A Policy Briefing Paper

:

Inclusive Growth

A Policy Brie ing Paper: INCLUSIVE GROWTH AIM Conference Center Manila September 21 and 23, 2011 by the Center for Media Freedom and Responsibility in partnership with the Asian Institute of Management Policy Center with a grant from the National Endowment for Democracy

COPYRIGHT © 2011 Center for Media Freedom and Responsibility

TABLE OF CONTENTS
Introduction.................................................................................................... Overview and Background
Pathways to High and Inclusive Growth .....................................................

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Multisectoral Perspectives
Social Protection ................................................................................................................... Toward Higher Quality Employment in Asia .............................................................. Good Governance ................................................................................................................. Dynasties in the Philippines: Aid or Anathema to Inclusive Growth? ........................................................................

11 14 16 17 27

Conclusion and Recommendations ............................................................ CMFR Policy Forum on Inclusive Growth
Speakers ................................................................................................................................... Participants ............................................................................................................................

28 28

Annex
Philippine Development Plan (2011-2016) In Pursuit of Inclusive Growth ........................................................................................

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INTRODUCTION
The Center for Media Freedom and Responsibility (CMFR) organized a series of three policy brie ings for the media in partnership with the Asian Institute of Management Policy Center (AIM Policy Center or APC). The joint effort was designed to bring together the different constituent groups of CMFR and APC: the academe, business, civil society, and the media. The program was supported with a grant from the National Endowment for Democracy. The irst brie ing discussed freedom of information (FOI). It was a timely issue to take up, as supporters of the cause were disappointed when President Benigno S. Aquino III did not prioritize FOI legislation in his State of the Nation Address in July and in the Legislative Executive Development Advisory Council meeting in August. The FOI brie ing was well attended by both media and non-government organizations. The second policy brie ing focused on competition policy, which the administration had speci ied as a goal through an executive order. In both Houses of Congress, there are proposals for an anti-trust law as well as for the creation of a competition commission. This forum was also very well attended, though with less representation from the media. Perhaps, because the topic is still on the backburners of the news agenda, despite the controversial Philippine Long Distance Telephone Company, Inc./Smart and Digital Telecommunications Philippines Inc./Sun Cellular merger, which was contested by Globe Telecom, a story that news organizations reported. The third and last policy brie ing involved two parts. The APC had scheduled an international conference on inclusive growth, a policy put forward by the Aquino administration in the Philippine Development Plan 2011-2016 to insure that growth will bene it more Filipinos. The growing gaps in the unequal bene its of economic growth have been noted also in other developing countries. It is important for the media to understand the policy to focus bene its of economic growth for the poor, so that the public can check the implementation, and for agencies to improve on their efforts. CMFR organized a pre-conference brie ing to raise media and public interest in the main event last Sept. 21. On Sept. 23, the APC and its different partners held the international meeting on “Pathways to High and Inclusive Growth” whch focused on instruments designed to enhance growth for all: social protection, pro-poor employment, and good governance. CMFR also supported the main conference by engaging more media participation, including the members of the media from the provinces who could provide inputs and perspectives from outside the capital region.

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A Policy Briefing Paper: Inclusive Growth

The main conference expanded the discussion to include international experience with responses from national experts. These presentations identified lessons from countries which have had longer experience in these efforts. The conference also provided necessary background to media reports on growth and development. For example, while many anti-poverty mechanisms such as the conditional cash transfer (CCT) program, job creation for the poor, and enhanced political participation have been covered by the press, these have not been reported as part of a larger framework of policy requiring coordination among various agencies. Without this overview, issues of implementation may not be fully understood. Background on CMFR program on policy news The press often finds it difficult to report policy-making—a process that involves discrete, separate phases and proceeds at a certain pace depending on the actors. The policy process (Problem Identification, Solution Formulation, Policy Adoption, Implementation, Evaluation) is often not so neat and it may be difficult for reports to keep track of its progression. The press tends to simplify the policy debate into opposing, seemingly irreconcilable positions or options. The tendency is to frame the discussion as a “win or lose” fight. Given its penchant for focusing on conflict, the press can also extend the period of debate, provoking greater polarization and confusion in the national community. The public and media forum should be able to project the ways in which government and policy-making can address conflicting interests. In this manner, policy debates can constitute a coherent search for solutions for the different dilemmas that development poses on Philippine society. The context of this current program goes back to CMFR’s efforts starting in 2001 to help the media report on policy news involving federalism and parliamentary government, mining, and environment. In 2004, CMFR published a manual pointing out the ways in which policy information and material can be written up as news. Unfortunately, it has not been a continuing program. This effort is yet another attempt to include policy issues in the news agenda. The objective is to help the press draw out a process-based telling of the news and focus more on the background and context of policy discussions. CMFR monitor of coverage on inclusive growth CMFR monitored the coverage of the issues of inclusive growth from January to August 2011 in the following: • The newspapers (BusinessMirror, BusinessWorld, Manila Bulletin, Philippine Daily Inquirer, and The Philippine Star)

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• •

The television programs (24 Oras, Aksyon, TV Patrol, and Teledyaryo) The news websites (abs-cbnNEWS.com, GMA News Online, Inquirer.net, InterAksyon. com, mb.com.ph, Newsbreak, Philippine Center for Investigative Journalism, Philstar. com, and VERA Files)

The coverage of labor and employment once again demonstrates the narrow focus of media reporting. The stories were limited to overseas Filipino workers (OFWs), or labor export, which at this point has been integrated into the country’s economic policy. The political unrest in the Middle East and North Africa, did not lead to stories on their implications of lost job opportunities abroad, but tended to dwell on the plight of Filipinos caught in the political turbulence in the region. The daily coverage focused more on the situation of repatriation, the emotional frame becoming more prominent in the selection of details of subject and story. Only a few reports touched on related policy initiatives or implementation such as the OFW Reintegration Program and the Business Process Outsourcing (BPOs) creating new programs to employ more people. (“Starting anew for returning OFWs”, Star; “Reintegration efforts to help returning OFWs”, abscbnNEWS.com; “IT-BPO industry exports could reach $55B in 2020”, BusinessMirror) The CCT program and the fuel subsidies were widely reported. Most of the coverage criticized the implementation, the gaps in distribution as well as the lawed selection of recipients. The fuel subsidy or Pantawid Pasada program using discount cards for jeepneys and tricycles received more airtime than the cash transfers. But, as with much media coverage, the reports picked up trivial details and drew on soundbites without any analyses of the program’s impact and its effect downstream. The media did not draw on the broader context of the effort how socio-economic, political realities counter the impact of these programs. However, some media did point out how these programs cannot in and by themselves address the issues of poverty. (PCIJ series on the conditional cash transfer program: Part 1: “Hype and rush mask gaps in CCT rollout”; Part 2: “De icit in education, health services weighs down CCT”; Part 3: “CCT debt trap? Future of pro-poor deal a poser”) An overview of the international conference The pre-conference brie ing brought together four experts, who also took part at the main conference, to provide quick snapshots of the discussions on inclusive growth and its levers. The brie ing highlighted the point that no one solution will address the larger problem of poverty and inequality. So criticism of the limitations of one or the other should involve a

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A Policy Briefing Paper: Inclusive Growth

review of other efforts as well as other aspects of development and growth. The programs may not be perfect but providing a platform for dialogue will help identify other means and interventions. While much is being claimed about the improved economic prospects of the country—we still need to ask if such prospects will bene it the greater number of Filipinos, especially those who are poor.

MELINDA QUINTOS DE JESUS Executive Director Center for Media Freedom and Responsibility

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OVERVIEW AND BACKGROUND
Pathways to high and inclusive growth
Asian Institute of Management Policy Center The Philippines faces both persistent poverty and inequality despite recently improving economic performance. While some parts of the country bene it from improved growth and development prospects, there are persistent disparities in human development, and thousands of poor households, including children and women, who are left behind and marginalized in this process. While robust economic growth is critically important, this alone is not necessarily going to translate into poverty and inequality reduction as well as stronger human development. The challenge is to promote a more inclusive growth process—one that sustains competitiveness and a robust economic growth performance, while ensuring that wealth creation provide the widest possible bene its, notably for the greater bulk of the low income population. employment; and 3) good governance. The conference was held last Sept. 23 at the AIM Conference Center Manila. Social protection In an effort to build more robust social protection systems, governments have focused in recent years on different types of transfers that incentivize families to invest in education, health and other human capital, notably for children and mothers. The goal is not only to protect the vulnerable during crises, but also to reduce poverty and promote equity. This will also help ensure that adequate human capital investments for long-run growth and competitiveness are secured.

