pids report on "effective regulations for sustainable growth"

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ECONOMICPOLICY MONITORand PROSPECTS for 2015

2014

Effective regulationsfor sustainable growth

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Philippine Institute for Development StudiesSurian sa mga Pag-aaral Pangkaunlaran ng Pilipinas

ECONOMICPOLICY MONITORand PROSPECTS for 2015

2014

Effective regulationsfor sustainable growth

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Copyright 2015

Philippine Institute for Development Studies (PIDS)

Printed in the Philippines. All rights reserved.

The views expressed in this paper are those of the authors and do not necessarily reflect the views of any individual or organization. Please do not quote without permission from the authors or PIDS.

Please address all inquiries to:

Philippine Institute for Development StudiesNEDA sa Makati Building, 106 Amorsolo StreetLegaspi Village, 1229 Makati City, PhilippinesTel: (63-2) 893-9573 / 893-5705 / 894-2584Fax: (63-2) 893-9589 / 894-2584E-mail: [email protected]: http://www.pids.gov.ph

ISSN 2244-1387RP 09-15-600

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Table of Contents

List of Tables, Figures, and Boxes vii Executive Summary ix List of Acronyms xv

1 Macroeconomic Trends and Outlook 1 Global and regional developments 1 The Philippine economy in 2014 4 Prospects for 2015 and beyond 14 References 20

2 Policy Updates 23 Poverty and social protection 23 Higher education 26 Housing 28 Agriculture 31 Environment, natural resources, and natural disasters 33 Trade policy 35 Infrastructure 37 References 44 Additional sources 46

3 Reduce Regulatory Burden, Improve Regulatory Quality 49 The need for regulatory quality 50 Policy and regulatory reform and challenges 52 Establishing a formal regulatory management system (RMS) 58 Assessment of Philippine ‘RMS’ and policy recommendations 67 References 74

The Authors 79

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List of Tables, Figures, and Boxes

Table1.1 Global economic growth and outlook, 2010–2014 (in percent) 1 1.2 GDP growth rates in the ASEAN, 2010–2014 (in percent) 41.3 Selected macroeconomic indicators, Philippines 5 At constant 2000 prices, in percent unless otherwise stated 1.4 Selected indicators of fiscal performance, 2014 (in PHP billion 8 unless otherwise indicated)1.5 Balance of payments, 2008–2014 (in USD million) 101.6 Overseas Filipinos’ cash remittances, 2008–2014 101.7 Global and regional outlook, 2015 141.8 Growth outlook for the Philippines, 2015 152.1 Growth and distribution of informal settler families (ISFs), 1991–2012 292.2 Strategies for each sector outcome 322.3 Key features of RA 7721 362.4 Recommendations of a PIDS study to address congestion in seaports 41 in the Greater Capital Region 3.1 GDP growth rates in the ASEAN, 2010–2015 553.2 Progress in business reforms in the Philippines, 58 Doing Business Report 2008–20153.3 Philippines’ rank in global competitiveness indices 59 Figure1.1 World oil prices (Brent, Dubai, West Texas Intermediate), 2008–2014 2 (in USD per barrel) 1.2 World oil demand vs. supply (in million barrels per day) 31.3 Demand-side contributions to growth 61.4 Supply-side contributions to growth 71.5 National government debt stock 91.6 Government revenues 91.7 Exchange rate and stock prices 111.8 Monthly inflation rate (headline rate), 2014 111.9 Monthly average wholesale (pump) prices of oil products, 2008–2014 121.10 Philippine benchmark yield curve 121.11 Unemployment and underemployment 131.12 The savings-investment gap, 2009–2013 192.1 Percentage of HEIs that applied for tuition fee increase 272.2 Public spending on infrastructure and other capital outlays as 38 percent of GDP, 2008–2014

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3.1 Regulatory quality, ASEAN, 2008–2013 523.2 Governance indicators for the Philippines, 1996–2013 523.3 Starting a business: Old procedures 563.4 Starting a business: New procedures 573.5 Malaysian quality regulatory management system 613.6 Regulatory impact statement process, Malaysia 623.7 Elements of the Philippine “regulatory management system” 63

Box1.1 Possible impacts of the US policy normalization and the 18 corporate sector’s leverage3.1 NEDA RIA initiative 653.2 Objectives and methodology: Using a regulatory guillotine approach 67

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Executive Summary

The importance of effective regulations takes center stage in this issue of the PIDS Economic Policy Monitor, the fifth in this annual series. With the impending integration of the Association of Southeast Asian Nations (ASEAN) member-states, the need to address the factors that continue to bring down the Philippines’ competitiveness and weaken the efforts toward greater inclusiveness becomes more imminent. Regulatory burdens are one of those factors. They restrain competition, innovation, and productivity, which can snowball into causing a drop in business confidence, neglect of general welfare, build-up of corruption, and, ultimately, loss of public faith in governance. Reducing regulatory burdens is important economically, socially, and politically. Moreover, improving regulatory quality and coherence is imperative for the country to take advantage of increased trade and investment under ASEAN integration—gains that the country needs to achieve sustainable and inclusive growth.

Providing the backdrop is Chapter 1, which presents the current economic context and analyzes the Philippines’ performance in 2014 and the outlook for 2015 and beyond in the face of continued global and regional developments. In 2014, the Philippines continued on a high-growth path, averaging 6.1 percent. This was achieved despite a number of challenges, including a lower level of government spending, which was 13 percent below the programmed amount due to the low absorptive capacity of government agencies and the slowdown and postponement of programs and projects funded under the Disbursement Acceleration Program. Unemployment slightly improved to 6 percent, still high nevertheless, and underemployment further worsened. By October 2014, it closed at 18.7 percent, higher by 0.8 percentage point a year ago. The lack of ample quality jobs, coupled with the perennially high rate of joblessness in the country, was the highlight of last year’s EPM issue wherein experts analyzed how minimum wage regulations aggravate labor problems by posing as a burden to business owners, stifling business growth and consequently the creation of more jobs.

Amid these perennial issues, the continued resiliency of the Philippine economy is predicted. The outlook for the Philippines in 2015 remains positive, with a growth forecast of 6.8 percent. The global prospect is also optimistic and the forecast is a growth rate of 3.5 percent. The drastic decline in the price of oil in 2014, a major development that triggered reactions globally and that has prevailed in 2015, presents opportunities for oil-importing economies like the Philippines in terms of increased trade given a higher disposable income and aggregate demand. To increase the probability of success, the country needs to, aside from taking advantage of the oil price decrease, ensure the reliability of power supply, channel resources from the financial to the real sector, frame appropriate policy responses to regional and global development such as the slowdown of China’s growth and its increasing labor cost, and take steps to increase investments. The last item is a complex issue that requires not only making financing easily accessible but also ensuring that the environment is equipped with the necessary infrastructure in terms of institutions, frameworks, methodologies, and facilities to encourage both investors and innovators. Proactive market research and project development are also important to ensure a steady supply of potential investment

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projects for banks and potential investors. Since long-term growth is a function of productivity, it is also imperative to sustain investments in infrastructure, connectivity, and human capital. Some of these investments are apparent in a number of policy developments in 2014 discussed in Chapter 2. They reflect the resolve of the present administration to continue the reform process in order to sustain the high-growth path and achieve greater social inclusiveness.

For example, increasing efforts to improve social protection services are visible with the approval of three pieces of legislation by Congress: (1) Republic Act (RA) 10645, which provides mandatory health insurance coverage for all senior citizens not currently covered by the National Health Insurance Program; (2) RA 10644, which promotes the establishment of business centers across the country down to the municipal level to encourage the growth of micro, small, and medium enterprises; and (3) RA 10652, which provides supplemental appropriation to finance projects and programs related to poverty reduction and social protection.

Improving the quality of life of informal settler families (ISFs) has also remained in the policy agenda. The National Informal Settlement Upgrading Strategy was formulated to serve as the overarching policy framework for upgrading ISFs in the next 10 years. House Bill 5144, which aims to establish an in-city or near-city resettlement program for ISFs in accordance to a People’s Plan, was also endorsed by the Lower House. A National Housing and Urban Development Summit, scheduled to take place from July 2015 to March 2016, will convene major stakeholders to identify key policy reforms such as how to address bottlenecks in the provision of affordable housing.

In terms of social protection for agricultural workers, additional funds were funneled into the Philippine Crop Insurance Corporation and use of the Registry System for Basic Sectors in Agriculture was required in identifying beneficiaries for the free insurance premiums. Together, these two measures are deemed to expand crop insurance services for farmers and fisherfolk and achieve wider service coverage, which will hopefully redound to increased productivity of the agricultural sector. In 2014, the sector’s growth slid further to 0.6 percent from 1.2 percent in 2013. The midterm update of the Philippine Development Plan released in 2014 identified a number of strategies to address this, each targeting to the goals of improved food security and increased incomes, increased resilience to climate change, and enhanced policy environment and governance. In terms of achieving food security, the government remains relentless in its target of 100-percent self-sufficiency for 2013–2016, a goal that the PIDS has already asserted to be unrealistic. Nevertheless, a number of policies and regulations in the environment and natural resources sectors passed in 2014 appear to be in the right direction. They include, among others, Executive Order 174, which will strengthen the greenhouse gas inventory management and reporting system in government, and Joint Memorandum Circular 2014-01, which mandates the tracking of climate change expenditures in the local budget and lays down the guidelines for the establishment of Local Disaster Risk Reduction Management Offices.

In the area of improving human capital, the most significant policy development is the extension of the age coverage of the Pantawid Pamilyang Pilipino Program (4Ps) to include

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15- to 18-year-old children. This decision by the national government was largely based on the recommendation of a PIDS study to deepen the impact of the 4Ps by allowing the beneficiaries to finish high school. This move, which will give them better income prospects and better chances to transition into higher education, is envisioned to create a strong impact on poverty reduction and cut the chain of intergenerational poverty.

There were also several developments in the higher education sector. One of them is the approval of the compromise version of the Unified Student Financial Assistance System for Higher Education bill, which will rationalize the different modes of student financial assistance such as grants-in-aid, scholarships, and student loans into one program. However, the watered-down version removed an important provision, which is the identification and ranking of applicants based on examination. This system is necessary to promote transparency in the selection of grantees and ensure that only capable students will receive financial assistance. Another policy development is the use of the so-called “education deflator” to regulate tuition fee increases. All higher education institutions that will apply for increased tuition fees higher than the deflator will have to justify their proposal coupled with a commitment that the additional fees shall translate to better quality of education.

In terms of widening access to higher education, the enactment of RA 10650 is deemed to make education more inclusive by making it more accessible to those who cannot be served by traditional means through the open distance learning (ODL) method. Proper regulations that will ensure high-quality standard and support, and infusion of investments will help develop the ODL into an industry. This will further advance the services sector and boost services export trade by attracting ODL clients/students from other countries. A complementary piece of legislation also passed in 2014 may help achieve this end. The full entry of foreign banks in the country is now possible with the enactment of RA 10641. This law is expected to enhance the inflow of foreign direct investments as well as the transfer of technology and human resource skills that go with these. Overall, a more vibrant business sector is envisaged, which could facilitate a more rapid and sustained economic growth.

Undoubtedly, these policy developments would be useless without the necessary measures to develop the physical infrastructure. Its poor state is a serious problem that not only affects the country’s competitiveness as an investment and tourism destination but also seriously impinges on the quality of life of ordinary citizens. In 2014, policymakers responded to specific concerns through a number of measures. The power shortage issue was managed by accelerating the interruptible load program (ILP) that entails heavy power users to use their own generator sets thereby freeing up supply that can be used to service other users such as residential households. The ILP has been the focus of a joint resolution passed by the Lower House, an action that was later followed by the Senate.

The year teemed with serious woes for the riders of the privately owned MRT-3 who had to suffer from overcapacity and poor maintenance. In August, an overshooting incident took place,

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posing serious risks to public safety. The procurement of additional vehicles, which are scheduled to be used in early 2016 assuming prototype testing is successful, will improve capacity, but until these new units are operational, the riding public would have to make further sacrifices to bear with the poor service. On the other hand, addressing maintenance issues has been progressing at a snail’s pace after two failed biddings in 2014.

To alleviate the congestion in the Port of Manila that became worst when the City of Manila imposed a truck ban, a Cabinet Cluster on Port Decongestion was set up to implement remedial measures, which include, among others, imposing fines on cargoes that are not pulled out within five days. The New Container Terminal 2 at the Subic Port was also opened as an extension of the Port of Manila. While the congestion has somehow eased, it is likely to recur. The measures implemented were “band-aid” solutions. More lasting ones are needed to solve this problem once and for all. In retrospect, just like the other issues that remain unaddressed, the congestion problem has escalated due to lack of rigorous analysis of policy options and lack of proper coordination with stakeholders. This was palpable in the imposition of the truck ban by the City of Manila for the simple reason of easing traffic congestion. In the end, this local ordinance did more harm than good, resulting in unnecessary regulatory burden. The economic damage of the truck ban was valued at PHP 43.85 million arising from customs’ revenue losses, output and productivity losses, and increase in vehicle operating costs. This is a clear example of the negative impacts of the lack of regulatory quality and coherence in the country.

Thus, Chapter 3 examines the case for developing a sound and efficient regulatory management system. Regulations, in the Philippine context, commonly refers to executive orders, circulars, or memorandum orders issued by the national government, local governments, and regulatory bodies to influence or direct people’s behavior to follow a policy goal. Regulations also cover the laws enacted by the legislature as well as permits or licenses issued by local governments.

Much of the policy changes in the regulatory environment happened starting in the late 1980s with the dismantling of monopolies in the sugar and coconut oil industries, and the reduction of tariffs in the industrial sector. The 1990s saw significant regulatory changes to promote trade liberalization, privatization, and deregulation in view of the shift to a market-oriented approach. These include the Public Telecommunications Act of 1995, the privatization of water distribution in Metro Manila, and the strengthening of monetary policy and regulation of banks through the replacement of the debt-ridden Central Bank of the Philippines by the Bangko Sentral ng Pilipinas. At the local level, the responsibility of basic public service delivery was devolved to the local government units (LGUs) with the implementation of the 1991 Local Government Code (LGC). The LGC also vested the LGUs expanded taxing and borrowing powers. These provisions, in turn, gave them a significant role in local regulatory making and implementation, such as in passing local regulations that will ease the regulatory burden of business firms that have located or intend to locate in their localities.

The regulatory reform momentum weakened in the 2000s particularly during the Estrada and Arroyo administrations. The main cause of the slowdown was the political uncertainty that

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clouded these administrations—the plunder case filed against President Estrada and the issue of political legitimacy thrown on President Arroyo. An accommodative attitude favoring vested interest groups prevailed, coupled by a ‘wait-and-see attitude’ among policymakers because the political leadership was conflicted and compromised. In retrospect, however, there were important policies adopted in the 2000s, such as the General Banking Law, the Retail Trade Liberalization Act, and the Electric Power Industry Reform Act of 2001. There were also efforts to improve regulatory quality through the enactment of the Anti-Red Tape Act of 2007. However, all of these reforms were weakened and muted by poor governance due to a strong, enduring system of patron-client relations that ensured the political survival of incumbents.

