a chance for the researchers to properly respond with meeting upper management people, and more importantly, to be able to deal and dig deep with a countrys prominent government agency. This has developed their communication abilities and made way to be able to discover several more ideas, increased their knowledge regarding the problem of the study, and to be determined to push through at all times. Students. The study will contribute to students and future researchers, specifically in the fields of business and economics, pertinent information about the appropriate economic planning in establishing targets for economic growth and the macroeconomic goals of National Economic and Development Authority to enable them to assess and understand the required educational expertise needed.

15

Definition of Terms For better understanding and interpretation of this study, the following terms are operationally defined.

Age. In this study, it refers to the age of employees of

the National

Economic and Development Authority ranging from 25 up to 35, 36 up to 45, 46 up to 50 and above 50 years old. Basic Task. It refers to the fundamental principles as to national development plan and policies. Civil Status. Status of the management people either single, married, widow/widower or separated. Clientele. In this study, it refers to the clients of the agency whether national government, businesses or the general public. Development Goals. This refers to all matters directly and principally relating to the achievement of the countrys commitment. Division. It refers to the division where the employees are assigned either in National Planning and Policy Staff, Infrastructure Staff, Regional development Coordination Staff, or Administrative Staff. Economic Indicators. It is a statistic about the economy. It allows analysis of economic performance and predictions of future performance. Economic Planning. It refers to any directing or planning of economic activity by the state, in an attempt to achieve specific economic or social outcomes. Economic Reports. It refers to an annual report of the economic performance which provides an overview of the nations economic progress. Educational Attainment. It includes bachelors degree, masters unit and masters degree. 16

Functions. This refers to the missions and goals of the national government agency. Gender. It refers to the sexuality of the management people whether male or female. Key Strategies. This refers to the procedures in achieving the key targets which include tax collection efficiency, expenditure management, other significant public sector reforms, and optimizing public debt management. Key Targets. It refers to the objectives of the government regarding the macro level issues. Macroeconometric Modelling. This refers to explaining the empirical behaviour of an actual economic system. Such models will be systems of inter-linked equations estimated from time-series data using statistical or econometric techniques. Macroeconomic Models. It refers to an analytical tool designed to describe the operation of the economy of a country or a region. These models are usually designed to examine the dynamics of aggregate quantities such as the total amount of goods and services produced, total income earned, the level of employment of productive resources, and the level of prices. Macroeconomic Models in the Philippines. These include the macroeconomic models applied in the country which are used by NEDA. Macro level Plans and Policies. In this study, these include the key targets, key strategies, pursuing sound external policy, reforming the banking sector, developing the capital market, and accelerating the privatization program and promotion of private sector as to appropriate economic planning set by the National Planning and Policy Staff. Modelling Stabilization Policy. This refers to the policy in lieu with Macroeconomic models which includes analytical aspects and model specification. 17

National Economic and Development Structure (NEDA). As mandated by the Philippine Constitution, is the countrys independent economic development and planning agency. National Economic and Development Authority Structure. In this study, it refers to the agencys classification as to type of government institution, its clientele, functions, services offered and its programs. National Development Plans and Policies. In this study, these are the basic tasks, development goals, development strategy, and policies in correspondence with Medium-Term Philippine Development Plan. National Government Agencies (NGAs). It is composed of all departments, bureaus, commissions, state universities and colleges, the judiciary, the legislative departments and other government offices. Lead Variables. In this study, these are the national development plans and policies, macro level plans and policies, macroeconomic model and other statistical tools for planning forecasting and policy analysis, and problems encountered and proposed solutions. Office. It refers to the office where the employees are assigned either in National Development Office, Regional Development Office, or Central Support Office. Policies. In this study, it refers to the basic principles by which a government is guided. Present Position. It refers to the present position of the respondents in the government agency such as director, division chief, supervising officer, accountants, internal auditor, and budget officer. Problems Encountered. These refer to the problems of the government unit with regards to its accounting and internal control system that make it difficult to achieve a desired goal, objective and purpose. 18

Profile. In this study, it refers to the respondents classification as to age, gender, civil status, educational attainment, and years of service, division and present position. Programs. It refers to the programs implemented by the agency. Proposed Solutions. This refers to the planned key to address the problems encountered to achieve a desired goal, objective and purpose. Services Offered. In this study, it refers to the services provided by the agency to its clients. Type of Government Institution. Classification of the government entity either national government agency, local government unit or government and/or controlled corporation. Years of Service. This refers to the number of years the employee is serving the agency whether less than 1 year, 1-5 years, 5- 10 years, and 10 years above.

19