The Pantawid Pamilyang Pilipino Program (4Ps) is a key part of the poverty reduction As a contribution to the wider policy discus- and social development strategy of the Philsions and reform agenda on inclusive growth, ippines, yet challenges remain in scaling up and with the collaboration and support of its the program and ensuring that it contribpartners (Konrad Adenauer Stiftung, United utes to a coherent and adequate over-all soNations Children’s Fund, Center for Media cial protection system for all of Philippine Freedom and Responsibility, Asian Institute society. of Management (AIM) Center for Development Management, AIM-Zuellig Center for The social protection system is different Asian Business Transformation, and AIM- from the conditional cash transfer (CCT) Jose B. Fernandez, Jr. Center for Banking and program. Whether we like it or not, unforFinance), the AIM Policy Center (APC) has tunately people have equated the two. Some organized the “Pathways to High and Inclu- people make the mistake of equating CCT sive Growth” conference to focus on three with anti-poverty. Anti-poverty requires a key levers: 1) social protection; 2) pro-poor multi-dimensional approach. Simply giving

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A Policy Briefing Paper: Inclusive Growth

a person money, while mathematically you ni icant effect on job creation especially for can reduce poverty in this way, is not going the low income population. to structurally destroy poverty. Of the total jobs created over the last 10 years, The session brought together experts from agriculture accounts for 33 percent, industhe Philippines and abroad to facilitate an try accounts for 15 percent and the services evidence-based discussion on how best to sector accounts for 53 percent. However, in build and strengthen the social protection order to promote a more inclusive growth in and social security system. It involved the the labor force, there is a need to identify the presentation of empirical research and les- sectors which can extensively contribute to sons learned, notably from countries with the creation of jobs for the poor. advanced social protection systems, in order to inform Philippine (and Asian) policymak- In this session, industry experts and policyers on the different strategies to build and makers leshed out which industrial sectors strengthen social protection. would contribute to creating more pro-poor jobs. The discussion featured an assessment Sec. Joel Rocamora, lead convenor of the Na- of whether the country’s identi ied sunrise tional Anti-Poverty Commission, presented industries can address the increasing uneman overview of the Philippine anti-poverty ployment problem. strategy. The Department of Labor and Employment Mexico implemented one of the irst CCT presented the Philippine strategy on work/ programs in the world. While the Philippines occupation and job creation. is basically in a trial period in terms of building our social protection system, Mexico has Dr. Natalie Chun of the Asian Development had theirs for over 15 years. Andrés Hijuelos Bank discussed the employment prospects of SEDESOL (Ministry of Social Development, in Asia amidst economic volatility and global Mexico) shared their experience in imple- rebalancing. menting Mexico’s OPORTUNIDADES social protection program. Good governance and political participation APC also brought in Dr. Phua Kai Hong of the National University of Singapore who dis- Democracies are not all alike, and each faces cussed healthcare inancing. speci ic challenges and opportunities in promoting more inclusive growth and developPro-poor employment ment. Among the challenges are issues of political inequality, which in some countries Despite the 7.6 percent economic growth of take the form of political dynasties. Yet other the Philippines in 2010, the unemployment countries have developed strong institutions rate in the country reached 7.4 percent and to promote checks and balances in the exerunderemployment rate posted at 19 percent cise of governmental power, strengthening the same year. This raises some questions on the capacity of the state in initiating and suswhether the economic growth carries a sig- taining reforms.

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In assessing how these factors either promote or hinder inclusive growth, the forum featured experiences of other democratic states in pursuing the goal of inclusive growth through its institutions and political structures. Some important questions that the forum aimed to address are the role of political parties in the development of strong institutions, how constituencies for reforms are sustained and how roadblocks to reforms that promote inclusive growth may be dealt with.

role of socioeconomic and electoral reforms in promoting good governance and stronger political participation and political equality that might help promote more inclusive growth. Ambassador of Switzerland to the Philippines Ivo Sieber shared the experience of his country with political parties and institutions.

APC explored the links between political and socio-economic inequality. The study looked This discussion is geared to address key is- at the dynasties in the Philippines particusues in governance as well as consider the larly in the 15th Congress.

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A Policy Briefing Paper: Inclusive Growth

MULTISECTORAL PERSPECTIVES
Social protection
Based on the presentation of Assistant Secretary Lila Shahani of the National Anti-Poverty Commission An excerpt from Chapter 8 of The Philippine Development Plan (PDP) 2011-2016 provides a short background and context on social protection: CARAGA had the highest poverty incidence under isherfolk and migrant and formal sectors (Annex 8.9). Meanwhile, NCR posted the lowest poverty incidence in ive sectors, namely children, women, youth, senior citizens and “The number of poor Filipinos increased from migrant and formal sector workers (NSCB, 22.2 million in 2006 to 23.1 million in 2009. 2006). Filipinos unable to meet their daily dietary requirements slightly decreased from 9.9 mil- “In terms of number, the children, women and lion in 2006 to 9.4 million in 2009. The pover- urban sectors headed the list of poor basic secty incidence and the number of the poor from tors (Annex 8.10). Disparities across regions all sectors increased between 2003 and 2006 were also evident. Region 5 had the most number of poor children and women; ARMM had (Annex 8.8). the most number of poor farmers and isher“Fisherfolk, farmers and children were the folk; Region 6 had the most number of poor three poorest population subcategories in youth and migrant and formal workers; NCR 2006, with poverty incidences of 49.9 percent, had the most number of urban poor; and Re44 percent and 40.8 percent, respectively. gion 7 had the most number of poor senior citChildren and women accounted for the largest izens. Meanwhile, CAR had the least number of number of the poor, at 14.4 and 12.8 million poor children, women, youth and urban poor. respectively in 2006 (Annex 8.8). The slow rate of poverty reduction drew greater attention to “The increase in poverty incidence was accompanied by the rise in the percentage of vulnerthe need to protect the poor and vulnerable. able households* (Albert & Ramos, 2010). The “Wide disparities across regions were also evi- percentage of the population belonging to dent. Among regions, ARMM had the highest highly vulnerable households rose from 36.21 poverty incidence in 2006 according to six ba- percent in 2003 to 50.70 percent in 2006. Consic sector categories, namely children, farmers, versely, the percentage who were not vulneryouth, urban population, and senior citizens. able declined sharply from 31.44 percent in

*

Households are classi ied as vulnerable if the probability of their becoming poor is greater than the national poverty incidence. The vulnerable are further categorized into highly vulnerable if the probability of their being poor is greater 50 percent and relatively vulnerable otherwise.

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2003 to 18.99 percent in 2006. This trend implies that individuals and households, whether poor or nonpoor, face various social risks and vulnerabilities (e.g., loss of income, unemployment, natural disaster, among others), especially during economic downturns and crises that can push them down to poverty. Owing to the lack or absence of appropriate social protection intervention, households resorted to coping strategies that tend to erode human capital, such as reducing food consumption, withdrawing children from school, reducing health care investments, selling assets and using up savings, among others (Ahmed, et al., 2004).

percent, because it is an untargeted program that bene its all households (Manasan, 20). “Existing social protection programs are inadequate in terms of coverage. While partnership with nongovernment organizations (NGOs) and other stakeholders have succeeded in making social services accessible to the poor, NGOs tend to lock to selected advocacies like children’s causes, leaving behind other sectors, such as the disabled and elderly wanting (ADB, 2009).

“Moreover, impact assessment of many programs is dif icult, due to their lack of built-in monitoring and evaluation components. There “The current social protection system is char- is a dearth of up-to-date and disaggregated acterized by a series of fragmented and un- data on vulnerable groups, often making them coordinated programs. The multiplicity of invisible in statistics. programs and government agencies involved often result in poor coordination, redundancy “The industrial and occupational adjustments in providing services or overlapping of pro- necessitated by industrial restructuring, the gram bene iciaries. For example, 21 agencies globalized system of production, various interwere involved in the implementation of 65 national agreements, and the damage wrought social protection programs and projects (De- on incomes and livelihoods by natural calamivelopment Academy of the Philippines, 2009). ties highlight the need to protect those in conSocial protection programs were found to be tractual employment, in seasonal work, and at inadequately funded, and most are short-lived risk from displacement or facing potential in(Manasan, 2009). The country’s national gov- come losses. The limited coverage of the social ernment spending on social protection was security schemes (i.e., Government Service Inmuch lower (0.8% of GDP in 2007) than the surance System, Social Security System or SSS) mean spending of 87 developing and transi- means that the larger part of the workforce tion countries on safety nets (1.9% of their found in the informal and vulnerable occupaGDP from 1996-2006) (Weigand & Grosh Sur- tions are marginalized. Although there have vey, 2008). been attempts by PhilHealth to cover the poor and unemployed, as well as workers in the in“The bene its of existing social protection pro- formal sector (IS) and those working overseas, grams are compromised by weak targeting sys- universal membership has yet to be achieved. tems resulting in high leakage to the nonpoor, Social welfare and safety nets also need to imundercoverage of the poor, low program im- prove programs and services standards, and pact and wastage of scarce resources. For ex- focus on the poorest among the basic sectors. ample, the National Food Authority (NFA) rice price subsidy showed a high leakage rate of 71 “To improve the effectiveness and ef iciency of

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A Policy Briefing Paper: Inclusive Growth

the social protection interventions, the government launched the CCT program called the Pantawid Pamilyang Pilipino Program. Further work is needed, however, to consolidate social protection programs and complement • these with the CCT. Anti-poverty mechanisms The problem with the notion of social protection is its basically anthropomorphic—health and • education. There is a lot more involved in breaking the cycle of poverty. The PDP tries to address these other dimensions by shifting the anti-poverty program of the government from social protection to social development. • There is quite a lot of hype in media on conditional cash transfer (CCT) in view of • the government’s budgetary allocations. But many may not be aware that the anti-poverty strategy that the government has drawn up is complex and multi-pronged. Direct subsidies, CCTs or PhilHealth, which are actual active assistance, are just one aspect. • According to the National Anti-Poverty Commission, the strategies of the Aquino administration to reduce the level and extent of poverty are the following: • Direct subsidies. Providing the poor with direct and substantive assistance is the

most important component of the antipoverty program. The largest program is Pantawid Pamilya, a CCT program. Service Delivery. Another strategy of the anti-poverty program is the provision of the full requirements of basic education, health and nutrition, shelter, water and sanitation for the poor. Community Driven Development. The government will promote programs that will expand the ability of poor communities to organize themselves and support their own development. Employment generation programs. Asset Reform. The Aquino Administration will fast-track the implementation of asset reform programs under existing laws, particularly agrarian reform, ancestral domain, ishery reform and socialized housing. Localization and Empowerment. The localization strategy is designed to maximize the antipoverty impact of existing programs by generating greater local government unit and civil society participation, and providing a frame for linking local and national anti-poverty planning.