The momentum for regulatory reforms was revived in the present administration. Current initiatives and those in recent decades have been instrumental in achieving a remarkable growth performance amid the lingering slowdown in the global economy and the devastation brought by natural disasters. One important change is the growing participation of the private sector in the government’s reform efforts. An example is the issuance of Administrative Order No. 38 in 2013 that created an interagency task force to simplify business processes and ease the regulatory burden faced by firms through the Ease of Doing Business (EoDB) reforms. The EoDB Task Force chaired by the National Competitiveness Council, a public-private sector collaboration, has worked with various government agencies to streamline the process of starting a business. As opposed to the previous process consisting of 16 steps to complete in 34 days, the much improved version only has six steps in eight days to start a business in the Philippines, which is now closer to Malaysia’s turnaround time of three steps in six days and Singapore’s three steps in three days. Aside from this, there have been other business reforms in the areas of paying taxes (electronic filing and payment system for social security contributions), applying for construction permits (elimination of a health certificate as a requirement), and obtaining credit (improved access to credit information), to name a few. Through Project Repeal, the NCC is also gathering information on what laws and regulations increase the cost of doing business and hinder competitiveness and will work with Congress on having those harmful laws repealed.

While all of these efforts are worthwhile, what the country primarily needs is the installation of a formal regulatory management system (RMS). Having an RMS is the best step toward reducing regulatory burdens and improving the quality of regulations as it will help identify the best choice of policy options through the use of regulatory tools. The Organisation for Economic Co-operation and Development’s typology has identified four basic elements of an RMS: (1) regulatory quality tools, (2) regulatory processes, (3) regulatory institutions, and (4) regulatory policies. The Philippines’ fellow ASEAN neighbor, Malaysia, has a fully developed RMS with all of these four basic elements. One of the main agencies in Malaysia’s RMS process is the Malaysia Productivity Corporation (MPC) that has a mandate of reviewing existing regulations, undertaking a regulatory impact analysis (RIA) of new policies and regulations, and making recommendations to the Cabinet on policy and regulatory changes that will enhance national productivity. As a

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required tool, the RIA must have the components of problem identification, objective, instrument options, and assessment of impact, which demonstrate benefits and costs.

The Philippines has an RMS-like system that contains some of the basic elements but these do not represent a coherent and coordinated system nor are these elements regularly undertaken. Critical gaps exist in the systematic use of regulatory quality tools particularly the RIA. Presumably, cost-benefit analyses are undertaken by regulators to assess the impact of a proposed regulation but their results are neither published nor made available to the public, not even to academics or policy analysts for review. The RIA is not a standard practice in regulation making in the Philippines unlike in Malaysia where it is considered a powerful regulatory tool. In the Philippines, the public and affected parties could only assume that it had been done prior to the issuance of a regulation and that they employed rigorous analysis using the most appropriate analytical tools and not a mere descriptive analysis.

Furthermore, while regulatory processes such as dialogues and consultations are conducted, these take place on a sectoral basis. They are not necessarily coordinated across regulators that may be involved or affected by the proposed regulatory change. Regulatory reviews are undertaken by agencies responsible for specific sectors but they act as silos with no attempt at coordination with other regulatory bodies. Coordination across regulatory agencies is an exception, rather than a default arrangement, under the Philippine RMS. In terms of regulatory institutions, there is no central governmental unit or agency akin to Malaysia’s MPC that ensures capacity building of regulators on RIA, reviews existing rules and regulations, and facilitates coordination among regulators. The common approach is to create temporary, ad-hoc task forces when regulatory problems arise.

On a positive note, the government has taken steps to fill the gaps in the system. Through a technical assistance program of the Asian Development Bank, three RIA pilot projects are underway that seek to develop the capacity of the National Economic and Development Authority (NEDA), the Department of Labor and Employment, and the Department of Tourism in conducting RIA. Once the pilot stage is completed, it will be rolled out across other departments backed by an executive order for full implementation. As the lead agency in institutionalizing RIA, the NEDA is currently overseeing the review of policies and regulations in key economic sectors and coordinating regulatory reform efforts. There is also a plan to establish an office that will standardize RIA in regulatory practices across the bureaucracy.

Laudable as these developments may seem, addressing the limitations in the current system is not enough. Political will is a critical component in the process of creating a formal RMS in the country. A commitment to reforms that is ever present despite changes in political leadership and a mindset that embraces continual improvement and innovation are a must.

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List of Acronyms

4Ps – Pantawid Pamilyang Pilipino ProgramADB – Asian Development BankAEC – ASEAN Economic CommunityAPEC – Asia-Pacific Economic CooperationAPIS – Annual Poverty Indicators Survey ASEAN – Association of Southeast Asian NationsBDRRMC – Barangay Disaster Risk Reduction Management CommitteeBLT – build-lease-transferBOC – Bureau of CustomsBSP – Bangko Sentral ng PilipinasBTr – Bureau of the TreasuryCCPD – Cabinet Cluster on Port DecongestionCCT – conditional cash transferCHED – Commission on Higher EducationCMO – CHED Memorandum OrderDA – Department of AgricultureDAO – DENR Administrative OrderDAP – Disbursement Acceleration ProgramDENR – Department of Environment and Natural ResourcesDOE – Department of EnergyDOJ – Department of JusticeDOLE – Department of Labor and EmploymentDOST – Department of Science and TechnologyDOT – Department of TourismDOTC – Department of Transportation and CommunicationsDPWH – Department of Public Works and HighwaysDRRM – disaster risk reduction managementDSWD – Department of Social Welfare and DevelopmentDTI – Department of Trade and IndustryEO – Executive OrderEoDB – ease of doing businessEPIRA – Electric Power Industry Reform ActERC – Energy Regulatory CommissionERIA – Economic Research Institute for ASEAN and East AsiaEU – European Union

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FAO – Fisheries Administrative OrderFDI – foreign direct investmentFIES – Family Income and Expenditure SurveyGDP – gross domestic productGIA – grants-in-aidGNI – gross national incomeGVC – global value chainHEI – higher education institutionIFC – International Finance CorporationILP – interruptible load programIMD – International Institute for Management DevelopmentIPOPHL – Intellectual Property Office of the PhilippinesISF – informal settler familyIU – Investigatory UnitJMC – Joint Memorandum Circularkg – kilogramkWh – kilowatt hourLDRRMO – Local Disaster Risk Reduction Management OfficeLEDAC – Legislative-Executive Development Advisory CouncilLGC – Local Government CodeLGU – local government unitLOI – Letter of InstructionLRV – light rolling vehicleMB – Monetary BoardMBC – Makati Business ClubMOA – memorandum of agreementMPC – Malaysia Productivity CorporationMSME – micro, small, and medium enterpriseMWh – megawatt hourNCC – National Competitiveness CouncilNCT2 – New Container Terminal 2NDPC – National Development Planning CommitteeNEDA – National Economic and Development AuthorityNEM – New Economic ModelNFA – National Food Authority

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NGP – National Greening ProgramNHA – National Housing AuthorityNHIP – National Health Insurance ProgramNISUS – National Informal Settlement Upgrading StrategyNPDIR – National Policy on the Development and Implementation of

RegulationsODL – open distance learningOECD – Organisation for Economic Co-operation and DevelopmentOFC – Office for CompetitionOPEC – Organization of Petroleum Exporting CountriesPEMUDAH – Special Task Force to Facilitate BusinessPGHGIMRS – Philippine Greenhouse Gas Inventory Management and

Reporting SystemPIDS – Philippine Institute for Development StudiesPPA – Philippine Ports AuthorityPPP – public-private partnershipPSA – Philippine Statistics AuthorityRA – Republic ActRIA – regulatory impact analysisRIS – regulatory impact statementRMS – regulatory management systemSME – small and medium enterpriseSPS – sanitary and phytosanitarySTI – science, technology, and innovationTESDA – Technical Education and Skills Development AuthorityTI – Transparency InternationalTRO – temporary restraining orderUniFAST – Unified Student Financial Assistance System for Higher and

Technical EducationUPOU – University of the Philippines Open UniversityUS – United StatesWEF – World Economic ForumWESM – wholesale electricity spot marketWTO – World Trade Organization

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Navarro

Global and regional developmentsGlobal growth in 2014 remained on the same level as it was in 2013 although the growth path of the major economies varied widely (Table 1.1). The United States (US) achieved a decent growth at 2.4 percent, proving that economic activities are indeed picking up. But Japan’s growth is a low 0.1 percent despite the continuing quantitative easing that was meant to push back deflation and stimulate growth. Japan fell into a recession in the third quarter as household spending declined following a nationwide rise in consumption tax. However, it managed to crawl out of the recession by the fourth quarter as domestic demand recovered and exports increased. The Euro area slightly recovered from the contraction in the past year and grew at 0.8 percent. However, there are indications that it is slipping into deflation, which could weaken demand and aggravate the debt burden. China’s growth slowed down but managed to stay above the 7-percent level, which is dubbed as the “new normal” by President Xi Jinping (Bloomberg 2014b). Chinese

export growth remained strong and the current account surplus remained large, but the capital account balance was in deficit as foreign currency outflows rapidly rose in the first half of 2014. Fears of a credit crunch in China ensued but these were swiftly addressed through targeted liquidity injections and policies meant to increase net domestic lending.

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Table 1.1. Global economic growth and outlook, 2010–2014 (in percent)

Country 2010 2011 2012 2013 2014

World 5.1 3.9 3.1 3.3 3.3

United States 2.4 1.8 2.8 2.2 2.4

Japan 4.5 -0.6 1.4 1.6 0.1

Euro area 2.0 1.4 -0.7 –0.5 0.8

China 10.4 9.3 7.7 7.8 7.4

Source: International Monetary Fund (IMF) World Economic Outlook, various years.

Macroeconomic Trends and Outlook

Adoracion M. Navarro

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A major development that triggered reactions in the real and financial sectors globally is the drastic oil price decline. Since 2012, the price of oil in the global market has generally been in a downward trend. It continuously dipped in 2014 and by end of the year, it has fallen to its lowest in the past five years—USD 62.16 in Brent prices, USD 60.39 in Dubai prices, and USD 59.10 in West Texas Intermediate prices for a barrel of oil. These prices are equivalent to only about half of the March–April 2012 peak prices, or a mere one-third of the June–July 2008 peak prices (Figure 1.1). Much of the price decline happened in 2014, as the price swiftly fell by 44 percent in the last six months.

The supply surge amid the sluggish demand explains this phenomenon (Figure 1.2). Decades-long cartel behavior of the Organization of the Petroleum Exporting Countries (OPEC), years of high prices, and technological innovations inspired the search for alternatives to OPEC-produced oil. The search yielded huge amounts of crude oil from shale projects and additional supplies of other sources of energy such as natural gas and renewable energy. With the OPEC not curtailing production early enough in 2014 and with the global demand decreasing as the top oil consumers (US, China, Japan, and Europe) continue to experience growth slowdown, the net effect was a global oil glut. Advances in power demand management and fuel efficiency also restricted oil demand growth.


Figure 1.1. World oil prices (Brent, Dubai, West Texas Intermediate), 2008–2014 (in USD per barrel)

0.00

20.00

40.00

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120.00

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160.00

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-08

Jun-

08Se

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9Ju

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09De

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Mar

-10

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10Se

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SD p

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Brent Dubai West Texas Intermediate

Source: IMF (2015a)

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Navarro

The direct and potential impacts of the oil price decline are mixed. For oil-producing countries, low profits from oil mean reduced government revenues. Financial markets tend to interpret this as a signal that the global economy is weaker than before, suggesting reduced trade, lower business opportunities, and greater unemployment. But cheaper oil also means cheaper fuel for truckers, shippers, airlines, and therefore much reduced conveyance costs, which could then induce more trading. It also means reduced overall costs for final consumers, thereby increasing disposable income and aggregate demand. The decline in oil prices is expected to prevail in 2015. This extended period would benefit the global economy, including the Philippines that is a net importer of oil.

In the Association of Southeast Asian Nations (ASEAN) region, most countries exhibited high

growth (Table 1.2). The only exceptions are Brunei Darussalam, Singapore, and Thailand. In Brunei Darussalam, the gross domestic product (GDP) contracted (1.2%) as production declined in the oil and gas sector, which accounts for almost two-thirds of the economy. Government revenues declined also due to falling oil prices. In Singapore, GDP growth decelerated to 2.9 percent in 2014 due to weak productivity gains. Nevertheless, Singapore remains set in its vision of being a hub for the ASEAN’s links with global value chains (GVCs). In Thailand, political unrest and other disruptions in economic activities led to a 0.7-percent growth. Fixed investment was hit hardest by these disruptions.

Meanwhile, the other ASEAN countries performed quite well with their growth rates ranging from 5 to 7.7 percent. Cambodia’s 7-percent growth

Figure 1.2. World oil demand vs. supply (in million barrels per day)

78.0

80.0

82.0

84.0

86.0

88.0

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94.0

96.01Q

2008

2Q20

083Q

2008

4Q20

081Q

2009

2Q20

093Q

2009

4Q20

091Q

2010

2Q20

103Q

2010

4Q20

101Q

2011

2Q20

113Q

2011

4Q20

111Q

2012

2Q20

123Q

2012

4Q20

121Q

2013

2Q20

133Q

2013

4Q20

131Q

2014

2Q20

143Q

2014

4Q20

14

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ion

barr

els p

er d

ay

World oil demand World oil supply

Source: International Energy Agency (2015)

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was driven by the industry and services sectors. Its growth strategy is to diversify the sources of growth by broadening the production base and exploring export markets aside from the European Union (EU) and the United States. In Indonesia, although GDP growth slowed down to 5 percent, there were signs of manufacturing recovery. Moreover, the cut in fuel subsidies freed up significant fiscal resources that has enabled increased government spending. In Lao People’s Democratic Republic, high growth continued at 7.4 percent fueled by services and industry expansion. In Malaysia, GDP grew by 6 percent, buoyed by robust private consumption and trade surplus expansion led by increased merchandise exports. Myanmar registered a strong GDP growth of 7.7 percent, reflecting the early successes of vigorous investments in infrastructure, property development, manufacturing, and the natural gas industry. Promoting business confidence is also gaining ground as evidenced by drastically streamlined business registration (i.e., from 72 days to 3 days) and rapid growth in credit to the private sector (i.e., 36% year-on-year in November 2014). In Viet Nam, growth accelerated to 6 percent in 2014. Foreign direct investments (FDIs) in manufacturing and construction supportive of property demand

contributed significantly to the growth acceleration (ADB 2015a).

The Philippine economy in 2014Despite long-standing challenges, the Philippines seemed to be generally in sync with the vibrant expansion of most of its neighbors in 2014.

The GDP grew in real terms at 6.1 percent, a continuation of the high growth in the past years, which is important to make a huge dent in the fight against poverty. Gross national income (GDP plus net income from abroad) grew by 6.3 percent in real terms (Table 1.3). Given the 2014 real GDP of PHP 7.18 trillion, nominal GDP of PHP 12.63 trillion, and an estimated population of 99.9 million, real GDP per capita is PHP 71,867 and nominal GDP per capita is PHP 126,496. Poverty incidence stood at 25.8 percent as of first semester 2014 (latest Annual Poverty Indicators Survey or APIS) or about 25.8 million Filipinos considered poor. Considering that poverty incidence in the 2012 Family Income and Expenditure Survey (FIES) was 25.2 percent, or roughly 25 million poor Filipinos, some quarters are saying that there has been no improvement in poverty reduction. However, some quarters are also saying that the 25.8 percent APIS


Table 1.2. GDP growth rates in the ASEAN, 2010–2014 (in percent)

2010 2011 2012 2013 2014

Brunei Darussalam 2.6 3.4 0.9 –1.8 -1.2

Cambodia 6.0 7.1 7.3 7.5 7.0

Indonesia 6.2 6.5 6.2 5.8 5.0

Lao PDR 8.1 8.0 7.9 8.0 7.4

Malaysia 7.4 5.1 5.6 4.7 6.0

Myanmar 9.6 5.6 7.6 7.5 7.7

Philippines 7.6 3.7 6.8 7.2 6.1

Singapore 15.2 6.1 2.5 3.9 2.9

Thailand 7.4 0.6 7.1 2.9 0.7

Viet Nam 6.4 6.2 5.2 5.4 6.0

Source: Asian Development Bank (ADB) 2015b

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figure for 2014 is not comparable with the 25.2 percent FIES figure for 2012 because the two are different surveys in terms of survey methods and sample sizes. The ongoing 2015 FIES can hopefully settle the issue of whether the recent high economic growth is translating to poverty reduction.

Overall, the primary growth drivers in 2014 on the demand side have been household consumption

and net exports, and on the supply side, industry and services (Figures 1.3 and 1. 4). Household consumption steadily grew in all quarters and net exports performed especially well on the second and fourth quarters. High-performing export products include electric components, coconut oil, mango, shrimps, and prawns. Miscellaneous services, which constitute 79 percent of total export services, contributed the most to export

Table 1.3. Selected macroeconomic indicators, Philippines At constant 2000 prices, in percent unless otherwise stated

2008 2009 2010 2011 2012 2013 2014

Gross national income (GNI) growth 5.0 6.1 8.2 3.0 6.4 7.5 6.3

Gross domestic product (GDP) growth 4.2 1.1 7.6 3.7 6.8 7.2 6.1

GDP by expenditure component (growth and shares)

1. Household final consumption expenditure 3.7 2.3 3.4 5.6 6.6 5.7 5.4

Percent share to total GDP 71.2 72.1 69.2 70.5 70.4 69.4 68.9

2. Government final consumption expenditure 0.3 10.9 4.0 2.1 15.5 7.7 1.8


3. Capital formation 23.4 -8.7 31.6 2.8 -5.3 29.9 1.1


4. Exports -2.7 -7.8 21.0 -2.5 8.5 -1.1 12.1


5. Imports 1.6 -8.1 22.5 -0.6 4.9 5.4 5.8


6. Net primary income 8.4 25.0 n.c. -0.2 4.1 9.0 7.3


GDP by industrial origin (growth and shares)

1. Agriculture, hunting, forestry, and fishing 3.2 -0.7 -0.2 2.6 2.8 1.1 1.9


2. Industry sector 4.8 -1.9 11.6 1.9 7.3 9.3 7.5


3. Service sector 4.0 3.4 7.2 4.9 7.4 7.2 6.0


Core inflation (2006=100) 5.8 4.2 3.6 4.3 3.7 2.9 3.0

Headline inflation (2006=100) 8.3 4.2 3.8 4.6 3.2 3.0 4.1

Nominal interest rates: T-bills 91 days 5.4 4.2 3.7 1.4 1.6 0.3 1.2

Real interest rates: T-bills 91 days -2.9 0.1 -0.2 -3.2 -1.6 -2.7 -2.9

Source: Bangko Sentral ng Pilipinas (BSP) 2015; Philippine Statistics Authority (PSA) 2015

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service growth. As pointed out in the previous edition of the Economic Policy Monitor, the major categories of export services in the Philippine statistical system (transportation, insurance, travel, government, and miscellaneous services) are no longer responsive to the need to trace the developments in the fast-growing services export sector. The subcategories of the catch-all and vague “miscellaneous services” have to be reported by the Philippine Statistics Authority (PSA).

Government consumption did not grow on the second quarter and pulled down growth on the third quarter, partly due to the halt in spending for

projects and programs funded by the Disbursement Acceleration Program (DAP). Additions to the capital formation as a whole have not been substantial during the year. On the fourth quarter, declines in investments in durable equipment and intellectual property products pulled down capital formation growth, but construction expanded at 25 percent.

On the supply side, the services sector contributed the most to GDP growth and all of its subsectors performed well. The industry sector had the next highest contribution. Among the industry groups under it, manufacturing contributed the most


Figure 1.3. Demand-side contributions to growth

-7%

-2%

3%

8%

13%

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2013 2014

Household consumption Government consumption

Capital formation Net exports

Statistical discrepancy GDP growth

Source: PSA (2015)

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to overall growth; this validates the ongoing revival of the manufacturing sector. Though positive at 2.3-percent full-year growth, the performance of the agriculture, hunting, and forestry sector still leaves much to be desired. Growth has been slow in most subsectors, with contractions in the production of coconut and coffee.

Fiscal managementActual government spending in 2014 was 13 percent lower than the programmed amount, and actual revenues were 5 percent lower than the projected

revenues (Table 1.4). By the end of the year, fiscal deficit shrunk to 0.6 percent of GDP, much lower than the target 2-percent fiscal-deficit-to-GDP ratio. Note, however, that overachieving the fiscal deficit target could mean missed opportunities in spending for economic development. Government spending had been sluggish for most of the year (except in December) due to the low absorptive capacity of government agencies and the slowdown and deferment of the implementation of DAP-funded programs and projects.

Government debt continued to be well-managed, with the total debt declining to 45.4 percent of GDP in

Figure 1.4. Supply-side contributions to growth

-2%

0%

2%

4%

6%

8%

10%

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2013 2014Services Industry Agriculture, hunting, forestry, and fishing GDP growth

Source: PSA (2015)

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2014, much lower than the 2013 debt at 49.2 percent of GDP. Both external and domestic debt declined: external debt-to-GDP ratio declined from 32.33 percent in 2013 to 30.24 percent in 2014; and domestic debt-to-GDP ratio declined from 16.87 percent in 2013 to 15.15 percent in 2014 (Figure 1.5). The overall trend shows a deepening commitment to debt reduction as a fiscal management strategy. This is being implemented as a combined strategy of prepaying debts, reducing reliance on official development assistance, and optimizing the foreign-domestic borrowing mix given the low interest rates prevailing in the financial markets (Llanto and Navarro 2014).

The upward trend in government revenue-to-GDP ratio, which started in 2010, continued (Figure 1.6). Tax revenues increased from the 2013 level of 13.3 percent of GDP to 13.6 percent of GDP in 2014. Although nontax revenues slightly declined from the 2013 level of 1.6 percent of GDP to 1.5 percent of GDP in 2014, total revenues were still up from 14.9 percent of GDP in 2013 to 15.1 percent of GDP in 2014. This has happened even without new tax laws. A major part of this uptrend can be attributed to the expansion of economic activities and the reform efforts of the Bureau of Internal Revenue and the Bureau of Customs. Still,

the Philippines has a long way to cover in catching up with its ASEAN neighbors in revenue generation. Its revenue-to-GDP ratio is still way below the ASEAN average of 19 percent.

Balance of paymentsFor the first time in 10 years, the Philippines registered a balance-of-payments deficit in 2014, which was USD -2.86 billion or -1 percent of GDP (Table 1.5). Since 2004, the country had enjoyed a balance-of-payments surplus, meaning more funds flowed in than out of the country as Filipinos conduct economic transactions with the rest of the world. The 2014 deficit, however, is not alarming as it was reversed in the first few months of 2015. Moreover, as Table 1.5 shows, the current account continued to enjoy a large surplus in 2014. Remittances, which are reckoned under the secondary income subaccount of the current account, continued to be large. Averaging at around 9 percent of GDP, it led to the formation of current account surpluses for the past years (Table 1.6).

The financial account recorded a large net inflows in 2014, owing to substantial net inflows from portfolio investments and other investments. The environment during the year had been favorable


Table 1.4. Selected indicators of fiscal performance, 2014 (in PHP billion unless otherwise indicated)

Programmed Actual Difference

Revenues 2,018.10 1,908.50 (109.60) -5%

Expenditures 2,284.30 1,981.60 (302.70) -13%

of which:

Interest payments 352.65 321.20 (31.45) -9%

Other expenditures 1,931.65 1,660.40 (271.25) -14%

Fiscal surplus / (Deficit) (266.20) (73.10) 193.10 -73%

Fiscal surplus / (Deficit) as % of GDP 0.6%

Note: Figures may not add up due to rounding.Source: Bureau of the Treasury (BTr) 2015

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Figure 1.5. National government debt stock

0%

10%

20%

30%

40%

50%

60%

2008 2009 2010 2011 2012 2013 2014

% o

f GDP

Domestic External

Source: BTr (2015)

Figure 1.6. Government revenues

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

2008 2009 2010 2011 2012 2013 2014

% o

f GDP

Tax revenues Nontax revenues

Source: BTr (2015)

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to a dollar, Philippine equity prices steadily climbed during the year (Figure 1.7), with the stock exchange index ending at 7,230.57 points on the last trading day of 2014, which is 22.76 percent higher than the 2013 index.

Price movementsInflation was kept within the target range of 3–5 percent, except in December when it settled at 2.7 percent (Figure 1.8). There were slight increases during the second quarter and the beginning of the third quarter led by food inflation, which was driven by weather-related production disruptions and supply-side bottlenecks such as the decline in buffer stocks of rice and the temporary rice shortages due to failed import bidding. The Manila port congestion also induced bottlenecks in the supply chain. Nonfood inflation was relatively lower throughout the year although electricity, gas,

Table 1.5. Balance of payments, 2008–2014 (in USD million)

2008 2009 2010 2011 2012 2013 2014

Current account 144 8,448 7,179 5,643 6,949 11,384 12,650

Export of goods and services, income receipts

70,775 66,603 79,211 83,836 95,137 97,886 104,879

Import of goods and services, income payments

70,631 58,155 72,032 78,193 88,188 86,502 92,228

Capital account 110 90 88 160 95 134 101

Capital account – receipts 127 98 98 189 111 151 114

Capital account – payments 17 8 10 29 16 18 13

Financial account 1,370 (896) (11,491) (5,319) (6,748) 2,230 10,084

Financial account – net acquisition of financial assets

(4,598) 2,621 945 593 3,846 6,337 15,986

Financial account – net incurrence of liabilities

(5,968) 3,517 12,436 5,912 10,594 4,106 5,901

Net unclassified items 1,204 (3,013) (3,515) 279 (4,556) (4,202) (5,525)

Overall BOP position 89 6,421 15,243 11,400 9,236 5,085 (2,858)

Overall BOP position as % of GNI 0.0 2.9 6.3 4.2 3.1 1.6 -0.8

Overall BOP position as % of GDP 0.1 3.8 7.6 5.1 3.7 1.9 -1.0

Source: BSP 2015

for portfolio investors as quantitative easing in Japan and the EU region led to an expansion of hot money, which found its way into emerging markets like the Philippines and pushed equity prices upward. Amid a stable exchange rate averaging at PHP 44.4


Table 1.6. Overseas Filipinos’ cash remittances, 2008–2014

YearLevel

(in USD ‘000)Growth Rate

As % of GDP

2008 16,426,854 13.7% 9.5%

2009 17,348,052 5.6% 10.3%

2010 18,762,989 8.2% 9.4%

2011 20,116,992 7.2% 9.0%

2012 21,391,333 6.3% 8.5%

2013 22,968,233 7.4% 8.4%

2014 24,307,583 5.8% 8.5%

Source: BSP (2015)

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and other fuels rose higher than the threshold rate of 5 percent in the first quarter mainly due to higher electricity charges.

Starting September, inflation slowed down as nonfood inflation decelerated owing to lower price of petroleum products in the global market. The price of LPG exhibited the most dramatic decline,

followed by kerosene and diesel oil. Reductions in the price of gasoline, however, exhibited a time lag relative to other petroleum products (Figure 1.9). The major rollbacks in gasoline pump prices occurred only in December.

Interest rates were relatively higher in end-2014 than in end-2013 (Figure 1.10). This is to be

Figure 1.8. Monthly inflation rate (headline rate), 2014

0

1

2

3

4

5

6

Infla

tion

rate

(%)

Inflation target range Headline inflation rate (2006=100)

Source: PSA (2015)

Figure 1.7. Exchange rate and stock prices

0

10

20

30

40

50

60

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000Jan-01

May-01

Sep-01

Jan-02

May-02

Sep-02

Jan-03

May-03

Sep-03

Jan-04

May-04

Sep-04

Jan-05

May-05

Sep-05

Jan-06

May-06

Sep-06

Jan-07

May-07

Sep-07

Jan-08

May-08

Sep-08

Jan-09

May-09

Sep-09

Jan-10

May-10

Sep-10

Jan-11

May-11

Sep-11

Jan-12

May-12

Sep-12

Jan-13

May-13

Sep-13

Jan-14

May-14

Sep-14

Exch

ange

Rat

e

Phili

ppin

e st

ock

mar

ket

com

posi

te in

dex

Stock prices Exchange rate

40

45

50

55

60

5,4005,6005,8006,0006,2006,4006,6006,8007,0007,2007,400

Jan-14

Feb-14

Mar-14

Apr-14

May-14

Jun-14

Jul-1

4Au

g-14

Sep-14

Oct-14

Nov-14

Dec-14

Exchange rate and stock prices 2014

Stock prices Exchange rate

Source: Philippine Institute for Development Studies (2015)

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Figure 1.9. Monthly average wholesale (pump) prices of oil products, 2008–2014

0

10

20

30

40

50

60

70Mar-08

Jun-08

Sep-08

Dec-08

Mar-09

Jun-09

Sep-09

Dec-09

Mar-10

Jun-10

Sep-10

Dec-10

Mar-11

Jun-11

Sep-11

Dec-11

Mar-12

Jun-12

Sep-12

Dec-12

Mar-13

Jun-13

Sep-13

Dec-13

Mar-14

Jun-14

Sep-14

Dec-14

PHP

per l

iter

Gasoline Kerosene Diesel oil LPG

Note: Monthly average prices except for January 2008–January 2009, which are as of end of the month.Source: Department of Energy (2015)

Figure 1.10. Philippine benchmark yield curve

0

1

2

3

4

5

6

7

0 5 10 15 20 25

yiel

d (%

)

Years to maturity

29 December 2014 27 December 2013

Source: Philippine Dealing & Exchange Corporation (2015)

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expected as the Bangko Sentral ng Pilipinas (BSP) countered the effects of rising inflation during the second quarter to early third quarter by raising interest rates by 25 basis points in July and September and the interest rate on special deposit accounts by 25 basis points in September. Local banks and issuers of debt papers then aligned their interest rates with these policies. What is interesting though is that the interest rate for longer maturities did not follow this increasing trend and the 25-year rate in fact was at a lower level. This suggests that an excess supply of long-term capital may have been pushing down the long-term reference rate. Indeed, in the face of large liquidity in the domestic capital market, the demand for domestic long-term capital is yet to catch up and the financial sector’s efforts to mobilize such leave much to be desired. This and the fact that the economy needs more long-term and productivity-enhancing investments on infrastructure, research and development, and innovations should challenge financial intermediaries and regulators.