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MULTISECTORAL PERSPECTIVES
Toward higher quality employment in Asia
Based on the presentation of Dr. Natalie Chun, economist of the Asian Development Bank In terms of economic growth, the general em- • ployment situation in Asia has done really well. So well, that unemployment is fairly resilient even during the recent economic crisis. Human resource management literature provides empirical evidence that certain aspects of quality employment such as bonuses and non-pecuniary bene its lead to higher productivity and pro its (Bloom and Van Reenan 2010)

Sizable structural transformation has occurred in developing Asia. The system of employment between 1990 and 2008 has moved Thus, the quality of employment is important from low productivity agriculture sector to for reducing poverty and income inequality. high productivity manufacturing and services sector. Philippine employment Despite this progress, informal employment has remained high. It tends to be of lower quality as associated with: Lower income and the working poor, underemployment, less security, and absence of social safety nets. Informality is uneven and persistent throughout the countries. It is becoming more common even in non-agriculture jobs. This means, it may take even greater economic growth to transfer people into better quality employment. Income and stability are most important for majority of workers. Fully-employed workers are more likely to report the highest wellbeing. Some of the literature say the quality of employment can enhance irm productivity and pro its: •

The Department of Labor and Employment cited these reasons why inclusive growth is elusive in the country: • • • • • High unemployment among the youth; High underemployment rates, especialy in poor regions; High incidence of vulnerable employment (self-employment and unpaid work); High incidence of working poor; and Gender gap in wage employment and in labor force participation rate.

There is a steady decline in the agriculture sector while the services sector increased. There has only a slight increase in the industry sector. Manufacturing is the most ideal sector to be the engine of growth and drive reductions in poverty.

Ef iciency wage hypothesis implies worker effort and productivity depends posi- The Philippines has had very little productively on wages (Stiglitz 1976) tivity growth in comparison to many other

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A Policy Briefing Paper: Inclusive Growth

countries in the last 10 years or so. Also, the increase in productivity has translated very little into increases in wages. •

There are a number of challenges in terms of improving the quality of employment, espe- • cially in the Philippines: Restrictive labor and industrial policies, uncompetitive markets, For middle-income countries: and demographic changes. Policy recommendations For low-income countries: • • • Increase trade and foreign direct invest- • ment in the modern sector; Managed migration from lower produc• tivity to higher value added sectors; Support productivity increase in rural non-farm activities (e.g., infrastructure •

development, inancial markets, valueadded manufacturing); Develop more skill-speci ic human capital through quality technical and vocational education; and Extend basic level of social protection to informal workers.

Continue to promote open trade and foreign direct investment and move into higher value added manufacturing and services; Invest in human capital development through more general and higher quality secondary and tertiary education; and Improve social protection systems by broadening basic health care and enhancing pension systems.

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MULTISECTORAL PERSPECTIVES
Good governance
Based on the presentation of Risa Hontiveros, spokesperson of political organization Akbayan Citizens’ Action Party Economic growth should bene it all and improve national living standards. Unfortunately, Philippine experience has shown, growth has bene ited mostly the “haves”. At the time of unprecedented economic growth, the standards for poverty alleviation—food security and nutrition, housing and urban development, public transportation, communications infrastructure, health services, education, jobs, and other elements that make for a decent life—have not improved, or have worsened. Inclusive growth and good governance necessitate reforms. The aim is to have higher productivity and greater justice. These are the issues of the poorest and most vulnerable sectors. But we need as much help as we can and this means, making a break from the past because the path we took before brought about little or no change. In our aspirations to achieve good governance, we are not looking at a formula of “one size fits all”. All steps should take into consideration the history of the country and the current conditions. Also, institutional repair and building are crucial to achieving good governance. Good governance and political participation may be incidental to high economic growth, but are essentials to inclusive growth.

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Dynasties in the Philippines: Aid or anathema to inclusive growth?
Based on the presentation of Ronald U. Mendoza, executive director of the Asian Institute of Management Policy Center

The discussions have a common thread and that is, governance. We have high-quality programs, strategies, and efforts to collaborate. But without good governance, everything actually is all for naught. We have had plans and perceived trajectories before but they never really quite panned out. Our pathway still has many challenges.

cian interviewed and cited by Clarke and Sison (2003:221).]

“I’m just vice mayor but you know I have an average of twenty to thirty people every day in [my] house, in [my] of ice, asking for support. I have no money and they need money. Even if it’s P100, I’m spending P2000 a day. It’s good I have other businesses, if not you’ll be forced The issue of political dynasties, which the to steal money from the government to give to Asian Institute of Management Policy Cen- the poor […]. ter (AIM Policy Center or APC) is pursuing to further study, contributes to the understand- “[…] Once you’re a government of icial, people ing of Philippine democracy. think you are a rich person, that you can get money from the government. That’s not true… The objective is to try and answer the ques- My salary is only P21,000 [per month].” [A lotion: How do we address and promote politi- cal politician interviewed and cited by Clarke cal equality? and Sison (2003:221).] Voices of the politicians It is very much tied with all the other levers of inclusive growth that we have pointed out. Many of the politicians actually feel quite op- We go to politicians only because a social pressed because of the system that they have protection system is unavailable. Therefore, thrust themselves into. The following pub- it is necessary to ask for help. But most of the lished anecdotes express this sentiment: time, the help people get is inadequate. But the people make do with all of the de icien“There are some politicians who wish there cies because it is better than having none were more poor people. The poor are the bai- at all. liwick because […] if you are a moneyed politician, it’s better to have poor people because To achieve high and inclusive growth, we do you can buy them. Give them P200, P300 in the not tackle only the plans and strategies, but elections and they will vote for you.” [A politi- it is essential to understand the kind of gov-

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ernance that underpins them and essentially ensure their implementation and followthrough. Motivation • In theory, democracies promote political participation and political equality—equal voice in government decision-making—through various principles such as one person one vote, equality before the law and equal rights of free speech. Political equality, in turn, could promote stronger responsiveness and accountability • in addressing the needs of the majority of the citizenry, and in many cases contribute to improved human capital and other investments. With political responsiveness, accountability and social spending/investments, poverty and inequality reduction as well as higher • and more inclusive growth could ensue. However, underdeveloped democratic institutions could also be associated with weak political participation, leading in some cases to the phenomenon of political dynasties.

rentseeking and state capture, corruption and ineffective and poorly designed policies (e.g. Proud’homme, 1995; Hutchcroft and Rocamora, 2003) STATIONARY BANDIT: Dynasties reduce P/I — If dynasties have longer “runways” for reform and are more irmly associated with socio-economic outcomes (e.g. Olson, 2003; Solon et al, 2009; Dal Bo and Rossi, 2009)

Additional complexity: PATRONAGE: High P/I tends to increase dynastic prevalence: the poor vote for dynasties as long as these are able to directly provide support during elections or in times of income shocks (e.g. Rocamora, Mangahas, Manacsa and Tan, 2005) SELF-PERPETUATION: Politicians are capable of developing dynasties: being in public of ice affords politicians the opportunity and means to keep on winning or to increase their heirs’ chances of winning (e.g. Dal Bo et al, 2009; Querrubin 2010)

How are political dynasties linked to the Clari ication and improvement of country’s prospects for inclusive growth (i.e. dynasty de initions high growth accompanied by poverty and inequality reduction)? • Dynasty1: The share of legislators in the 15th Congress with kinship links Political dynasties and to legislators in the 12th, 13th and 14th Congresses; poverty/inequality Empirical link between political dynasties and • poverty/inequality: • PREDATORY VIEW: Dynasties increase P/I — If dynasties are associated with Dynasty2: The share of legislators in the 15th Congress with kinship links to legislators in the 12th, 13th and 14th Congresses, or local government of icials elected in 2001, 2004 and 2007;

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Dynasty3: The share of legislators in gresses, and local government of icials the 15th Congress with kinship links to elected in 2001, 2004, 2007 and 2010. th th th th legislators in the 12 , 13 , 14 and 15 Congresses, or local government of icials One measure for political participation and elected in 2001, 2004, 2007 and 2010. political equality is the prevalence of dynasties. If there are more dynasties, there is less Dynasty4: The share of legislators in the political participation and possibly less po15th Congress with kinship links to leg- litical equality because only some dominate islators in the 12th, 13th,14th and 15th Con- particular positions.
Dynastic and Non-Dynastic District Legislators by De inition (Total number and percent share) Dynasty1 Dynastic 84 (36.7% of Legislators) Dynasty2 Dynasty3 Dynasty4

144 155 10 (62.9% of (67.7% of (4.4% of Legislators) Legislators) Legislators)

How does Philippines compare to the other democracies across the world? For this study, most of the countries have the closest de inition of dynasty to Dynasty1. APC has to do more research for Argentina because it expected higher igures than what was found. Rough Comparison of the Share of Dynastic Politicians in Selected Parliaments and Congresses
United States Argentina Japan Mexico Philippines (Dynasty1) Philippines (Dynasty2) Philippines (Dynasty3)
0% 10% 20% 30% 40% 50% 60% 6%

10%

33%

40%

37%

63%

68% 70% 80%

Sources: United States (Dal Bo, Dal Bo and Snyder, 2009); Argentina (Rossi 2009); Japan and Mexico (Asako and others, 2010); Philippines (Authors’ calculations).