Job creationMore jobs were created during the year as evidenced by the steadily decreasing unemployment rate. Starting from 7.5 percent in January 2014, the unemployment rate went down to 7 percent in April 2014, 6.7 percent in July 2014, and 6 percent in October 2014 (Figure 1.11).

Based on the latest October year-on-year data, there was a 2.77-percent growth in employment with the fastest growth observed in the industry sector. The services sector had the largest contribution to employment growth, particularly the jobs for service workers, and shop and market sales workers. The next highest contribution came from jobs for farmers, forestry workers, and fishermen, followed by jobs for laborers and unskilled workers. The fastest employment growth was observed in the category of technicians and associate professionals.

Meanwhile, the rate of underemployment exhibited a worsening state. It started at a lower rate of 17.5 percent in January, but increased to 18.2 percent in

Figure 1.11. Unemployment and underemployment

7.5 7.3 6.5 7.5 7 6.7 6

19.2 19.2 17.9 17.5 18.2 18.3 18.7

0

5

10

15

20

25

Apr 2013 Jul 2013 Oct 2013 Jan 2014 Apr 2014 Jul 2014 Oct 2014

in p

erce

nt

Unemployment rate Underemployment rate

Source: PSA (2015)

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April, then 18.3 percent in July, and then 18.7 percent in October (Figure 1.11). Underemployment worsened the fastest in the industry sector, but in terms of weighted contribution, it exacerbated most substantially in the services sector. Underemployment grew faster among males than among females, suggesting that males are more affected. Underemployment also worsened the fastest among those with postsecondary (e.g., vocational, technical, and diploma course) education, followed by college graduates and those with some college units. Relative to the less educated (i.e., the survey categories ‘no grade completed’, ‘elementary undergraduate’, and ‘elementary graduate’), those who have better education were more affected. Underemployment was found to be prevalent among high school graduates and undergraduates, followed by college graduates and undergraduates.

The PSA defines the underemployed as a currently employed person who desires to have additional hours of work, or to have an additional job, or to have a new job with longer working hours. Thus, the trends indicate a generally low quality of existing jobs in the sectors wherein underemployment is increasing, or a generally growing dissatisfaction of the age groups wherein underemployment is increasing, or a combination of both. The issue of rising underemployment should be a challenge to both the public and private sectors to play a more active role in creating quality jobs.

Prospects for 2015 and beyondAt the global level, the prospects for 2015 are positive. The world economy is forecast to grow at 3.5 percent, slightly higher than the 3.3-percent global growth in 2014 (Table 1.7). Lower oil prices are expected to boost global growth by further lifting the consumers’ purchasing power and enhancing demand for consumption goods in oil-importing economies.

The United States is forecast to grow moderately stronger, Japan and the Euro area are

expected to have marginal recovery, and China’s high growth is expected to continue decelerating (IMF 2015b). Most economies in the ASEAN region will be able to maintain their steady growth, supported by the recovery in major developed economies and positively influenced by lower global commodity prices (ADB 2015a).

The outlook for the Philippines in 2015 is a strong GDP growth of 6.8 percent, which is anchored on the continuation of the strong growth of household final consumption and a revitalization of government consumption. Given the PSA’s 2015 population projection of 101.56 million and this Economic Policy Monitor’s 2015 growth outlook, the GDP per capita growth is expected to be 5 percent in 2015 (Table 1.8).

Lower oil prices, higher purchasing power of remittances, and early election spending will be the


Table 1.7. Global and regional outlook, 2015

Growth Rates (in %)

World 3.5

United States 3.1

Japan 1.0

Euro area 1.5

China 6.8

ASEAN

Brunei Darussalam –0.5

Cambodia 7.2

Indonesia 5.2

Lao PDR 7.3

Malaysia 4.8

Myanmar 8.3

Philippines 6.7

Singapore 3.0

Thailand 3.7

Viet Nam 6.0

Sources: IMF (2015b), ADB (2015a)

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main drivers of high consumption growth. The lower oil prices in the global market will redound to lower pump prices of petroleum products domestically and thus will increase the net disposable income of Filipinos. The anticipated depreciation of the peso due to policy normalization in the United States will increase the purchasing power of Filipino remittances, most of which go to household final consumption. Preparations for the coming election year are also likely to start in 2015 and these will have a positive impact on final demand.

Government spending is likely to have a boost in 2015. Given the underspending in 2014 and the large gap to be filled in public infrastructure investments, the government will be pressured to accelerate the utilization of the budget and ensure that programmed investments are implemented according to plans.

Growing investments in the industry and services sectors is expected to continue given the continuing stability of the country’s macroeconomic fundamentals, which could either prompt an investment credit upgrade or the maintenance of the existing credit rating. Domestic investments will continue to be supported by the liquid domestic capital market and greater business confidence. The reduction of restrictions in the 10th Foreign Investment Negative List (i.e., allowing 100% foreign ownership of lending firms, investment houses, and financing companies and reducing the number of professions reserved only for Filipinos) can encourage the entry of more foreign investors. The continuing

roll-out of the public-private partnership (PPP) program is also expected to attract more partnerships between local and foreign investors.

The growth of net exports is expected to be moderate given that there are residual concerns over the backlogs caused by the Manila port congestion during the most part of 2014. The continuing high cost of electricity and unreliability of electricity supply in areas affected by tight reserve margins are also affecting the profit margins of exporters. Nevertheless, the anticipated continuation of lower oil prices will dampen the cost impact of electricity supply concerns.

The risks to this short-term outlook include the possible decline in government revenues due to various reasons, the risk of price reversals in the equity market, problems that may arise from our overstretched physical infrastructure, possibly lower-than-expected exports, and weather-related risks to farm output. Government revenues could decline in 2015 due to lower customs revenues from oil imports and newly implemented tax policies like the tax exemption of workers’ de minimis benefits and productivity incentives as well as the higher tax exemption ceiling on the 13th month pay. Equity price shifts and capital outflows are also possible if the financial market will overreact to the impending increase in US policy rates and lose confidence on the return expectations of publicly listed firms. The country’s overstretched physical infrastructure (i.e., ageing power plants and tight power supply margin, port congestion, airport congestion, and urban transport congestion) may also result in problems in the logistics supply chain and add costs to production in case major breakdowns occur. Exports could also be lower than expected if the country’s competitiveness is further outpaced by its ASEAN neighbors’ growing competitiveness and responsiveness to GVCs. The level of farm output is also endangered by the El Niño phenomenon and the usual typhoon-related disturbances throughout the year. To mitigate such risks, the government needs

Table 1.8. Growth outlook for the Philippines, 2015

2015

GDP growth 6.8 percent

GDP per capita growth 5 percent

Source: Author’s calculations

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to closely monitor developments and, if needed, use policy levers (such as fiscal and monetary policies) that could influence inflation and aggregate demand.

Beyond 2015, the 7- to 8-percent growth target of the government may be attainable, depending on the implementation of certain measures that could increase the likelihood of success. The government should prioritize the electric power supply reliability issue and optimize the benefits from the oil price declines. It should also monitor regional and global developments that could present opportunities to join GVCs or reveal risks to trade and remittance flows (e.g., the EU deflation and Middle East geopolitical tensions). The government should also facilitate the transmission of resources from the financial to the real sector and take steps to close the savings and investment gap.

Ensuring the reliability of power supplyMany energy sector stakeholders view the problem of thin supply margin in the generation sector as a result of the delays in the construction of new power plants and unreliability of some existing power plants. Thus, efforts must focus on fast-tracking the addition of new capacity and improving the reliability of existing plants. In particular, the approval process for new generating plants must be streamlined. A Department of Energy Task Force report stated that about 162 environmental and other clearances are required in order to put up a power plant in the Philippines (DOE 2014). Power plant outages are also reducing the available capacity and undermining power supply reliability. Full and accurate audit of power plants as well as coordination and synchronization of maintenance to minimize supply interruptions are thus necessary.

Taking advantage of the oil price decreaseRecent trends in global oil prices show slight increases. The price appears to be normalizing at a higher level than the end-2014 prices. Forecasts converge at

USD 70 per barrel, but this is still relatively low compared with the prices since 2010, which hovered above or near USD 100 per barrel.

The government should ensure that the lower global oil prices will get translated, in an accurate and timely manner, into lower domestic prices of petroleum and petroleum products, and ultimately, lower prices of goods and services that are using such products as inputs. One frequent complaint in the Philippines when global oil prices decline is that the adjustment of domestic prices takes time and, in some cases, there are rigidities in the adjustments, such as transportation fare adjustments. If the impacts of oil price declines are reflected accurately in terms of lower cost of production by domestic firms, ripple effects on purchasing power improvement and product competitiveness increase can be expected. It has been said that the Philippines could be the biggest GDP gainer under simulations where oil prices would slump to as low as USD 40 per barrel over the next two years (cnbc.com 2014).

Monitoring regional and global developmentsOpportunities to join GVCs exist for many Southeast Asian economies with the slowdown of China’s growth and the increasing cost of Chinese labor that is driving multinational and transnational manufacturing firms to look for alternative locations. The government must therefore aggressively monitor the emergence of such opportunities and position the Philippines as a desirable alternative. Moreover, given that its ASEAN neighbors are improving their competitiveness through measures such as reducing the cost of doing business and improving the logistics and information and communication technology infrastructure, the country must also strive to improve its competitiveness and do better than its nearest ASEAN comparator.

The deflation and consequent aggregate demand decline in the EU region could affect the


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Philippines through trade channels. The continuing geopolitical tensions in the Middle East could affect the Philippines through the remittance channels. Although the International Monetary Fund indicated that as of October 2014, the macroeconomic effects of such developments appear mostly confined to the regions involved, it is important for the Philippines to monitor the risks and prepare to mitigate impacts given the importance of the channels through which adverse developments could affect the country (IMF 2014).

Facilitating the transmission of resources from the financial to the real sectorGiven a large domestic liquidity, there is a need to channel this to the real sector such as the nonfinancial corporate sector that is currently in a production and investment expansion mode; otherwise, too much capital will be chasing the same tradeable equities and this could lead to overvaluation and increased risk of portfolio capital flow reversals. The transmission can be done through credit as the transmission channel. This is an opportune time to do it because of the impending increase in US interest rates, a normalization to the usual higher levels as financial sector observers say, and the corporate sector can use some rebalancing of their leverage by using domestic credit to fund their expansion activities and refinance some of their variable foreign exposures using fixed rates (Box 1.1).

Taking steps to narrow the savings-investment gapComparing investments relative to savings, it cannot be denied that there is serious underinvestment in the Philippines. The savings-investment gap is simply huge and it has been this way for many years (Figure 1.12).

Specific recommendations to address the problem of narrowing the gap have usually focused on the supply side of capital, specifically recommendations on mobilizing savings, setting up of more bank branches, promotion of financial

literacy, and lowering the reserve requirement for banks. Policymakers should also take heed of recommendations that address the demand side. For instance, massive and aggressive market research and project development activities in agribusinesses and local government-level infrastructure can be combined with project pooling and provision of credit enhancements (e.g., through loan portfolio guarantees) to create demand for capital. Financial intermediation of this sort has been initiated through small and medium enterprise (SME) banking, although this still has to be expanded within and beyond SMEs and made more dynamic, with specific focus on identifying niche markets and bringing down barriers to entry in those markets (e.g., ASEAN markets). Market research and project development should also be dynamic, with the end in view of creating a steady pipeline of potential investment portfolios for banks and bankable local infrastructure projects for local government units and potential partners. Communication and coordination between the government and financial sector representatives to identify ways of proceeding with and possible support to this demand-side recommendation can be a good start.

Policymakers should also consider the creation of a conducive environment for pursuing and commercializing innovations. There are existing grant incentives for inventors and innovators but promoting innovations seems to require more than this kind of incentives scheme. The Philippines needs to accelerate the development of national quality infrastructure for its products and services. Such infrastructure refers to institutions, framework, methodologies, and facilities for product and service quality standards, testing, certification, metrology, and branding. Fostering a culture of venture capitalism through technology intermediaries and “angel investors” could also help. One possible reason why this type of intermediaries and investors has not emerged in the Philippines is the

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Box 1.1. Possible impacts of the US policy normalization and the corporate sector’s leverage

The impending rise in US interest rates and the consequent attractiveness of US securities can cause the US dollar to depreciate. The speculation that the value of the US dollar will rise in the future tends to increase the demand for the US dollar and fuels the appreciation tendencies. The Fed’s raising of US interest rates will also signal that the US economy is healthy enough to handle such increase. On balance, this could positively impact the Philippine economy and the channels through which the effects may be felt include the trade, remittance, and tourism channels.

Philippine trade may be positively affected given two impacts: (i) the US dollar appreciation leading to peso depreciation, which will make Philippine exports to the United States more competitive; and (ii) the increased aggregate demand in the United States leading to higher demand for Philippine exports given that the United States is the Philippines’ third largest country trading partner, next to Japan and China. The Philippines can also expect positive impacts through remittances given that the United States is the top source of overseas Filipino workers’ remittances. Tourism revenue receipts could also grow as the United States ranks as the Philippines’ second top tourism market, next to Korea.

Relative to other emerging markets, the Philippines’ vulnerability to capital market swings arising from US policy normalization may be less given that the national government’s external debt has been declining and is well-managed, FDIs are influenced more by the cyclical pattern in risk aversion due to political uncertainties, and it is still an unsettled debate whether Philippine equity prices are overvalued or only reflecting strong growth potential.

However, leverage is starting to be a cause for concern. Overall, it has been assessed by some as being in the “Goldilocks zone” (Standard Chartered 2013), meaning, neither too hot nor too cold, or neither too high loan exposure to risk vulnerability or too low to stymie productive capacity. However, leverage in the corporate sector may be showing some risks. The growing leverage of the country’s big conglomerates, many of which are into infrastructure investment expansion such as energy generation and PPP investments, may be a source of vulnerability. Standard & Poor’s monitored 17 Philippine companies and estimated that debt held by these companies rose too fast and nearly trebled in the first quarter of 2014 from end-2008 (Bloomberg 2014a). The loss of confidence in one Philippine conglomerate’s inability to service debt can have adverse confidence implications on other conglomerates. The conglomerates can take precautionary action by fixing some of their floating obligations through debt refinancing and by tapping the liquid domestic market, such as through retail corporate bonds and preferred shares issuance. The government, in addition to the precautionary measures in the whole financial sector by the BSP, can also try to deepen and broaden the infrastructure PPP contractor pool to spread risks.

Source: Author’s analysis


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misperception of risk due to information asymmetry. Currently, there are many blind spots in the innovations area because of the outdated science, technology, and innovation (STI) information and inadequate STI indicators in the Philippines.

This sad state of affairs has resulted in blind spots not only for potential investors but also for policymakers who are responsible for STI. For example, the latest Compendium of Science and Technology Statistics released by the Department of Science and Technology (DOST) and the latest PSA’s Philippine Statistical Yearbook are both reporting 2009 data on research and development indicators, yet it is already 2015. This may be explained by the fact that the processing of surveys, which are the sources of such data, takes a long time (e.g., the report on the 2013 Annual Survey of Philippine Business and Industry will be available only in October 2015). The Philippines is also reporting more on inputs (e.g., expenditures, labor inputs) and less on outputs or outcomes.

Yet it is possible for stakeholders to be able to access more timely and useful information if the government would only start reporting additional relevant indicators, such as: (i) technology balance of payments, (ii) commercialization of inventions and innovations, (iii) sectorally classified patents and designs, and (iv) structure of government budget allocation for STI. Reporting these need not involve expensive and time-consuming surveys. Other countries are able to access data on these indicators from their own government agencies and the Philippines might be able to do so as well. On technology balance of payments, central banks collect information on foreign exchange transactions (payments and receipts) involving license fees, patents, purchases and royalties, technological know-how, and research and technical assistance. The information may already be at the BSP, or a process re-engineering may only have to be required so that these are reported. On commercialization of inventions and innovations, the DOST may be asked to do a systematic reporting

Figure 1.12. The savings-investment gap, 2009–2013

0%

5%

10%

15%

20%

25%

30%

35%

2009 2010 2011 2012 2013

% o

f GN

I

Savings rate Investment rate

Source: BSP (2015)

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I

of this considering that a unit in the DOST that is in-charge of technology adoption is already monitoring this in its annual reports. On sectorally classified patents and designs, the Intellectual Property Office of the Philippines (IPOPHL) is the lead agency responsible for handling both the registration of and the conflict resolution in intellectual property rights, but the statistics the office is reporting consist mostly of enforcement statistics (e.g., seizures of counterfeit goods and pirated items). Since the IPOPHL holds the registration data for property rights, it may be asked to report these per economic sector classification. On the structure of government budget allocation for STI, the DOST may work hand-in-hand with the Department of Budget and Management in regularly reporting the STI budget based on the following United Nations Educational, Scientific and Cultural Organization/Organisation for Economic Co-operation and Development classification of STI budgeting activities: scientific and technological education and training, research and development, scientific and technological services, and innovation.

The idea of pursuing market expansion and innovations discussed above holds much promise in sustaining high growth in the long run. In addition, since long-run growth is a function of productivity, investments in infrastructure, connectivity, and human capital should also be sustained. The pursuit of good governance and demonstration of strong political will should also be continued. Strategizing for long-run growth should also aim to protect economic gains from climate-induced external shocks by building climate change resilience in various sectors of the economy.

ReferencesAsian Development Bank (ADB). 2015a. Asian

Development Outlook: Financing Asia’s future growth. Mandaluyong City, Philippines: ADB.

———. 2015b. Statistical Database System. Mandaluyong City, Philippines: ADB. https://sdbs.adb.org/sdbs/ (accessed on January 15, 2015).

Bangko Sentral ng Pilipinas (BSP). 2015. Economic and Financial Statistics database. Manila, Philippines: BSP. http://www.bsp.gov.ph/statistics/efs_bop2.asp (accessed on February 15, 2015).

Bloomberg. 2014a. Debt-hungry Philippine firms exposed as markets falter. October 17. http://www.bloomberg.com/news/articles/ 2014-10-16/debt-spree-exposes-philippine -companies-as-world-outlook-dims (accessed on February 13, 2015).

———. 2014b. Growth slows, but Xi is confident in China’s ‘new normal’ economy. November 13. http://www.bloomberg.com/bw/articles/ 2014-11-13/growth-slows-but-xi-confident -in-chinas-new-normal-economy (accessed on January 15, 2015).

Bureau of the Treasury (BTr). 2015. Statistical Database. Manila, Philippines: BTr. http://w w w. t r e a s u r y. g o v. p h / ? p a g e _ i d = 7 4 6 (accessed on February 15, 2015).

cnbc.com. 2014. Oil price fallout: Producers struggle as GDP grows. December 11. http://www.cnbc .com/id/102260120# (accessed on December 18, 2014).

Department of Energy (DOE). 2014. Final Report of the Task Force to Study Ways to Reduce the Price of Electricity. Unpublished report.

———. 2015. Oil Price Monitoring database. Makati City, Philippines: DOE. https://www.doe .gov.ph/oil-price-monitoring (accessed on January 15, 2015).

International Energy Agency (IEA). 2015. Oil Market Report database. Paris, France: IEA. https://


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www.iea.org/oilmarketreport/omrpublic/ (accessed on January 15, 2015).

International Monetary Fund (IMF). 2014. World Economic Outlook: Legacies, clouds, uncertainties - October 2014. Washington, D.C.: IMF.

———. 2015a. IMF Commodity Prices database. Washington, D.C.: IMF. http://www.imf .org/external/np/res/commod/index.aspx (accessed on January 15, 2015).

———. 2015b. World Economic Outlook 2015 Update. Washington, D.C.: IMF.

Llanto, G. and A. Navarro. 2014. Development finance and aid assessment: The Philippines. Pasig City, Philippines: United Nations Economic and Social Commission for Asia and the Pacific and National Economic and Development Authority.

Philippine Dealing & Exchange Corporation (PDEx). 2015. Philippine Dealing Exchange System. Makati City, Philippines: PDEx. http://www.pdex.com.ph/ (accessed on January 15, 2015).

Philippine Institute for Development Studies (PIDS). 2015. Economic and Social Database. Makati City, Philippines: PIDS. http://econdb.pids.gov.ph/tablecategories/index/5 (accessed on January 15, 2015).

Philippine Statistics Authority (PSA). 2015. Economic statistics tables. Manila, Philippines: PSA. http://nap.psa.gov.ph/stattables/ (accessed on February 15, 2015).

Standard Chartered. 2013. Asia leverage uncovered. Global Research, July 2013. https://www . s c .co m / j p / _ d o c u m ent s / j p / rep o r t s /economist-reports/Scout-Asia-leverage -uncovered-01072013.pdf (accessed on February 13, 2015).

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IIPolicy Updates

This chapter presents some of the relevant policies that were considered and adopted by the Philippine government in 2014 in response to key development challenges and opportunities in the international and domestic fronts. The policies mentioned here are

those that occupied policymakers during the year and have significant potential impacts for the country. Along with basic information about these policies are the implications for the concerned sectors and the remaining policy gaps that require attention.

Poverty and social protectionIn 2014, a number of policies related to poverty and/or social protection were passed and implemented. One of these is Republic Act (RA) 10645, which provided mandatory Philippine Health Insurance Corporation (PhilHealth) coverage for all senior citizens who are not currently covered by the National Health Insurance Program (NHIP). Specifically, this group of senior citizens is composed of any of the following subgroups: (1) members in the formal or informal economy but have no qualifying contributions to be entitled to the program benefits; (2) not identified as indigents under the Listahanan of the Department of Social Welfare and Development (DSWD); (3) not classified as sponsored members; (4) not yet qualified as lifetime members; and (5) qualified dependents of an NHIP member (either a senior citizen or not). Enacted on November 5, 2014, this act superseded RA 9994 or the Expanded Senior Citizens Act of 2010 and is the amended version of RA 7432 or the Senior Citizens Act, which covered only the indigent senior citizens. All senior citizens, regardless of socioeconomic status, can now have access to free health insurance coverage that would help them mitigate risks against ill health.

Celia M. Reyes, Aniceto C. Orbeta Jr., Marife M. Ballesteros, Roehlano M. Briones, Danilo C. Israel, Erlinda M. Medalla, Ramonette B. Serafica, and Adoracion M. Navarro

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Moreover, recognizing the importance of crop insurance as a safety net for farmers and fisherfolk, the national government has provided the Philippine Crop Insurance Corporation with increased subsidy. The year 2014 was also the first time that it mandated the use of the Registry System for Basic Sectors in Agriculture for identifying beneficiaries of the free insurance premiums for subsistence farmers and fisherfolk for crop, livestock fisheries, and noncrop agricultural asset insurance.

Another policy related to social protection implemented in 2014 is RA 10644. This law promotes job generation and inclusive growth through the development of micro, small, and medium enterprises (MSMEs). Also known as the Go Negosyo Act, it encourages the establishment of negosyo (business) centers in all provinces, cities, and municipalities to promote ease of doing business and access to services for MSMEs in those areas. MSMEs play a critical role in economic development by providing employment to a significant proportion of the country’s labor force (SEPO 2012). Capacity-building and productivity-enhancing services provided to MSMEs could protect the poor and other vulnerable sectors of the Philippine society from income shocks.

Additionally, in August 2014, Senator Paolo Benigno Aquino IV refiled the Magna Carta for the Poor (under Senate Bill 2370) and in December 2014, Senator Loren Legarda did the same (under Senate Bill 2515). This proposed law was approved by Congress on its third and final reading in 2013 but was vetoed by President Aquino in March 2013 due to lack of sufficient funding and his disagreement with some of the points stipulated in the bill1. In January 2015, the Senate and Congress pushed for its immediate passage. The newly filed bills primarily aim to institutionalize

1 Among other things, ...

an “area-based, sectoral, and focused intervention to poverty alleviation” as well as protect and promote the basic rights of every Filipino that are considered important factors in attaining poverty reduction—rights to food, employment, education, shelter, and health care. Government agencies are mandated to come up with a National Poverty Reduction Plan (which is a consolidation of sectoral and local plans through a bottom-up approach) to ensure that these basic rights of the poor would be assured. The bills also require the prioritization of government programs that would enable the poor to fully participate in the growth and development process. Furthermore, the bills specify that the National Economic and Development Authority shall design and establish a single system of classification to be used for targeting beneficiaries of the government’s antipoverty programs and projects to ensure that the intended beneficiaries are reached. In addition, the bills stipulate that the government shall implement poverty reduction programs through a system of progressive realization. This system acknowledges the fact that poverty reduction will not be achieved in a short period of time and its realization is progressive by expeditiously and effectively moving toward that goal.

In December 2014, through RA 10652, supplemental appropriations amounting to PHP 22.47 billion for fiscal year 2014 was allocated to finance important government programs and projects, including those related to poverty and social protection. Out of this amount, PHP 1.94 billion will be spent for the updating of the National Household Targeting System for Poverty Reduction and PHP 2.08 billion for emergency shelter assistance and construction of 27,313 units of permanent housing for Typhoon Yolanda victims.

1 Among other things, President Aquino disagreed with the following points in the proposed Magna Carta for the Poor: (1) the non-inclusion of the phrase “progressive realization”, which “could have removed the burden on the part of the government”; (2) two provisions in Section 4 stating that the poor shall enjoy the right to food, employment and livelihood, quality education, shelter, and basic health services and medicines; and (3) the phrase “the government shall, as a matter of duty and obligation, provide the requirements, conditions, and opportunities for the full enjoyment of these rights…which the poor can demand as a matter of right” (AJ Press 2013).

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Extending the age coverage of the 4Ps The Pantawid Pamilyang Pilipino Program (4Ps), the Philippines’ conditional cash transfer (CCT) program being implemented by the DSWD, was originally aimed at providing economic assistance to poor Filipino households on the condition that they invest in the education, health, and nutrition of their household members, particularly those of their children 0–14 years old, and that they improve their availment of maternal health services. The cash grant for education amounts to PHP 300 per child per month for 10 months of the school year (for a maximum of three children per household), while for health and nutrition, it is PHP 500 per month.

During the 2013 State of the Nation Address2 of President Aquino, he announced the government’s decision to expand the 4Ps by extending the age coverage of children beneficiaries to include 15–18 year olds to allow them to finish high school. This decision was largely based on the policy recommendation of the Philippine Institute for Development Studies (PIDS) study of Reyes and Tabuga (2013) to deepen the impact of the 4Ps. By extending the program’s coverage to older children, 4Ps beneficiaries would have better chances of finding a job that can provide higher wages. The PIDS authors noted that the wages received by high school graduates are 40 percent higher compared with that received by those with lower levels of education.

Other bases for the Expanded CCT Program include the results of the first wave of impact evaluation studies of the 4Ps as reported by Chaudhuri et al. (2013) and Paqueo et al. (2013).

The 4Ps has been extensively scrutinized given its huge budget allocation. Critics contend that the program is an expensive dole-out for the poor, encouraging mendicancy, that there are targeting errors in identifying the beneficiaries, and that it is

2 http://www.gov.ph/sona-2013/

ineffective because official poverty rates have been practically unchanged since its implementation.

While the 4Ps’ budget may seem huge, the reality is that the cash grants are not enough for poor households to cross the poverty line. Nevertheless, the grants help in augmenting the income of the poor. David and Albert (2015) also indicate that the 4Ps, together with improved resources for education and the policy on mandatory kindergarten, have brought the country closer to having more 5- to 15-year-old children in school. In 2013, the number of 5- to 15-year-old out-of-school children had fallen to 1.2 million from 2.9 million in 2008. Although there is still a considerable number of out-of-school children, it is clear from these figures that the government’s investments in the 4Ps and related education programs have started to pay off.

Critics have also failed to see that the 4Ps is not a dole-out as it does not follow the traditional approach of providing goods and services unconditionally to those in need, but rather attaches conditions to the availment of cash grants. By having these conditions, the program becomes a joint responsibility between the government and the 4Ps households. Attendance to the family development sessions is another requirement to ensure that household heads are educated on responsible parenting, health, and nutrition.

Poverty reduction through the 4Ps should not be expected in the short term. The real impacts would be visible when the children beneficiaries start joining the labor market armed with better education that will provide them with better income prospects, and thus substantially better chances for their families to move out of poverty. Extending the support to older children to enable them to finish high school will undoubtedly further improve the chances of poor families to escape from intergenerational poverty.

2 http://www.gov.ph/sona-2013/

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Beyond extending the assistance for children beneficiaries of the 4Ps, it would be crucial for the DSWD to increase the cash grants. Their current values have even been eroded by inflation. In the pilot program in 2006, the maximum cash grants for beneficiaries were a fourth (23%) of household income but this has went down to less than a tenth (7%) by 2013.