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How do we compare to ourselves in the past? APC compared their data to the studies made by Philippine Center for Investigative Journalism. Share of Dynastic Politicians in the Philippine Congress over Time: Preliminary snapshot

Sources: PCIJ as cited in Clarke and Sison (2003) and authors’ calculations based on data from the Philippine Congress.

Clearly, there is no gender balance in Congress. But dynasties are not biased against women. This inding alludes to the US situation where the women are able to participate through dynastic links. Are dynastic legislators mostly male?
Legislators Female 50 Dynasty1 Dynasty2 Dynasty3 Dynasty4

21 32 36 3 (42.0% of (64% of (72% of (6% of Female Female Female Female Legislators) Legislators) Legislators) Legislators) 63 112 119 7 (35.2% of (62.6% of (66.5% of (3.9% of Male Male Male Male Legislators) Legislators) Legislators) Legislators)

Male

179

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Dynasties are dominating some of the political parties. Are political parties dominated by dynasties?
Legislators LAKASKAMPI 76 Dynasty1 38 (50.0% of LAKASKAMPI Legislators) 18 (24.0% of LP Legislators) 17 (50.0% of NPC Legislators) 7 (33.3% of NP Legislators) Dynasty2 53 (69.7% of LAKASKAMPI Legislators) 40 (53.3% of LP Legislators) 24 (70.6% of NPC Legislators) 17 (81% of NP Legislators) Dynasty3 58 (76.3% of LAKASKAMPI Legislators) 43 (57.3% of LP Legislators) 25 (73.5% of NPC Legislators) 17 (81% of NP Legislators)

Liberal Party

75

NPC

34

Nacionalista Party

21

Dynasty 3

LAKAS KAMPI

LP

24% 76%

Non-Dynastic Dynastic

43% 57%

Non-Dynastic Dynastic

NPC

Nacionalista

26% 74%

19%
Non-Dynastic Dynastic Non-Dynastic

81%

Dynastic

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The youngest and the oldest seem to be where the biggest shares of dynasties are. Are dynastic legislators older?
Legislators 26-40 39 Dynasty1 18 (46% of Age 26-40 Legislators) 34 (35% of Age 41-55 Legislators) 21 (31% of Age 56-70 Legislators) 11 (44% of Age 70+ Legislators) Dynasty2 29 (74% of Age 26-40 Legislators) 60 (61% of Age 41-55 Legislators) 37 (55% of Age 56-70 Legislators) 18 (72% of Age 70+ Legislators) Dynasty3 30 (77% of Age 26-40 Legislators) 63 (64% of Age 41-55 Legislators) 41 (61% of Age 56-70 Legislators) 21 (84% of Age 70+ Legislators) Dynasty4 4 (10% of Age 26-40 Legislators) 3 (3% of Age 41-55 Legislators) 2 (3% of Age 56-70 Legislators) 1 (4% of Age 70+ Legislators)

41-55

98

56-70

67

70+

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Dynasty 3 26-40 41-55

23% 77%

Non-Dynastic Dynastic

36% 64%

Non-Dynastic Dynastic

56-70

70+

16% 39% 61%
Non-Dynastic Dynastic Non-Dynastic

84%

Dynastic

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Not suggesting causality, the following indings show only patterns and will need further study. Do dynasties tend to be located in jurisdictions with lower average per capita income?
Average Non-Dynastic Dynastic Php 20,525 Php 13,386 Standard Deviation 13,200 7,735

Note: Regional 1985 prices Test Statistic: -2.1727 P-Value: 0.015 (signi icant at 0.05) Are dynastic legislators richer?
Net Worth Dynasty Non-Dynasty PhP52 M PhP57 M Net Worth (sans MP) PhP52 M PhP42 M

Test Statistic: 0.7671 P-Value: 0.2236 (not signi icant) MP – Manny Pacquiao Do dynasties tend to be located in jurisdictions with higher poverty?
Poverty Incidence Dynastic Non-Dynastic 24.15 18.95 Poverty Gap 6.17 4.91 Poverty Severity 2.30 1.85

Compared to jurisdictions with non-dynastic legislators, those with dynastic legislators, on average, tend to have: • • • Poverty incidence that is over 5 percentage points higher, Poverty gap that is over 1 percentage points higher, and Poverty severity that is 0.4 percentage points higher.

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Do dynasties tend to enjoy higher margins of victory?
Average Non-Dynastic Dynastic 28% 33% Standard Deviation 0.2384 0.2406

De inition: If winning candidate received A votes and 2nd place candidate received B votes; and the total number of votes cast is C, then the margin of victory is A/C minus B/C. Margin of victory is expressed as the difference in percentage points. Note: Using Dynasty3 indicator; Test Statistic: 1.6602; P-Value: 0.0485 (Signi icant at 0.05) Without any claim at formality, average incomes negatively link to the presence of dynasties. Preliminary Snapshot of Correlations Dynaty3 by Per Capita Income
Controls Population Employment Poverty Incidence Pop-Emp Pop-Pov Emp-Pov Pop-Emp-Pov Per Capita Income (1997 Prices) (-)0.297 (0.004)*** (-)0.331 (0.001)*** (-)0.248 (0.016)** (-)0.309 (0.003)*** (-)0.246 (0.018)** (-)0.259 (0.013)** (-)0.259 (0.013)**

Note: p-values are in parentheses, * signi icant at 0.1, ** signi icant at 0.05, *** signi icant at 0.01

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The correlation of dynasties and P/I is not clear and requires more analyses. Preliminary Snapshot of Correlations Dynasty3 by Poverty/Inequality
Controls Population Employment PCI Pop-Emp Pop-PCI Emp-PCI Pop-Emp-PCI Poverty Incidence 0.179 (0.086)* 0.217 (0.037)** (-)0.56 (0.595) 0.181 (0.084)* (-)0.050 (0.633) (-)0.039(0.710) (-)0.051 (0.629) Provincial GINI (-)0.099 (0.345) (-)0.077 (0.461) (-)0.012 (0.909) (-)0.099 (0.347) (-)0.007 (0.946) (-)0.010 (0.928) (-)0.018 (0.868)

Note: p-values are in parentheses, * signi icant at 0.1, ** signi icant at 0.05, *** signi icant at 0.01 Selected References Asako, Y., T. Iida, T. Matsubayashi and M. Ueda. 2010. “Dynastic legislators: Theory and evidence from Japan.” Mimeo. [Available at: http://www.psci.unt.edu/~tmatsubayashi/research/seshu.pdf]. Balisacan, A. and N. Fuwa.2004. “Going beyond cross-country averages:Inequality and poverty reduction in the Philippines. Mimeo. South East Asian Regional Center for Graduate Study and Research in Agriculture and UP Diliman. Balisacan, A. and E. Pernia. 2002. “Going beyond cross-country averages: Growth, inequality and poverty reduction in the Philippines.” World Development 32(11)1891-907. Clarke, G. and M. Sison. 2003. “Voices from the top of the pile: Elite perceptions of poverty and the poor in the Philippines.” Development and Change 34(2):215-242. Dal Bo, E., P. Dal Bo and J. Snyder. 2009. “Political Dynasties.” Review of Economic Studies 76(1):115-142. Dal Bo, E. and M. Rossi. 2009. “Term Length and Political Performance.” NBER Working Paper 14511. Cambridge, Mass.

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Hutchcroft, P. and J. Rocamora.2003. “Strong demands and weak institutions: The origins and evolution of the democractic de icit in the Philippines.” Journal of East Asian Studies 3(2003):259-292. Manacsa, R. and A. Tan. 2005. “Manufacturing Parties.” Party Politics 11(6):748-765. Rodrik, D. 2007. One Economics Many Recipes: Globalization, Institutions and Economic Growth. Princeton: Princeton University Press. Querrubin, P. 2010a. “Family and Politics: Dynastic Persistence in the Philippines.” Mimeo. Massachusetts Institute of Technology. Querrubin, P. 2010b. “Political Reform and Elite Persistence: Term Limits and Political Dynasties in the Philippines.” Mimeo. Massachusetts Institute of Technology. Rossi, M. 2009. “The Causes of Political Dynasties in Democratic Countries.” Mimeo. [Available at: economia.uniandes.edu.co/content/.../29957/.../Political_Dynasties_Rossi.pdf]. Solon, O., R. Fabella, and J. Capuno. 2009. “Is local development good politics? Local development expenditures and the re-election of governors in the Philippines in the 1990s.” Asian Journal of Political Science 17(3): 265-284.