The uniform cash grants for boys and girls also need to be examined. The opportunity costs for sending children to school and keeping them enrolled is not homogenous: for boys (as against girls), for rural children (as against urban kids), and also for older kids, the costs are higher, so incentives for these children must also be higher. While high school beneficiaries are given monthly cash grants that are PHP 200 higher than those given to preprimary and primary school beneficiaries, it would be important for the DSWD to make corresponding adjustments to address different opportunity costs for boys and for girls, and for rural and urban children.

The 2014 World Development Report (WDR) of the World Bank (2014) describes various sources of risks to household welfare, and the need to manage these risks. The WDR explains that some of these risks are idiosyncratic and specific to individuals and households, such as illness, injury, disability, and death, while other sources of risks are systemic and cover groups of households, communities, regions, countries, such as epidemics and natural disasters. If designed and implemented well, social protection programs such as the 4Ps can be an effective means to manage these risks by assisting poor households (and communities) to build their assets, protect these assets when shocks occur, and use these assets more efficiently.

Higher education Meanwhile, there have been two important policy updates in the higher education sector. The first relates to the highly sensitive issue of tuition fee increases, which have also been the subject of student activism through

the years. The second refers to the student financial assistance system for higher and technical education.

Regulating tuition fee increases Only a small proportion, at most 30 percent, of higher education institutions (HEIs) applied for tuition fee increase between 2002 and 2013 based on Commission on Higher Education (CHED) data (Figure 2.1). Two-thirds of HEIs did not raise their tuition fees and weighed their options first, primarily for fear of losing students. High tuition fees are assumed to prevent students from enrolling. But empirical evidence from a PIDS-CHED 2015 study indicate that students generally do not consider fees as a deterrent in pursuing higher education. The same study also found a positive correlation between tuition fee and quality of education. It revealed a positive correlation between passing rates in professional board examinations and increases in tuition fees, which implies that the latter redound to improvements in the quality of HEIs. These results highlight the importance of guarding against opportunism of HEIs in applying for tuition fee increase even when they do not have sufficient evidence of the need for such.

Like all regulations in higher education, tuition fee regulation is governed by CHED Memorandum Orders (CMO). The most recent is CMO No. 2, Series of 2012, which identifies the factors that will be considered in applying for tuition increase; namely, (i) regional inflation rate; (2) financial standing of the institution; (3) financial capacity of the student body; (4) impact of force majeure or calamities; (5) quality track record of the school; and (6) mission and vision of the institution. This list of factors reveals the desire of CHED to be holistic. For an application to be considered, there are also procedural requirements that need to be met. These include consulting with the student body and the assurance that the 70-20 rule will be used in spending the proceeds from the tuition fee increase (i.e., 70% for faculty salaries and

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20% for improvement and modernization of buildings, equipment, libraries, laboratories, gymnasia, and similar facilities).

While these factors mentioned in the CMO are reasonable, determining what weight to apply to each item is contentious and may depend on the particular needs of an HEI. To address these issues, CHED will impose a simple rule beginning in 2015 that uses the regional “education deflator”3 as the cap for tuition fee increases.

The use of the education deflator provides a transparent rule on what are reasonable fee increases. All HEIs applying for a tuition fee increase higher than the deflator will have to justify their proposed increase and commit to improve the quality of their education outcomes. They will also be evaluated on a case-by-case basis. This conveys the important message that any tuition fee increase above the norm will have to be justified by improvements in education quality.

In addition, this new policy will allow the HEIs to recoup the additional cost from providing better-quality education services. Because quality education requires better and more inputs and thus imply

3 Deflators are common...

additional resources, this strengthens the argument that any request for tuition fee increases that is beyond the deflator needs to be justified by the promise to improve education quality.

The regulation will not cover autonomous HEIs as they are considered above average in quality. CHED can therefore assign its limited regional personnel to evaluate applications from HEIs of doubtful quality. This will free the commission from the tedious process of evaluating too many applications and can also encourage HEIs to aspire for autonomous status.

Examination-based selection in selecting grantees of financial assistance Another important development in the higher education sector is the recent passage in the joint congressional committee of the compromise version of the Unified Student Financial Assistance System for Higher and Technical Education (UniFAST) bill on June 23, 2015. This bill aims at rationalizing the highly dispersed modes of student financial assistance into a unified student financial assistance program consisting of grants-in-aid (GIA) for the disadvantaged but capable, scholarships

Figure 2.1. Percentage of HEIs that applied for tuition fee increase

Source of basic data: Author’s computation from Commission on Higher Education data

3 Deflators are common in national income accounting. These measure the changes in producer prices. As such, the education deflator measures the movement of the average cost of providing education services.

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for the intelligent, and student loans for the nonpoor but capable but who have temporary financial limitations.

One of the important features of the bill, which was discussed in the Economic Policy Monitor 2012, is the examination-based system for identifying and ranking applicants to ensure that only capable students will receive financial assistance. Having this system also promotes transparency in the selection of beneficiaries, which is crucial so that the selection process will be protected from political pressures. The system has differentiated eligibility cut-offs by type of financial assistance in which scholarships have a higher cut-off than GIA and loans.

This important feature of the bill was removed in the bicameral version. This is unfortunate as studies such as by Bettinger et al. (2013) clearly show that standardized college readiness examination scores are highly correlated with finishing a program and also finishing on time. Failure to finish the course and not finishing it on time are disadvantageous to both the student and the society. It is a waste of resources to provide assistance to those who have low chances of completing a course. In the case of loans, choosing grantees who are more likely to finish their courses improves the chances of achieving the program’s intermediate objective of repaying the loans and making the program sustainable. Finishing a course and finishing it on time also increase the chance of attaining the program’s ultimate objective of improving the individual’s life, contributing to poverty alleviation, and enhancing economic productivity.

While universities have entrance examinations that may arguably be used as a gauge in selecting grantees, there are two reasons why these cannot serve the purpose of the UniFAST. One, the examinations are not uniform across different universities and thus these may not provide a

standard indicator of student performance across HEIs. Two, many of the HEIs have an open admission policy or may not be using entrance examination scores seriously to sort their students as they may have other objectives, such as to expand enrollment, and may not have the students’ interest in mind to graduate from college.

HousingThe FIES 2012 estimates that there are over 700,000 informal settler families (ISFs) in the Philippines, a 150-percent increase or a 7.2-percent annual growth rate since 1991 (Table 2.1). This magnitude could be higher in reality as the FIES captures only one type of informal settler, the “illegal occupant”, which is defined as “a family occupying [a] lot or housing without [the] consent of owners”. It does not include the homeless as well as families living in danger areas (under the bridge, waterways, road easements), lands earmarked for infrastructure, and dilapidated/abandoned buildings, and other government and privately owned lands that are being rented out by non-owners. Government agencies led by the National Housing Authority (NHA) estimated over 1.5 million ISFs in the Philippines in 2011, of which about 40 percent or 584,000 families reside in the National Capital Region4.

Past administrations in the last two decades handled the ISF problem mainly through massive off-city resettlements that were far from places of work, other economic opportunities, and adequate social services. Case studies of selected resettlement sites noted that families who were resettled in off-city resettlements tend to return back to the cities and were also worse off in terms of livelihood, incomes, and social services than families living in near-city or in-city resettlements (World Bank 2012, 2015)5.

4 The survey was initiated by NHA ...5 Off-city resettlement refers to...

4 The survey was initiated by NHA in collaboration with local government units and the Department of Public Works and Highways.5 Off-city resettlement refers to relocation sites developed at the outskirts or urban hinterland while in-city resettlement site refers to a relocation site within the jurisdiction of the city, where the ISFs are living. Near-city resettlement refers to relocation site adjacent to the city where the affected ISFs have their settlements.

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Conversely, the Aquino administration has embraced an inclusive urban development agenda whereby people of varying income levels are integrated into the urban setting. The National Informal Settlement Upgrading Strategy (NISUS) was formulated in 2014 to serve as the overarching policy framework for upgrading informal settlements in the next 10 years (2016–2025). The NISUS envisions ISF communities “that are resilient; able to withstand climate change and natural disasters;

vibrant with socio-economic dynamism; with quality urban infrastructure and services, and connected by transport and telecommunication to employment, sources of livelihood, the urban economy, and the rest of the city” (HUDCC and WB 2014, p. vii).

Moreover, Congress endorsed House Bill 5144, which is intended to establish an in-city or near-city resettlement program for ISFs in accordance to a People’s Plan6. The Congressional Committee on Housing and Urban Development and the Senate

6 People’s Plan refers to the plan...6 People’s Plan refers to the plan formulated by the beneficiary-association in accordance with the Presidential Commission for the Urban Poor. The plan contains a site

development plan including nonphysical development components such as self-help housing cooperative, livelihood, and capability building.

Table 2.1. Growth and distribution of informal settler families (ISFs), 1991–2012

RegionNumber of

ISFs in 1991

ISF Distribution by Region in

1991 (%)

Number of ISFs in 2012

ISF Distribution by Region in 2012

(%)

Annual Percentage Growth Rate,

1991–2012 (%)

NCR - National Capital Region 65,865 23.4 286,366 40.5 15.9

CAR - Cordillera Administrative Region

81 0.0 776 0.1 40.8

Region I - Ilocos 6,534 2.3 8,813 1.2 1.7

Region II - Cagayan Valley 10,234 3.6 8,492 1.2 -0.8

Region III - Central Luzon 20,129 7.2 27,184 3.8 1.7

Region IVA - CALABARZON 21,514 7.7 77,049 10.9 12.3

Region IVB - MIMAROPA 4,444 1.6 7,778 1.1 3.6

Region V - Bicol 17,612 6.3 26,956 3.8 2.5

Region VI - Western Visayas 45,750 16.3 43,217 6.1 -0.3

Region VII - Central Visayas 12,057 4.3 66,546 9.4 21.5

Region VIII - Eastern Visayas 17,892 6.4 40,512 5.7 6.0

Region IX - Zamboanga Peninsula 4,936 1.8 27,513 3.9 21.8

Region X - Northern Mindanao 10,101 3.6 10,946 1.5 0.4

Region XI - Davao 16,383 5.8 12,691 1.8 -1.1

Region XII - SOCCSKSARGEN 8,261 2.9 28,739 4.1 11.8

Region XIII - Caraga 14,262 5.1 20,634 2.9 2.1

ARMM - Autonomous Region in Muslim Mindanao

4,948 1.8 13,046 1.8 7.8

Philippines 281,000 100 707,258 100 7.2

Source: Basic data from the Family Income and Expenditure Survey (FIES), National Statistics OfficeNotes: * Informal settler families have the tenure status of “rent-free without consent of owner”, which in the FIES is the sum of those with tenure status of

“own house, rent-free lot without consent of owner” and “rent-free house and lot without consent of owner”. * 1985–2009 values are estimates from the PIDS Economic and Social Database * 2012 values are estimates of the research team

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Committee on Urban Planning, Housing, and Resettlement (referred to as the Joint Committee) also organized a National Housing and Urban Development Summit to bring together stakeholders in the housing sector—government, private sector, and civil society—in the identification of key policy reforms that will create an enabling environment to help address constraints in the provision of affordable housing in the country. The policy reforms are bundled into four thematic areas that were identified from several studies and consultations as the major constraints to closing the affordable housing gap. These are: (1) land and housing specifically the issue on availability of land for ISFs and low-income families; (2) housing finance specifically the issues on effective subsidies for different segments of the market and the need to increase government housing expenditure; (3) participatory governance specifically the need to foster among local government units (LGUs) a city-wide approach to affordable housing and to improve national governance of shelter agencies; and (4) urban development specifically the need for better connectivity. The summit was launched on June 23, 2015 and to be implemented from July 2015 to March 2016.

The current administration’s agenda on inclusive urban development demonstrates a progressive view on shelter and urban development concerns. In-city or near-city resettlement, self-help, and People’s Plan are known international best practices in addressing urban growth and housing for the poor. In-city resettlement has welfare implications and also supports the development of compact cities that are considered more sustainable given more efficient use of land and provision of public services, less congestion due to commuting from suburbs to city center, less commuting time for all, and less environmental footprint and carbon emission (Kaji 2003).

Likewise, self-help and People’s Plan support participatory, people-driven housing development whereby the poor are the main actors and main solution-finders in their development. This approach has been feasible and affordable to the poor and has solved large and complex housing problems in a number of countries in South Asia (e.g., Sri Lanka, Nepal, Pakistan) and Southeast Asia (Thailand, Malaysia, Cambodia, and Viet Nam) [Boonyabancha 2005, 2009; ACHR 2014].

However, in-city developments imply higher-density development that entails more cost and thus may be less affordable to the poor compared to off-city resettlement. This implies the need for alternative forms of tenure rights on land such as community ownership or usufruct7. Unfortunately, these options are not yet acceptable to banks (including the Home Development Mutual Fund) as collateral for mortgage finance. Policy reforms are clearly needed in this aspect.

The current administration has also remained focused on homeownership. It overlooked the demand for rental housing that may arise from labor mobility, and income and demographic changes. The rental housing market has played a major role in the provision of affordable housing in many countries and thus the development of affordable rental housing in the formal market should not be neglected.

Housing constraints as mentioned in the agenda of the National Housing Summit are largely tied to land issues. Land administration and management in the country remain weak and policy reforms in this area have been hindered by the lack of coordination and information sharing among concerned agencies. The fact that land administration and management is not part of housing governance exacerbates the issue. Arriving at a consensus on policy reforms in the policy

7 Usufruct is the temporary right...7 Usufruct is the temporary right to the use and enjoyment of the property of another, without changing the character of the property.

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sector may prove to be the bigger challenge to tackle in the National Housing Summit.

AgricultureIn 2014, the growth of the agricultural sector continued to slow down. Whereas it registered at 2.0 percent in 2012 and at 1.2 percent in 2013, it was only 0.6 percent in the first three quarters of 2014. According to the Philippine Statistics Authority-Bureau of Agricultural Statistics, agricultural production increased by just 1.83 percent in 2014. It was pulled down by livestock (1.02%), poultry (0.27%), and fisheries (-0.15%), despite the growth in crops by 3.25 percent. Labor productivity in the sector also increased sluggishly, averaging only 2.5 percent per annum since 2011.

Food price inflation accelerated to a rapid pace, with a 7-percent growth in 2013–2014, compared to just 2.9 percent in 2013. Inflationary pressures had started from mid-2013: food inflation averaged 3.2 percent in the second semester of the year, compared to 2.5 percent in the first semester, led by bread and cereals (5.7% vs 2.3%) and rice (6.8% vs 1.6%). Most striking was the spike in the price of garlic, which soared to PHP 287 per kilogram (kg) in June 2014, 74 percent more than its price in the previous year. Since then, garlic prices have decreased but have nevertheless remained at elevated levels (PHP 234 per kg in November 2014).

The midterm update of the Philippine Development Plan (PDP) released in 2014 is most auspicious given the combined effects of the agricultural growth slowdown and the food price inflation. The chapter on Competitive and Sustainable Agriculture and Fisheries Sectors presents the updated policy environment and sectoral strategies of the current administration.

Previously, three sector goals were identified: food security improved and incomes increased; sector resilience to climate change risk increased; and policy environment and governance enhanced.

In the Update, the following sector outcomes were identified: productivity in the agriculture and fisheries sectors increased; forward linkage with the industry and services sectors increased; and sector resilience to climate change risks improved.

Under these sector outcomes are subsector strategies to achieve measurable targets for agriculture and fisheries. Sector value added is expected to grow by 3.5–4.5 percent annually over the rest of the plan period, to be led by crops (4.5–5.5%) and poultry (4.5–5.2%). Labor productivity is also expected to grow by 2–5 percent annually. The strategies for each outcome are listed in Table 2.2.

A last cluster of strategies cuts across sectors and relates to governance and institutional development. It includes enhancing convergence among government agencies, pursuing public-private partnership and national and local commodity road maps, eradicating smuggling, and passage of key laws.

In terms of the key legislative agenda for the agriculture sector, the PDP medium-term update identified the following:

• National Food Authority (NFA):

reorganization of the NFA; decoupling of its regulatory and proprietary functions; administration of the import permitting system as a ministerial function subject to payment of duties.

• National land use: provision of a legal mechanism for land reform areas and zoned areas for agriculture and water resources; guiding the optimal allocation of land within a sustainable development framework.

• Soil and water conservation act: promotion of soil and water conservation technologies within a legislatively mandated national soil and water conservation program.

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Economic integrationIncreasing economic integration of world economies has positively contributed to Philippine agriculture. A clear evidence is the growth of agricultural exports over the period 2003–2013, at 164 percent, far outpacing overall exports, which grew by just 49 percent. Agricultural exports also outpaced agricultural imports, which grew at 150 percent. In 2014, agricultural exports reached USD 5.9 billion, about 11 percent of the country’s total exports.

This is expected to further accelerate beginning 2015 with the ASEAN Economic Community (AEC), which establishes a single production base for the region. Among the AEC commitments, tariff reduction has been most successful, with nearly all agricultural tariffs on ASEAN imports brought to the 0- to 5-percent band by 2015. The tariff for sugar, already down to 10 percent in 2014, reached the target of 5 percent in 2015. Much progress has been in promoting common ASEAN food standards (GAP, HACCP, GMP, etc.). The Philippines’ agricultural exports to ASEAN countries rose by 172 percent over the period 2003–2013, faster than the growth of overall

agricultural exports; as part of increasing regional integration, agricultural imports from ASEAN rose even faster at 181 percent.

Despite these positive trends, nontariff barriers remain formidable, together with barriers to agricultural and agribusiness investments. The country continues its protectionist rice policy, with the tariffs applied to ASEAN and in-quota imports at 35 percent and to other imports at 50 percent. However, the minimum access volume for imports is now at 805,200 tons (up from 350,000 tons before 2012).

Import permits are also imposed for meat, fresh produce, and sugar. Recently, the Department of Justice (DOJ), while investigating the import permit scheme for garlic as a possible cause of the price spike, has issued an adverse finding. The DOJ report stated that the import permitting was nontransparent, which resulted in an allocation that favored a group of importers and facilitated a cartel-like collusion that led to the price increase (DOJ-OFC 2014). The report recommended that the Department of Agriculture (DA) should issue only a sanitary and phytosanitary

Table 2.2. Strategies for each sector outcome

Outcome A • Investments in R&D and extension• Capacity building of farmers and fishers• Improved rural infrastructure• Completion of asset reform • Improved access to credit and other financial services

Outcome B • Promotion of high-value commodities produced with comparative advantage• Expanding markets and linking farmers to value chains/commodity clusters• Capacity building of stakeholders; development of agroprocessing and related

products• Providing timely market information to farmers and fishers• Supporting the transformation of farmer and fisher associations into viable

small and medium enterprises• Promoting product and safety standards

Outcome C • Encouraging diversification of livelihood options• Reducing resource degradation• Increasing resilience of communities in responding to climate risk

Source: National Economic and Development Authority (2014)

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(SPS) import clearance purely for safeguarding against entry of pests. The report added that no economic criterion of sufficiency of domestic supplies should be applied as a reason to import approval.

AssessmentThe renewed emphasis on boosting productivity within the context of wider and deeper value chains in agriculture and agribusiness is a welcome policy shift. Likewise, the DOJ finding should have a salutary effect on the entire import permit system, orienting it away from protectionist practice toward a purely technical and routine procedure, to which the Philippines had already committed when it acceded to the World Trade Organization (WTO) Agreement on SPS. Furthermore, the commitment to reform the NFA and to other key policy reforms is commendable.

Unfortunately, the sector plan for agriculture and fisheries continues to maintain a 100-percent self-sufficiency target over the plan period, which, as emphasized in previous PIDS studies and policy notes, is an unrealistic objective8. The continued imposition of quantitative restrictions on rice imports, together with the intensified campaign against smuggling, prevented the country from arbitraging the large differences between world and domestic prices. In December 2014, the retail price of rice in Viet Nam (An Gian province) was equivalent to just PHP 15.8 per kg for the 20-percent broken grade compared to PHP 39 per kg for the regular milled rice in the Philippines.

On the supply side, the key intervention to achieve the rice production target is massive upgrading of the country’s irrigation systems. For 2015, the budget of the National Irrigation Administration was PHP 28.7 billion, 36 percent larger than its budget in 2014, and about three-fourths the size of the entire budget of the DA. Yet some initial evaluations

8 The midterm update of the PDP ...

conducted by PIDS have uncovered wastage and inefficiencies in the national irrigation system (David and Inocencio 2014).

With the WTO waiver on quantitative restrictions two-and-a-half years away from expiration, the country should immediately embark on a road map for tariffication for the rice sector based on competitiveness, livelihood diversification for rice farmers, and efficient implementation of rural infrastructure investment by the national and local governments.

Environment, natural resources,and natural disasters

EnvironmentIn 2014, Executive Order (EO) 174 institutionalized the Philippine Greenhouse Gas Inventory Management and Reporting System (PGHGIMRS). This was intended to strengthen the greenhouse gas inventory management and reporting system in relevant government agencies. The EO is a step in the right direction because the PGHGIMRS will support better planning for climate change mitigation and adaptation activities in the country. For its part, the Department of Environment and Natural Resources (DENR) mentions that the EO will provide overall direction on how it can incorporate greenhouse gas inventory into its activities, especially in the generation and use of data to fine-tune programs and policies (Aberia 2014).

Joint Memorandum Circular ( JMC) 2014-01 was also passed. It mandated the tagging/tracking of climate change expenditures in the local budget. This circular is consistent with the DBM-issued Local Budget Memorandum 68 which, among others, requires LGUs to submit, together with the General Annual Budget, their respective Local Disaster Risk Reduction Management Plans and Local Climate

8 The midterm update of the PDP also has 100-percent self-sufficiency target for 2013–2016. This is consistent with the original Food Staples Sufficiency Program, the banner program of Agri-Pinoy.

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Change Action Plans. It is also in line with National Budget Memorandum No. 119 aimed at tagging and tracking climate change expenditures in the national budget. This circular is therefore complementary to previous government efforts to better track and account for the local budget.

Meanwhile, Joint DBM-DENR Circular 2014-1 provided the implementing guidelines of RA 10629. RA 10629 is an act providing for the retention by the Protected Area Management Board of 75 percent of the revenues accruing to the Integrated Protected Areas Fund and amending for the purpose Section 16 of RA 7586 or the National Integrated Protected Areas System Act of 1992. This joint circular is significant because it consolidates the policies, rules, and regulations on the use of income by agencies and creation of trust accounts for the proper implementation of RA 7586.

Natural resourcesTwo fisheries-related policies were passed in 2014. Fisheries Administrative Order (FAO) 249 Series of 2014 banned the sale and distribution of raw/fresh and processed puffer fish, many of which are toxic. Puffer fish are bony fishes that, when threatened, can inflate their body by swallowing water or air. This prohibition is enforced except when a special permit is obtained from the DA to use it for research purposes. The FAO is a positive development since it will help protect the interest of the consuming public particularly against the danger of possible poisoning. It will also help establish and enforce safety and quality standards on aquatic organisms and fishery products for local consumption and trade.

Meanwhile, FAO No. 250 Series of 2014 prohibited the collection, harvesting, gathering, selling, and/or exporting of brown algae and seagrass. Brown algae belong to a large algae group that includes many seaweeds typically olive brown or greenish. Seagrass is a highly productive ecosystem that provides shelter and serves as food base to diverse species of juvenile

and adult fish, marine invertebrates, and mammals. The prohibition is enforced except when a special permit is obtained from the DA to use it for research purposes. However, it does not cover seagrass being used for handicrafts being exported (EDC 2014). This order is another welcome development because there has been uncontrolled harvesting of both brown algae and seagrass resources in the wild. If unchecked, the loss may irretrievably destroy the balance in the marine ecosystem.

For the forestry subsector, DENR Memorandum Circular 2014-06 was implemented. It mandated the adoption of baselining/benchmarking protocol for the National Greening Program (NGP) and mainstreaming it in other relevant programs/projects of the DENR. Having multiple objectives of contributing to poverty reduction, food security, biodiversity conservation, environmental rehabilitation, and climate change mitigation and adaptation, the NGP needs baseline information with which its impacts at the end of 2016 and beyond can be assessed. The baselining/benchmarking activity is necessary to assess the existing condition prior to the program for future impact assessment, among others.

For the mining subsector, the passage of DENR Administrative Order (DAO) 2014-06 amended DAO 2012-07-A, which mandated the Implementing Rules and Regulations of EO 79. Section 7 of DAO 2012-07-A stipulated that no expansion of existing contract areas shall be allowed by the DENR secretary unless there is an imminent and/or threatened economic disruption, such as a shortage of critical commodities and raw materials, that could adversely affect priority government projects and/or economic activities as determined by the Economic Development Cabinet Cluster. This has been amended by DAO 2014-06 to allow the expansion of contract areas of operating mines with available mineral resources/reserves, subject to validation by the Mining Industry Coordinating Council thru its Technical Working

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Group on Environmental Protection. The order comes at a time when a number of operating mines in the country requires the expansion of their existing contract areas in order to sustain their operations but faces possible closure instead (MTD 2014).

Natural disastersJMC No. 2014-1 provided the implementing guidelines for the establishment of Local Disaster Risk Reduction Management Offices (LDRRMOs) or Barangay Disaster Risk Reduction Management Committees (BDRRMCs) in LGUs. This is in pursuance of the PDRRM Act of 2010 that mandated the establishment of LDRRMOs in provinces, cities, and municipalities, and BDRRMCs in barangays. The institutionalization and organization of disaster risk reduction management (DRRM) structures in all levels of government nationwide is a necessary step in the mainstreaming of DRRM public governance. Furthermore, lessons from previous disasters, like Typhoon Yolanda, make it imperative for LGUs to institutionalize disaster risk reduction and management councils at all levels (Codamon 2014).

Trade policyThe year 2015 is a momentous time for the Philippines with the Philippines’ hosting of the Asia-Pacific Economic Cooperation (APEC) Summit.

Inclusive growth has always been the implicit underlying goal for all APEC economies. Over the years, the adopted themes by host countries have been in varying forms that revolve around this overarching goal. The Bogor goals remain at the core, but invariably, the priority areas would have a running theme of “Balanced, Inclusive, Sustainable, Innovative, and Secure Growth” albeit with different emphasis as highlighted by the host economy.

The Philippines is chairing the APEC Summit for the second time in 2015, amid a global economic climate that presents both new opportunities for

greater prosperity and challenges. To start with, these should be based on APEC’s core principles of trade and investment liberalization, business facilitation, economic and technical cooperation, and, at the same time, greater flexibility to tackle issues of importance to developing economies. While the substantive agenda of the Philippines for APEC 2015 should be driven by its basic development goals provided for in the Philippine Development Plan 2011–2016, the country should not ignore global realities. In addition to domestic goals, the Philippine substantive agenda must also take into account socioeconomic and geopolitical trends in the region beyond 2015 and, more importantly, the Philippines’ role in the summit and how it can maximize benefits through cooperation with other member-economies.

For APEC 2015, the Philippines has aptly chosen the theme, “Building Inclusive Economies, Building a Better World”, putting the overarching goal of inclusive growth in the center stage. Under this theme, the Philippines has chosen four major priority areas: enhancing regional economic integration, fostering SMEs’ participation in the regional and global economy, investing in human capital development, and building sustainable and resilient communities.

The APEC process, despite criticisms of being primarily a talk shop, has distinct advantages over other fora such as the WTO and formal regional trading agreements. Being voluntary and nonbinding but with emphasis on cooperation, it avoids the difficult process of negotiations while promoting capacity building, even if only as a result of the learning process it cultivates. The benefits that come from this learning process cannot be overestimated, including exchange of information, wide discussion of issues, and cooperation, when needed. The APEC process also encourages needed domestic reforms, especially those that are more difficult to undertake simply from a domestic perspective, as outcomes are reinforced within a wider regional context. Aside from peer

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pressure, domestic reforms in tandem with regional initiatives would generally have a higher potential of producing larger and more sustained benefits.

Trade in servicesDeveloping more competitive services is an urgent task for the Philippines so that it can increase its participation in global value chains and enjoy bigger economic gains. In 2014, two policy measures that are deemed to enhance services trade for the Philippines were introduced. These are RA 10641, which amended RA 7721, a law that was passed in 1994 and liberalized the entry of foreign banks in the Philippines, and RA 10650, which is also known as the “Open Distance Learning Act”.

RA 10641 is an improvement of RA 7721 in that it allows the full entry of foreign banks in the Philippines. Its key features are summarized in Table 2.3. With the growth and expansion of the Philippine economy, it is expected that this new law will further facilitate the inflow of FDI. Moreover, the banking

system will be strengthened with the transfer of technology and enhancement of human resource skills (Tetangco 2015).

Meanwhile, RA 10650 aims “to expand and further democratize access to quality tertiary education through the promotion and application of open learning as a philosophy of access to educational services, and the use of distance education as an appropriate, efficient and effective system of delivering quality higher and technical educational services in the country.” Open distance learning (ODL) is a “system that combines the methodology of distance education with the concepts of open learning and flexible learning.” Distance education refers to “a mode of learning in which students and teachers are physically separated from each other. It is student-centered, guided independent study, making use of well-studied teaching and learning pedagogies to deliver well-designed learning materials in various media. It is also sometimes described as flexible learning and distributed learning.” Open learning refers to “a

Table 2.3. Key features of RA 7721

Mode of entry and equity ownership

• Removes specific limits on the number of foreign banks• Reopens the three modes of entry (i.e., branch, investment in existing domestic

bank, or new banking subsidiary) • Allows up to 100% foreign ownership in an existing bank and a new banking

subsidiary

Qualifications for foreign banks

• Removes the qualification to be part of the top 150 foreign banks in the world or the top 5 banks in their country of origin as of the date of application

• Provides the following requirements for foreign bank entrants: (a) established, (b) reputable, (c) financially sound, (d) widely owned, and (e) publicly listed (unless owned and controlled by the government of its country of origin)

Branching privileges

• Allows foreign branches to open up to 5 (instead of 3) subbranches as may be approved by the Monetary Board (instead of locations designated by the MB)

• Provides locally incorporated subsidiaries of foreign banks the same branching privileges as domestic banks of the same category

Limit • Allows at least 60% of resources/assets of entire banking system, instead of 70%, shall be held by banks which are majority owned by Filipinos

Source: Marcelo (2014)

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philosophy of learning that is based on flexibility of access for equity in education, an educational system that is accessible to every individual with minimal restrictions and emphasizing the flexibility of the system to eradicate problems caused by barriers like age, geographical location, time constraints and economic situation.”