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CONCLUSION AND RECOMMENDATIONS
Philippine economic growth has been slow and erratic, especially if compared with neighboring countries and other developing democracies. Recent improvement in economic growth performance has been acknowledged, but so has the continued prevalence of poverty and the rising inequality between the poor and the well-to-do. The majority of the population, particularly the poorest and the marginalized sectors, have yet to feel the bene its of economic and social progress. Government, private business, experts, and civil society have identi ied the lack of or no access to social services (nutrition, health, education, housing, etc.), insuf icient employment generation, inadequate infrastructure, weak institutions, massive corruption, and political instability as the reasons for the failure of inclusive growth in the country. The Philippine Development Plan (PDP) 2011-2016 de ines inclusive growth as “growth that is rapid enough to matter, given the country’s large population, geographical differences, and social complexity. It is sustained growth that creates jobs, draws the majority into the economic and social mainstream, and continuously reduces mass poverty.” The Center for Media Freedom and Responsibility and Asian Institute of Management Policy Center organized the news brie ing and international conference to examine the state of inclusive growth in the country, provide a broader perspective to the policy discussions, and ensure that objectives are attained. The government and other concerned sectors listed programs and strategies to achieve high and inclusive growth but as what happens, it is in the implementation where plans often fail. The government has disclosed its policies in the PDP: “The plan’s broad thrusts are massive infrastructure development, higher governance standards, human development and human capital formation, direct poverty-relief, and employment-generation.” Government transparency is expected, particularly on the budget process ( inancial aspect) and sustainability of these programs. The task for the private business, civil society, media, and public is to oversee the realization of these policies through monitoring and feedback. The participation and engagement of these sectors assure a more responsive government and may eventually establish improved standards for public service in government. Because the speakers and participants of the international conference were candid on the weaknesses and strengths of their programs, discussions about the ways to improve the ef iciency of government programs adopted should continue in the public forum.

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CMFR POLICY FORUM ON INCLUSIVE GROWTH
September 21, 2011

Speakers
Natalie Chun Economist Asian Development Bank Melinda Quintos de Jesus Executive Director Center for Media Freedom and Responsibility Risa Hontiveros Spokesperson Akbayan Ronald U. Mendoza Executive Director Asian Institute of Management Policy Center Lila Shahani Assistant Secretary National Anti-Poverty Commission

Participants
AIM Conference Center Manila – Jigs Abulad Akbayan – Jel Evangelista Asian Institute of Management Policy Center – Joel Bancolita – Lai-Lynn B. Barcenas – David Yap

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BusinessWorld – Aubrey Barrameda – Vergel O. Santos Central Democratic Movement – Diana Afable-Lorenzo DZBB – Sam Nielsen Eastern Visayas Tri-Media Association – Pedro Rico Calife III GMA-7 – Ronald Hererra – John Alliage Morales – Bernadette Reyes GMA News Online – JM Tuazon Kapisanan ng mga Brodkaster ng Pilipinas (Association of Broadcasters of the Philippines) – Reynaldo “Rey” Hulog Manila Bulletin – Lean Pasion Minimal Government Thinkers, Inc. – Nonoy Oplas National Anti-Poverty Commission – Ferdinand Hombrebueno – Ronnel Marquez – Marc Siapno National Endowment for Democracy – Samlanchith Chanthavong

People’s Journal – Bernadette E. Tamayo vPhilippine Daily Inquirer – DJ Yap Philippine Press Institute – Ariel Sebellino Philippines Graphic – Fil V. Elefante Studio 23 – Djoanna San Jose University of the Philippines – Frenchie D. Nieva

Community or Province-based Participants of the Sept. 23 main conference
Cebu Daily News – Marilou Guazon-Apalisok Mindanews – Walter Balane Philippine Daily Inquirer – Nestor Burgos Jr. Punto Central – Joey Aguilar Sun.Star Cebu – Anna Marie Abellana The Visayan Daily Star – Carlos Leonardia

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ANNEX
In pursuit of inclusive growth:
What is Inclusive Growth? Viewed by majority of Filipinos, the record of economic and social progress up to now has proved unsatisfactory for three reasons: irst, its pace has been slow when measured against the achievements of the country’s neighbors; second, the bene its of that progress have not been broadly shared; and third, issues of massive corruption and of questioned political le gitimacy have undermined the people’s sense of ownership of and control over public policy. Growth has not only lagged, it has failed to bene it the majority, who feel increasingly alienated because their political institutions provide little relief and have drifted beyond their control. Growth, in short, has failed to be inclusive. It is high growth that is sustained... Inclusive growth means, irst of all, growth that is rapid enough to matter, given the country’s large population, geographical differences, and social complexity. It is sustained growth that creates jobs, draws the majority into the economic and social mainstream, and continuously reduces mass poverty. This is an ideal which the country has perennially fallen short of, and this failure has had the most far-reaching consequences, from mass misery and marginalization, to an overseas exodus of skill and talent, to political disaffection and alienation, leading inally to threats to the constitution of the state itself.

Table 1.1 Annual Average Growth Rate of Real Per Capita GDP: 1950-2009 (in percent)

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Figure 1.1 Unemployment and Underemployment Rate: 1990-2010 (in percent)

Historically the Philippine economy has been mired in tepid and erratic growth. Since 1981, growth has averaged only 3 percent annually. This is well below the postwar growth rates of several high-performing Asian economies (Table 1.1). With population still increasing at more than 2 percent per year, per capita incomes have risen only 20 percent in real terms from 1981 to 2009. Over the same period, by comparison, per capita income increased four-fold in Malaysia, ivefold in Thailand, and 11-fold in PR China, an era in which absolute mass poverty was basically eradicated in these countries. … that massively creates jobs, Quality economic growth means primarily that rapid output increases are translated into employment creation. Unfortunately, rates of unemployment have remained high (Figure 1.1), averaging 10 percent in 1990–2005 and 7.5 percent in 2006- 2010, (note that the data before and after 2005 cannot be compared owing to a change in the unemployment de inition adopted that year). Underemployment has also been widespread, with rates hovering at around 18-20 percent in the late 2000s. This remarkably contrasts with countries such as PR China, Malaysia, and Thailand, where unemployment has remained at four (4) percent or lower over the same period. … and reduces poverty. Under the Millennium Development Goals (MDG), the country committed itself to halving extreme poverty from a 33.1 percent in 19911 to 16.6 percent by 2015. This goal can still
This uses the revised of icial methodology approved on February 1, 2011 by the NSCB. Under the older methodology, the poverty incidence for 1991 was 45.3 percent.
1

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be achieved provided that determined efforts are undertaken (Figure 1.2). Mass poverty remains the critical challenge, with the poor accounting for more than one-fourth (26.5%) of the population as of 2009. A deep cause for concern is the fact that the incidence of poverty has remained essentially stagnant for almost a decade now. Given the country’s population growth, this actually means that the number of poor families and persons has been increasing through time. This again compares unfavorably with respect to some countries that have similar or lower per capita incomes (Table 1.2). While poverty incidence did decline between 1991 and 2009, the rate of decline has been exceedingly slow. Indeed, there have been periods, such as between 2003 and 2006, when the poverty incidence actually increased despite above-average economic growth. This underFigure 1.2 Poverty Incidence and the Gini Ratio: 1991, 2003, 2006, 2009

Table 1.2 Poverty and Inequality in Selected Countries (most recent available)

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scores the need for renewed efforts if progress in this area is to be sustained. For every percentagepoint increase in income-growth in the Philippines, poverty incidence falls by about 1.5 percentage points compared with the range of 2.9 to 3.5 for high-performing economies (PR China, Indonesia, and Thailand)2 and the 2.5 average for a set of 47 developing countries3. Relative to international experience, therefore, Philippine economic growth thus, by far, has largely bypassed the poor. A proximate factor behind the weak response of poverty to growth is high inequality. Compared to other countries in the region, income inequality in the Philippines is high (Figure 1.2 and Table 1.2). The Gini ratio, a measure of inequality, is in the mid-40s, whereas in Indonesia and Vietnam the Gini ratio is pegged at 38-39. Moreover, there has been no secular tendency towards falling inequality; movements in the Gini ratio have been erratic at best, declining in the early 1990s, rising until 2000, then falling slightly before leveling off at a still-high level by 2006. In general, it is safe to conclude that the trade-off between growth and inequality that is commonly observed in other countries still raises no policy dilemma in the Philippines, where low growth has been accompanied by increasing or high inequality. What Makes Inclusive Growth Elusive? Low growth, weak employment generation, and persistently high inequality are the immediate reasons for the failure of inclusive growth in the country. But these in turn have deeper structural underpinnings. Inadequate infrastructure is a major constraint... First, the country’s investment record has been poor and falling (Figure 1.3). As a share of GDP, gross domestic investment peaked at about 24.8 percent, before falling to just 15.6 percent in 2010. In contrast, investment in Malaysia and Thailand soared to over 40 percent of GDP, and although they have dipped since the Asian crisis, their levels are still way above that of the Philippines (except for Malaysia). Not only is the Philippines’ investment ratio low, it has also been falling since the mid-1990s, down to 15.6 percent in 2010. This fall in capital accumulation is a constraint to long-term economic growth and employment-generation.

2

Cline, W.R. (2004), “Technical Correction,” in Trade Policy and Global Poverty, Institute of International Economics, Washington DC. as cited in Balisacan, Arsenio M., 2007. Why Does Poverty Persist in the Philippines? Facts, Fancies, and Policies. Agriculture and Development Discussion Paper Series No. 2007-1. SEARCA, March 2007, pp. 10-11. 3 Ravallion, M. (2001), “Growth, Inequality, and Poverty: Looking beyond Averages,” World Development, 29: 1803-15. as cited in Balisacan, Arsenio M., 2007. Why Does Poverty Persist in the Philippines? Facts, Fancies, and Policies. Agriculture and Development Discussion Paper Series No. 2007-1. SEARCA, March 2007, pp. 10-11.

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Figure 1.3 Investment-to-GDP Ratios of Selected Asian Countries: 1994-2010 (in percent)

Table 1.3 Transport Infrastructure Ranking of Selected Countries (out of 139)

Weak investment – particularly in the face of a surfeit of national saving – is a clear sign of a lack of productive opportunities in the economy. Inadequate infrastructure and a resulting poor logistics network have been identi ied as among the critical constraints to investment and growth (ADB, 2007). Besides stimulating investment itself, infrastructure helps improve total factor productivity, enabling the country to produce more from each amount of input, effectively lowering unit-cost. An inef icient transport network and unreliable power supply have been identi ied as the most signi icant infrastructure constraints on overall growth. The percentage of paved roads to total roads in the country remains one of the lowest in the Southeast Asia. Similarly, the quality of the country’s port, air, and railroad infrastructure leaves much to be desired (Table 1.3). Unless urgent action is taken, the hitherto slow pace of investments in power-generation threatens not only growth but also the realization of many critical social and economic goals under the Plan. Currently, power is already in short supply and unreliable in some parts of the country.

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…as are major gaps and lapses in governance, Weak institutions and governance failures are the second major barriers to investment. On the positive side, with peaceful leadership-changes through orderly and credible elections, the nation has put behind it a period of political instability and deep mistrust of government actions, both of which were rooted in allegations of corruption in major economic projects and the perversion of vital political processes. The advent of a new administration is an opportunity for government to regain the citizens’ trust, lay bare the truth regarding past abuses, and instil civic vigilance for the future. But stability and a new atmosphere of openness and accountability are only the irst steps in removing the governance-based fetters to investment and growth. A great deal more remains to be done in creating a governance climate that encourages massive investment and wins the people’s support. The country continues to suffer from a reputation for bureaucratic ineficiency, excessive red tape, and widespread corruption. In the 2011 Doing Business ranking, for example, the Philippines placed 156th out of 183 countries. After three decades of tradepolicy reform, it rated relatively well in “trading across borders”. It rated poorly, however, for “starting a business”, “closing a business”, “dealing with construction permits”, and “protecting investors”, (156th, 153rd, 156th, and 132nd, respectively). The country also ranks poorly in international comparisons of the enforcement of law and contracts, and competition measures. At the national level, contracting for and implementation of large public infrastructure projects are frequently stymied by dif icult and nontransparent bidding and award rules that discourage wider private sector participation, promote collusion, encourage corruption, or provoke legal and other challenges from losing parties. Risks to large-scale investments can also arise from the bias, incompetence, or outright corruption on the part of some regulatory agencies and other oversight bodies, as well as lead to a culture of litigiousness, encouraged by misplaced judicial activism. Less sensationally but with not less damage, local governments impose their own share of arbitrary requirements and demands for corruption rents, which take a toll especially on the investment and employment decisions of many small- and medium-scale enterprises. The country’s long-standing problems with high electricity and construction costs are readily evident in global comparisons (Table 1.4). Such high costs are attributed to the lack of real competition in strategic sectors such as agriculture, maritime and air transport, power, cement, and banking. In some important cases, dominant irms and interests can exert enough social in luence and political clout to limit entry. Many of these same sectors have dense backward and forward linkages, so that their failure to advance causes collateral negative effects in productivity growth and investment in the linked sectors, such as manufacturing (Bocchi, 2008). The threat of regulatory capture extends not only to the functions of agencies in the Executive branch but also to those exercising legislative and judicial functions that expand the scope of government.

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Table 1.4 Strength of Bureaucracy and Input Costs in Selected Countries

In agriculture, meanwhile, investment has been stymied by continuing property-rights problems and inconsistent policy. Property rights in the countryside are also insecure. In the remaining areas under land reform coverage, for example, slow implementation creates uncertainty of ownership, both on the side of traditional landowners, and the new landowners, many of whom have yet to receive individual titles to their cultivated parcels. Likewise, private sector investment in some key crops is smothered by politicized decision-making of marketing and regulatory agencies, most prominently in the case of rice, which falls under the purview of the National Food Authority (NFA). Ultimately, however, the cost of poor governance cannot be simply measured in peso terms. Its more pernicious consequence is the weakening of the civic spirit and the erosion of trust in the rule of law. The country is only now emerging from a recent past marked by public perceptions of impunity and unresponsiveness on the part of the highest of icials of the land, where elections are stolen, public funds misappropriated, private interests promoted at public expense, public policy distorted to favor the few, and public of icers who aggrandized themselves in the face of people’s suffering – all without visible legal redress, social consequence, or material recompensation. The institutions meant as remedies to such conditions – the media, the courts, the political opposition, and the electoral process – were viewed as feckless, since many of them had either been cowed, co-opted, or corrupted. In such circumstances, it was unsurprising that people felt alienated from the political process and for cynicism to overcome their respect for the law. Growth in short was not inclusive owing to the basic disregard of the people’s will and the failure to render “full and complete justice to all”.

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Figure 1.4 Cohort Survival and Net Enrollment Rate, Philippines: 1990-2009 (in percent)
100.0 95.0 90.0 85.0 80.0 75.0 70.0 65.0 60.0 1991 1994 1997 2000 2003 2006 2009

Cohort Survival Rate

Net Enrollment Rate

… inadequate levels of human development. Human development, in terms of adequate health, nutrition, and education outcomes, has an intrinsic bene it. But it is also a means to build the human capital of the poor, providing them a means to break out of poverty. Hence, the MDG of universal primary education is consistent with inclusive growth. Unfortunately, by several yardsticks, the country has fallen short of adequate service delivery (Figure 1.4). While the net enrollment rate peaked at 97 percent in 1999-2000, its drop to 85 percent and below by the late 2000s should be a cause for serious concern. Worse, the cohort survival rate stayed in the 70 percent range throughout the 1990s, only improving somewhat to the 70-75 percent range in the 2000s. Most of the population is inadequately protected from shocks to their already meager human capital. While natural disasters can affect any population group, it is the poor who tends to be most vulnerable and least resilient to calamities. With respect to health care, catastrophic illnesses are capable of wiping out livelihoods, assets, and well-being of the poor and lower middle classes. Meanwhile, chronic illnesses (such as tuberculosis) may have less extreme impacts, but may prevent the poor from getting and keeping remunerative work. The government has devoted considerable resources to deliver social services to those lacking access to health care and education. However, poor households in isolated areas have difficulty in going to health centers and schools, even when services are offered for

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free or at highly subsidized rates. Clearly, poor infrastructure provision, aside from being a hindrance to investment and business activity, also prevents physical access to basic services. Compounding the problem of access is the propensity of poorer households for higher fertility rates, reducing households’ assets and per-capita purchasing power. Parents may fail to internalize the intergenerational implications of childbearing choice. Unfortunately, in the Philippine setting, the State has typically failed in its role in promoting responsible parenthood and reproductive health. ...and a poor and degraded state of environment and natural resources. The deteriorated state of the country’s environment and natural resources is felt most by the poor, who depend on such resources for their livelihood and are most vulnerable to the consequences of its degradation and depletion. Climate change and risks from natural disasters only amplify the association between poverty and environmental degradation. Because of continuing deforestation, only 45 percent of classified forestlands remain. The deterioration of critical watersheds is likely to affect water supply. The quality of land resources has been reduced by erosion, pollution, and land conversion. Although one of the world’s 18 megadiverse countries, the Philippines’ biodiversity resources are also among the most threatened. Coastal and marine resources have been declining as a result of coastal development and unsustainable fishing practices. Major urban areas, on the other hand, remain polluted, as evidenced by poor air and water quality, and by the inability to manage waste properly and adequately. Better environment and natural resource management could lead to more and better livelihood opportunities that increase the resiliency of the poor. But this remains a challenge that must be fully confronted. How Shall We Achieve Inclusive Growth? To recapitulate: failure of inclusive growth in the country is because of growth that is low on average, and because the benefits of such growth largely bypass the country’s poor. Low growth is due to low investment and slow technological progress because of inadequate infrastructure, as well as glaring gaps in governance. Narrow growth, meanwhile, is largely attributed to lack of human capital formation among the poorand the failure to transform output growth to job creation. The following lists the strategies and programs that shall be pursued over the Plan period to help achieve inclusive growth.

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Through massive investment in physical infrastructure... The country urgently needs to make up its massive infrastructure backlog. Investment in infrastructure follows the plan detailed in Chapter 5, which prioritizes the creation of integrated and multimodal national transport and logistics system. The system shall connect underserved but otherwise productive areas and communities to markets and social services. Under this system, rural areas, where most of poor reside, shall receive renewed attention. Property-rights issues in agriculture shall be inally resolved signalling a rebirth of interest in agricultural production that will make infrastructure-investments in that sector, such as irrigation, more effective, helping raise farmers’ income, improve food security, and enlarge agriculture’s contribution to the economy. Hindered by a record of perennially large budget de icits, government shall generate funds for infrastructure investment through better tax collection and more rational budget allocation – hence the iscal and budgetary reforms discussed in Chapter 2. Realistically, however, government funds may not suf ice, given its need to immediately attend to social development and poverty-alleviation. For this reason, government shall rely on the public-private partnership (PPP) scheme to implement the bulk of its infrastructure program. This scheme encourages the large-sector of private business, including major Filipino conglomerates and large and reputable foreign partners, to participate in inancing, construction, and operation of key infrastructure projects. Such a program seeks deliberately to utilize the huge savings and capital resources in the private sector and to provide market-friendly channels for these to support national priorities. The provision of vital infrastructure and the expansion of logistics chains, combined with a change in the governance regime, is bound to elicit a strong positive response across all classes of entrepreneurs and inanciers. Immediately bene ited by this will be those industries in which the country already has a demonstrated global advantage but whose expansion is still fettered by certain infrastructure inadequacies, such as power and transport. Included here are the further expansion of ICT-related activities such as business-process outsourcing, (in which the country is now the world’s largest employer), different branches of tourism, electronics, sustainable mining, housing and construction, and agribusiness and agroprocessing industries (Chapter 3). This list of industries is only bound to expand as distributional bottlenecks across regions are cleared and the country’s inherent advantages inally are revealed. At the same time, government has prepared speci ic programs to assist micro, small, and medium enterprises (MSMEs) at the enterprise-level and to encourage the formation of industry clusters to foster inter irm linkages. …through transparent and responsive governance Underpinning inclusive growth must be a bedrock of sound institutions that promote transparency, accountability, the rule of law, and effective and impartial performance of the regulatory function of government, as discussed in Chapter 7.

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To move towards responsive governance, systems that promote objective decision-making, professionalism, transparency, and accountability, shall be instituted and mainstreamed. Thorough reforms in the budgeting process, in public procurement, and in the awarding of major contracts are needed to restore public con idence in government institutions and practices. In budget-planning, a key reform shall be the adoption of zero-based budgeting (ZBB), under which budgets of government departments and agencies are comprehensively scrutinized and justi ied in complete detail, from a zero base, not just incrementally. Budget releases will also henceforth be aligned with the number of active personnel and the actual progress of programs and projects to avoid such abuses as “conversion” and other kinds of fund diversion. In public procurement, full use shall be made of electronic bidding and procurement to minimize discretion, achieve arm’s-length transparency, and attain cost-ef iciency. Terms of reference shall be based on comprehensive technical speci ications prior to bidding and contracting to facilitate close comparability across alternatives and to prevent arbitrary ex-post “variation orders”. Clear terms and transparent rules are vital to the success of big-ticket infrastructure projects such as the PPP. The publication and enforcement of blacklists of contractors and individuals suspected of rigging bids and showing substandard performance shall be undertaken to show the government’s determination to clean up procurement and bidding. The rationalization of government functions, pay, and personnel shall be continued and extended to cover not only the bureaucracy itself but also government-owned and –controlled corporations (GOCCs) and government inancial institutions (GFIs). The anticorruption drive shall also be strengthened with the passage of the Freedom of Information Act and the Whistleblowers’ Act, as well as the revitalization of the Run-AfterTax-Evaders (RATE), Run-After-the-Smugglers (RATS), and Revenue Integrity Protection Service (RIPS) programs. Close collaboration, coordination, and information-exchange among various agencies shall form the basis for the build-up of cases against public oficials and private persons involved in plunder, corruption, tax evasion, and other crimes involving the misappropriation of public resources. Strong cases, especially those involving well-known instances of plunder and grand corruption, shall be pursued uncompromisingly, showing neither fear nor favor and in line with “true and complete justice for all”. As an indispensable irst step, however, the personnel of agencies that directly involved in anticorruption efforts, especially the of ice of the Ombudsman, the Department of Justice (DOJ), and the revenue agencies, must be reinvigorated and rededicated. A big part of the solution to the governance problem however lies outside government itself and involves the active participation of private business, civil society and the media in governance, monitoring, and feedback. This gives “voice” to people, enables civil society and the media to become partners of government, and makes the government more responsive to the needs of citizens. Among other steps shall be the adoption of client-sat-

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A Policy Briefing Paper: Inclusive Growth

isfaction surveys at all levels of government. Monitoring and surveillance by the media, civil society, and an engaged citizenry shall underpin the campaign against corruption. This shall be facilitated by formal citizens’ representation in budgeting and procurement processes, the disclosure of the allocation and expenditure of funds of various agencies, the involvement of civil society in the anticorruption effort, and the provision of channels for ordinary citizens to report directly and anonymously to competent authorities on anomalies in government functions and the state of public-service provision. Ultimately, however, good governance must be founded on a cohesive society and people’s trust in government. For this reason, government will endeavor to be transparent, communicate its intentions clearly, and seek consensus on social directions. The means of development communication and their convergence with traditional and new mass and social media shall be used for these higher purposes. Improving governance and strengthening weak institutions in the country carry tremendous potential for bringing down the cost and risks of doing business. This is evident in public sector projects themselves. The PPP initiatives of government will not succeed unless private partners are assured of unbiased bid evaluations and award decisions based on competent authority. In the same manner, legitimate proponents of build-and-transfer schemes will be in short supply if their predecessors must face the ordeal of of icial harassment and regulatory risk. Strengthening governance, therefore, also implies addressing the weak rule of law, legal uncertainty, and high costs and delays of the legal system in the country, which have historically discouraged legitimate investments in the economy and instead fomented corruption. At the same time, there is a simple need to streamline and harmonize procedures within and across government of ices. A strong competition policy would promote a more open environment for investment, innovation, and appropriate pricing. This may be done by strengthening regulatory agencies and making them less susceptible to regulatory capture, lobbying, and rent-seeking. The linchpin of competition policy shall be an omnibus Competition and Anti-Trust Code that operationalizes constitutional provisions against monopolistic practices, as well as provides a transparent and predictable framework for standards and procedures for all regulatory authorities. Human development is key... Together with physical investment, investment in the country’s human resources is key to sustained and broad-based growth. This requires equitable access to basic social services, as well as stronger social safety nets and social protection against shocks. Concrete objectives and programs are spelled out in Chapter 8. Reaf irmed here are the country’s commitments to the MDG, of which the terminal point (2015) is the penultimate year of this planning period.

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The major priority reforms in education have been spelled out in the Basic Education Sector Reform Agenda (BESRA). Implementation of the agenda involves: school-based management; enhanced learning ef iciency, such as through the K+12 system; quality assurance and accountability; and complementary learning interventions, e.g. alternative learning systems, early childhood education, and so on. The state shall ensure equitable access to basic health care for all. This requires strengthening the National Health Insurance Program (NHIP). PhilHealth operations shall be oriented towards increasing the bene it delivery ratio at the national and regional level. Investments in public health programs shall aim to reduce maternal and child mortality, mortality and morbidity from tuberculosis, dengue, and malaria, as well as prevent the spread of HIV-AIDS. Upgrades of public health care facilities shall be undertaken under the government budget as well as through private-public sector partnerships. Two major strategies towards asset and human capital formation for the poor is communitydriven development and conditional cash transfers. The former shall be pursued through the Kapit-bisig Laban sa Kahirapan-Comprehensive and Integrated Delivery of Social Services (KALAHI-CIDSS), a program for implementing small-scale projects by barangays following their own plans, priorities, and processes, with funding support and in-kind support from the national and local governments. The KALAHI-CIDSS has demonstrated its effectiveness in generating net economic returns, finding a cost-effective formula for providing village infrastructure, responding to community demands, and sustaining community operations and maintenance (Araral and Holmemo, 2007). The latter social protection measures are primarily implemented through the Pantawid Pamilyang Pilipino Program (4Ps). At the heart of the 4Ps is the conditional cash transfer (CCT) program, which provides direct cash transfers to the poor on condition that: (a) their children continue to attend school; and (b) the family makes use of preventive health care and nutrition services. The cash transfer is, thus, linked to the poor’s investment in their own human capital (education and health), which explains the program’s demonstrated effectiveness in reducing poverty both immediately (through the cash transfer itself ) and in the long run (through human capital formation). The provision of CCT targets the truly deserving, while boosting demand for education and health services from poor households. In the design of these and other future social protection programs, the government shall always ensure that such programs remain accessible and attuned to the needs of vulnerable groups, particularly children of both sexes, women, the elderly, and the disabled .… together with employment generation, for both wage- and self-employed Emphasizing employment generation means opening the widest legitimate channels for all forms of employment, whether in the form of formal wage- or self-employment, whether in firms, homes, or local communities, whether at home or abroad. Work ar-

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A Policy Briefing Paper: Inclusive Growth

rangements mutually agreed upon shall also be introduced. Employment generation can also be pursued indirectly by supporting those activities that exploit the country’s comparative advantage in more labor-intensive activities, typically involving products and services that are more competitive in the world market. Exports have learning-by-doing and dynamic comparative advantage aspects. Through active trade policy, exporters learn through time, and their skill sets have evolved and became entrenched into more technologically intensive and higher skills processes. Exports can become an important means of obtaining technological know-how and in turn generate positive spill over effects to other sectors in the economy. This redounds to faster accumulation and innovation, and therefore accelerated growth. Wider self-employment opportunities shall be afforded by providing credit-access to the poor through microcredit, integrated in a business-service package that includes market matching, technical assistance, and community organizing where necessary. Government will direct wholesale finance institutions – such as the People’s Credit and Finance Corporation (PCFC), the Land Bank of the Philippines (LBP), and the Small Business Corporation (SBC) – that deal with microfinance institutions to coordinate with Department of Trade and Industry (DTI), Department of Tourism (DOT) and viable microfinance institutions (MFIs) to develop market-based innovative financing schemes to support microenterprises. Government will collaborate with MFIs to use microfinance as a tool for inclusive growth by expanding access by microenterprises and poor households to credit, savings, and other financial services. Innovative market-based financing schemes in support of microenterprises will support government’s goal of providing productive employment opportunities to a broad cross-section of the population. Other channels for rapid employment generation shall be opened through programs of community-driven development (CDD), which are linked to poverty-relief, and labor-intensive infrastructure projects of local governments. In providing opportunities for formal or self-employment or access to credit, government shall take particular cognizance of the special needs of women, whose potentially large social contributions to social and economic development are stunted by their domestic and other social circumstances. .… but complementary strategies will be essential for success The plan’s broad thrusts are massive infrastructure development, higher governance standards, human development and human capital formation, direct poverty-relief, and employment-generation. But such initiatives cannot succeed if complementary and strategies do not support and enhance their impact. These strategies can prosper only in a macroeconomic regime of low inflation and sustainable fiscal balances (Chapter 2). Inflation directly and immediately erodes the public’s purchasing power and particularly affects the poor and fixed-income earners, thus

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putting poverty goals in peril. On the other hand, uncontrolled government debts and de icits endanger the goals of growth and employment by raising borrowing costs for public and private sectors alike, putting a brake on all forms of investment. Government shall, therefore, institute iscal reforms to permanently place the revenue system on an even keel, primarily through comprehensive coverage of taxpayers and uniform coverage of commodities and activities, higher standards of performance and integrity among tax administrators, and prompt rate adjustments, as allowed by law, applied to tax and nontax revenue sources alike. Expenditures shall be kept within the bounds set by macroeconomic targets, among others, by cutting back on wasteful programs and deprioritizing unfunded mandates, exercising tighter internal controls, and continuing the rationalization of the size of government, including GFIs and GOCCs. Many of these reforms can become imperatives of iscal behavior through the enactment of a iscal responsibility law. Monetary policy, on the other hand, will continue to emphasize low and stable in lation, with the Bangko Sentral ready to use its tools to prevent the emergence of asset bubbles, whether domestic or foreign. In accord with the changing strength of the country’s external position, foreign exchange regulations shall be adjusted to facilitate payments for trade and investment and, in line with the policies of other countries, to maintain the economy’s competitiveness. Ensuring ecological integrity and mitigating the effects of climate change is essential for success on several fronts. Natural disasters and calamities can nullify hard-won gains by damaging physical infrastructure, directly endangering human lives and health, and destroying livelihoods, particularly among the poor and vulnerable. The dismal state of the environment and natural resources is a major reason that rural communities, who depend on them as primary sources of livelihood, perennially ind themselves at the bottom rung of the development ladder. The country’s location makes it inherently vulnerable to potentially destructive natural events. This is aggravated by the pressure of a growing human population on environmental resources and habitable environments as well as the anticipated effects of global climate change. It shall be an urgent task (Chapter 10), therefore, to devise and adopt measures that will improve the state of environment and natural resources, enhance the resilience of natural systems, and improve the ability of communities to cope with environmental hazards, including climate-related risks. Priorities include the conservation, protection, and rehabilitation of the country’s natural resources, urban renewal, measures to reduce waste and pollution, and heightened capacities for disaster-preparedness and response. Although it is the Plan’s main thrust to raise participation and standards in basic education, there is no denying the important role of higher education and science and technology in the country’s effort to attract high-quality and high-productivity activities, such as the greater value-added parts of business-process outsourcing (BPO), tourism, and some branches of industry. Through a rationalization of the roles of higher-education institutions and a iner delineation of their roles (Chapter 8), the turnout of a critical mass of scientists, engineers, and other technical personnel shall be pursued to allow the country is to climb the valueadded ladder in sectors where it possesses global competitive potential.

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The end of armed con lict and the attainment of lasting peace is vital to breaking the vicious cycle of con lict and underdevelopment in affected areas that have otherwise huge potential for social and economic development. Towards this end, the government shall pursue different tracks to complete and implement negotiated settlements with various armed groups under a comprehensive peace process. At the same time resources shall be marshaled to raise the capacity of the armed forces and the police in dealing decisively with criminal groups (Chapter 9). Relations with foreign nations shall be actively cultivated to support sovereignty, regional peace and security, and economic cooperation based on equitable and mutual bene it. Paramount consideration shall be paid to ensure the welfare and protection of the millions of Filipinos working overseas. How Shall We Monitor Progress Towards Inclusive Growth? Accountability requires government to make known its plans in order to afford its citizens the chance to test its assumptions and monitor progress quantitatively and in detail whenever possible. Towards that end, the Plan commits itself to quantitatively and observable targets and milestones. More detailed targets are presented in the succeeding chapters, but the most important ones are listed below: Growth in output and employment through higher investments… A growth in real GDP averaging 7-8 percent per year under the Plan period shall be a major objective. This igure implies a tripling of per capita income to about US$5,000 in two decades. This is a higher growth trajectory than the past decade’s and shall be attained through a higher contribution of physical capital to GDP growth, as well as through increases in total factor productivity. Through massive investments in transport, water, energy, and other infrastructure, and through good governance, the contribution of physical capital to GDP growth is targeted to increase. This is possible under current conditions through a signi icant but still attainable increase in the share of investment to GDP. Sustaining growth in later years, however, will require even higher investment ratios reaching 22 percent in real terms by 2016. It is expected that the investments in infrastructure and in education and health, improvement in governance, and the supporting strategies (such as research and development and science and technology policies), are expected to boost total factor productivity’s contribution to GDP growth. This annual growth target will generate an average of some one million (1,000,000) net employment annually, and these will be found primarily in industry and services, even as the agricultural sector may continue to be a net shedder of jobs. The completion of agrarian reform, a resolution of property rights issues in agriculture and implementation of major infrastructure shall enable agriculture and agro-processing to come into their own again and begin to reabsorb labor. If the labor force grows at 2.75 percent annually, the unemployment rate should hover at 6.8 -7.2 percent during the Plan period, although it should be noted these numbers do not factor in possible reversals in overseas migration trends as more domestic jobs are created.

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...should lead to poverty incidence being cut by half As productive employment raises incomes, cash-transfer programs are sustained and access to health and education improved, the incidence of poverty among the population should decline from 33.1 percent in 1991 to 16.6 percent by 2015 or less, in line with the country’s MDG commitment. Inequality can also be expected to decline over the medium term as access to development opportunities are equalized across geographic areas and across the different income and social spectrum. A Window of Opportunity Since more than two decades past, the Philippines has never faced a better chance than today of inally breaking out of its perennial condition of poverty, inequity, and lagging human development. In economic terms, the country’s external payments and international credit position have not been healthier in decades for various reasons. Thanks to overseas remittances, surpluses on current account have been run consistently since 2003. After decades of trade reform, the industrial structure is now fairly undistorted by subsidies and heavy protection. The currency is stable and perhaps even too strong and in lation has been low to moderate for more than a decade. Lastly, the country is emerging relatively unscathed from the worst global economic downturn since the 1930s. Even politically, there have been positive developments: the country has managed a peaceful constitutional transition through a popularly elected government; inancial and political sovereignty vis-à-vis creditor and other nations has never been greater; civil liberties and political rights continue to be asserted and exercised even in the face of brutal assaults; agrarian reform, the country’s most ambitious attempt at asset reform, is due to be completed; and efforts to resolve armed con licts inally and peacefully are under way. To be sure, immediate problems and obstacles remain, chief of which are the country’s lagging rate of investment, the government’s continuing iscal constraints and heavy debt burden, the country’s poor quality of infrastructure, and stagnating levels of human capital. But many of these phenomena have existed long before and are in the nature of consequences rather than causes. Undeniable is the fact that some hopeful conditions have emerged, and that economic and political opportunities now exist for a real change — a break-away from the cycle of mass poverty, social division, and political con lict that have been the hallmarks of the country’s recent history.

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The true paradox is why the nation has been unable to step forward even under improving conditions. This Plan is built on the conviction that such obstacles can be cleared and the above historic task accomplished in this lifetime through the prudent marshalling of available resources, the participation and support by all sectors, and through government and citizens living out and practising the country’s best civic ideals. Without the wise application of resources, social cohesion, and good governance, little can come of even the best-laid plans, and another window of opportunity will have closed for this generation of Filipinos. Nor should it be forgotten that today’s chances were purchased by past sacri ices: by overseas workers who endured separation from their families; by laborers and farmers who experienced wrenching structural changes; by the middle class and other taxpayers who shouldered the debt burdens of the past; by government personnel who soldiered on professionally despite the rot surrounding them; and by the brave and vigilant citizenry who never lost faith in constitutional values, democratic processes, and the possibility of an honest government. Such sacri ices can be repaid only by demonstrable success in our time. Neither the past nor future generations will forgive the present if it fails in its pursuit of inclusive growth.

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About CMFR

The formation of the Center for Media Freedom and Responsibility (CMFR) addresses one of the critical concerns confronting the Philippines after People Power toppled the Marcos dictatorship in February 1986. That concern calls attention to the power of media and the role of the free press in the development of Philippine democracy. All over the world, press freedom has been found to be essential to the democratic system. Effective participatory government is possible only when it can count on a well-informed society where individuals freely exchange ideas, where public debate and discussion arise from knowledge and understanding of national affairs. That freedom involves not only media professionals but also the public served by the media—public of icials, the private sector, civil society groups, readers, viewers, and listeners— who receive information and are part of the cycle of public communication. But freedom of the press, like all liberties, has its limits, for the simple reason that it is vulnerable to abuse. Democratic recovery confronts serious obstacles on the media front. The press and the media need to exert special efforts to measure up as a collective vehicle of information, as an instrument for clarifying complex issues and dilemmas of development that the public should understand. Against this background, CMFR was organized in 1989 as a private, non-stock, non-pro it organization involving the different sectors of society. Its programs uphold press freedom, promote public journalism, and ecourage journalistic excellence.

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