The law requires the CHED and the Technical Education and Skills Development Authority (TESDA) to regulate HEIs and postsecondary schools involved in ODL programs by setting the necessary standards and guidelines, implementing a system of quality control, and approving ODL programs, among other things. They are also mandated to support these institutions in developing and providing high-quality programs and offerings in ODL education. The University of the Philippines Open University (UPOU) has an important role to play in the implementation of RA 10650. The UPOU is tasked to assist and provide expertise to CHED and TESDA in the performance of their functions. It is expected to provide leadership and promote best practices in open learning and distance education in the country. Broadcast media and telecommunication networks are encouraged to assist and cooperate with HEIs and postsecondary schools offering ODL programs.

Institutionalizing ODL will help in the development of the industry. Although it is intended primarily to provide education services to Filipinos here and abroad, ODL could be an opportunity to boost services exports by attracting other nationalities, given the proper regulations that will ensure high-quality standard and support.

Another policy measure related to services trade, which took effect in 2014, is Administrative Order No. 45 that revoked Letter of Instruction (LOI) No. 1479 issued on September 11, 1985. The LOI prohibited the use and importation of airline tickets issued outside of the Philippines for international air transportation of passengers originating in the Philippines. In light

of technological advances as well as changes in related laws, the passage of the administrative order is a welcome development because the ban can be considered obsolete and inconsistent with the promotion and facilitation of travel.

InfrastructureTo accelerate infrastructure development, the Aquino administration is implementing two broad strategies: pursuing infrastructure PPP projects and increasing public spending on infrastructure by up to 5 percent of GDP by 2016. On the first strategy, gaining momentum took time but there are early signs of success as the government has already awarded 10 PPP contracts since 2010. Implementing the second strategy, however, proved to be difficult as infrastructure spending was only 2.01 percent as of end-2014, one and a half years before the term of the current administration ends (Figure 2.2). It is unlikely that the target 5 percent of GDP will be achieved by 2016 given the difficulties that the executive had in accelerating disbursements and the overstretched absorptive capacity of government agencies (i.e., capacity to absorb more funds and implement projects). It would be more prudent at this point to have a more realistic target and to address the absorptive capacity issues of agencies through measures such as advanced project development activities and innovations on procurement and contracting.

In terms of more specific sectoral concerns, what need urgent attention are the high price of electricity, the electric power shortage, the congestion in ports, and the deteriorating mass rail transport as these were also the top concerns of businesses and consumers throughout the past year. The policymakers’ responses to these sectoral concerns and an assessment of those responses are discussed below. Meanwhile, in public works, policymaking and implementation are showing good progress; the ongoing efforts in this area are also discussed below.

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High price of electricity and electricpower shortageFor much of 2014, policymakers had to deal with protests over record electricity price spikes in the Luzon wholesale electricity spot market (WESM). In January 2014, the Energy Regulatory Commission (ERC)’s Investigatory Unit (IU) started assessing the price spikes in late 2013. By February 2014, the IU confirmed earlier reports that there was a high level of forced and unplanned plant outages during the shutdown of the Malampaya power plant, which exacerbated the tightness of supply. Moreover, the capacity in Luzon could not be augmented by the capacity from the Visayas because the interconnecting high-voltage direct current line was damaged by Typhoon Yolanda and not yet operational at the time.

Petitions were brought before the Supreme Court to stop the Meralco rate hike, which was an unprecedented increase of PHP 4.15 per kilowatt hour (kWh) due to the high generation charge component.

The high court issued a temporary restraining order (TRO) and then extended it twice with the latest extension valid for an indefinite period. To date, it has not yet come up with a final decision on the Meralco rate hike case.

The DOJ-Office for Competition (OFC) has also been conducting its own investigation. The probe is focusing on possible violations of laws against monopolization and restraint of trade, particularly Article 186 of the Revised Penal Code (Act 3815 passed in 1930) as well as RA 3247 or An Act to Prohibit Monopolies and Combinations in Restraint of Trade. The DOJ-OFC has also not yet released a final report on the results of its probe.

In moving forward, policymakers must continue exploring mechanisms that could temper the impacts of weak competition in the market. It surfaced in the investigations that several gencos (power general companies) violated the “must offer rule” during the Malampaya shutdown by exercising capacity

Figure 2.2. Public spending on infrastructure and other capital outlays as percent of GDP, 2008–2014

1.79%

2.09%

1.74%

1.41%

1.73% 1.98% 2.01%

2.34%

2.75%

2.15% 1.88%

2.83% 2.81%

3.12%

2008 2009 2010 2011 2012 2013 2014

Total Public Infrastructures, % of GDP Capital Outlays, % of GDP

Note: Figures for 2014 is the “adjusted” infrastructure outlay figure from the FY 2015 National Expenditure Program.

Sources: Philippine Statistics Authority (2014) and Department of Budget and Management (2015)

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withholding9, thereby creating an environment wherein high price bids dominated the spot market. The ERC tried to mitigate this market power exercise by imposing a combination of: (i) a market clearing price cap; (ii) a trigger when the market clearing price cap would apply; and (iii) a cap on the bid price10. Initially, the market clearing price cap worked this way: the average clearing price was computed on a 72-hour rolling basis and if it reached PHP 8,186 per megawatt hour (MWh), the market clearing price was automatically capped at PHP 6,245 per MWh, and such cap ceased to apply when the average clearing price in the next trading period had gone below the PHP 8,186 per MWh threshold. By end-2014, the price threshold was adjusted upwards to PHP 9,000 per MWh and the trading interval computation was prolonged to 168 hours.

The cap on the bid price or the “offer price cap”, on the other hand, is the maximum allowable price that traders can submit in their combinations of quantity-price bids. It was set at PHP 62 per kWh when the WESM started operating in 2006 and due to the recent price spikes, the cap was reduced to PHP 32 per kWh, albeit temporarily.

There is no final decision yet on more permanent price caps and the application of the interim measures has been extended in 2015. Policymakers know full well that a final determination of the price caps must be made, especially for the offer price cap since there has been no full review of the previous cap since it was imposed in 2006. The tripartite committee (composed of the Department of Energy [DOE], the ERC, and the Philippine Electricity Market Corporation) deliberating on this matter should accelerate the decisionmaking given the possible disincentives to

9 This means offering less than...10 There are two prices that are being capped...

future investments (especially investments by peaking plants) of not so well-grounded caps.

In the end, the capping mechanisms will help lessen the impact of market power on the short-term volatility of electricity spot prices. But this prospect is for spot prices. What about the prospect for electricity prices in the longer term? The answer largely depends on the security of supply, which is currently an immediate concern, and cost-saving technological developments, which is currently exogenous in the case of the Philippines. To help ensure that prices will be more affordable in the coming years, the current power supply shortage must be addressed.

The DOE projected supply shortages and major brownouts in Luzon in 2015. The Congress’ policy response is to attempt giving President Aquino emergency or special powers. Such powers are anchored on Section 71 or the “electric power crisis provision” of the Electric Power Restructuring Act, which states that, “Upon determination by the President of the Philippines of an imminent shortage of the supply of electricity, Congress may authorize, through a joint resolution, the establishment of additional generating capacity under such terms and conditions as it may approve.”

Initially, the Lower House’s version of the draft joint resolution aimed to authorize the executive to rent or purchase generating sets to augment generating capacity. However, such recommendation was later removed and the joint resolution focused on accelerating the interruptible load program (ILP)11. The draft joint resolution also prescribed the suspension of environmental laws, such as the Biofuels Act and the Clean Air Act to fast-track new investments. The Lower House passed its version of the joint resolution, an action

11 The ILP is a scheme whereby...

9 This means offering less than the actual capacity they could supply. Capacity withholding is a kind of behavior prevalent in oligopolistic markets where competition is weak. 10 There are two prices that are being capped: the market clearing price (i.e., the settlement price, excluding adjustments for differences in locations, which will be paid by

buyers and received by sellers) and the offer price of sellers of electricity.11 The ILP is a scheme whereby big end-users would voluntarily disconnect from the grid during critical peak periods and turn on their own generating sets, thereby freeing

capacity in the grid, and get compensation for doing so.

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that was later followed by the Senate. One contentious issue is who will foot the bill for the ILP—the Lower House wanted the government to absorb the cost of the ILP by tapping the Malampaya Fund but the Senate wanted to retain the current scheme of passing on the cost to the consumers. In the end, no consolidated version was agreed upon. The Congress went into recess and the current compensation rule for the ILP wherein the cost is borne by the consumers stays.

As 2015 unfolds, it is becoming clear that there is no need for emergency or special powers for President Aquino to deal with the electric power crisis. The feared power crisis in Luzon is being managed through a combination of the following: early resumption of natural gas deliveries from the Malampaya reserve to major power plants, energy conservation, higher availability of generating units (or less declarations of unavailable capacity by power plants), and the ILP. Nevertheless, the country’s power supply remains in a precarious situation given the frequent “yellow alert”12 and “red alert”13 status of the National Grid Corporation. Future supply shortages are also possible if the committed capacities do not arrive as planned; for example, the DOE projections show a peak demand of close to 10,000 MW in Luzon in 2017 vis-a-vis possible available capacity of 9,500 MW (given the existing capacity or not yet accounting for the upcoming capacity from power plants that are yet to be built).

In the short term, the policy responses that may be easier to implement are to reduce the bureaucratic hurdles in the permitting process for new power plants and to address maintenance issues. Based on the analysis of the Task Force to Study Ways to Reduce the Price of Electricity, an ad hoc body set up by the DOE, the thin supply margin in the generation sector is caused by the delays in the construction of new

12 A condition wherein the reserve...13 A condition wherein the contingency...

power plants and the unreliability of some existing plants. Thus, the task force recommends setting up a cabinet-level investment facilitator to spearhead the streamlining of permits, which currently equal to 162 clearances for new power plants. Moreover, the task force is asking that the DOE drive for a more effective coordination and synchronization of power plant maintenance, have a full audit of existing power plants, conduct inspections if these plants are being properly maintained, and impose hefty penalties on violators (DOE 2014).

Congestion in seaports The congestion at the Port of Manila has been a well-known problem even before the City of Manila imposed a truck ban14 on February 4, 2014 to address road congestion in the streets of Manila. However, the truck ban worsened the problem as the less frequent truck turnaround resulted in the accumulation of empty containers in the port terminal, thereby limiting further the space for cargo handling and worsening the congestion. Moreover, given the congestion and lack of berthing space, some international vessels either refused Manila-bound cargoes (effectively, a “boycott” of the city port) or imposed additional charges such as congestion fee and demurrage fee. Truckers also raised their rates to defray the cost of low truck turnaround. Firms that are part of the logistics supply chain suffered output and productivity losses.

The president initiated a series of policy responses to the port congestion problem by setting up the Cabinet Cluster on Port Decongestion (CCPD). The CCPD implemented measures such as giving a maximum of five days for all cleared cargoes to be pulled out of the Port of Manila, imposing a fine of PHP 5,000 per day that the cargoes are not pulled out

14 The truck ban was from 5 a.m. to 9 p.m., Monday to Friday.

12 A condition wherein the reserve is less than the capacity of the largest online plant, implying that the system will not be able to meet demand if the largest plant suddenly goes offline.

13 A condition wherein the contingency reserve is zero and a rotating brownout has to be implemented to avert system breakdown.14 The truck ban was from 5 a.m. to 9 p.m., Monday to Friday.

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after the five-day period, and giving access to a 24-hour “last mile truck route”15 on Sundays.

Another policy response, taken by the Philippine Ports Authority (PPA), which is in-charge of the Port of Manila, and the Subic Bay Metropolitan Authority, which is in charge of the Subic Port, is the signing of a memorandum of agreement (MOA) for the use of the New Container Terminal 2 (NCT2) at the Subic Port as an extension of the Port of Manila. The MOA permitted shippers to use the NCT2 without incurring penalties even if their cargoes are registered as bound for the Port of Manila. The president expanded this arrangement through EO 172 Series of 2014, which specifically allowed the unloading of import cargoes, loading of export cargoes, and transshipment of containerized cargoes at the Batangas and Subic ports

15 The route consisted of truck lanes to ...

even if the contracts of carriage require delivery to or pick up from the Port of Manila.

On September 13, 2014, seven months after it was imposed, the city government lifted the truck ban. By that time, the economic cost of the port congestion had already accumulated to PHP 43.85 billion, which consisted of the decrease in the Bureau of Customs’ (BOC) revenues, firms’ output and productivity losses, and increase in vehicle operating costs (Patalinghug et al. 2015). The congestion then eased and, by February 2015, the PPA reported that the utilization of space in the Port of Manila was back to normal.

Still, it is very likely that the congestion problem in the Port of Manila will recur given the growing volume of cargo being handled. More lasting solutions must be taken by the government and stakeholders to

Table 2.4. Recommendations of a PIDS study to address congestion in seaports in the Greater Capital Regiona

Short term • Issue a policy statement putting a cap on the capacity of Manila’s ports • Give instruction that Batangas and Subic ports be utilized• Roll out a 24-hour web-based integrated truck dispatching, appointment, and

booking system to improve the logistics chain

Medium term • Increase the number of BOC and PPA personnel and expand the cargo handling capacity, berthing space, and container yard capacity at the Batangas and Subic ports to facilitate the diversion of traffic from Manila to these ports

• Adopt a rationalization plan for future port development and investment programs for ports in the Greater Capital Region

• Gradually rehabilitate and improve the Philippine National Railways line for long-range freight service in order to prepare this for a longer-term PPP arrangement, which will eventually give shippers and locators an alternative way of transporting their goods.

Long term • Draft a national multimodal transport and logistics development plan with special emphasis on connecting the Subic-Clark-Manila-Batangas corridor to the rest of the country

• Implement investments plan for new rail, maritime, port, airport, and road infrastructure to link Philippine ports to the global supply chains

a The term “Greater Capital Region” is used in the study to refer to Metro Manila or the National Capital Region and adjoining areas in the north (Central Luzon region) and the south (CALABARZON region).

Source: Patalinghug et al. (2015)

15 The route consisted of truck lanes to and from the Port of Manila to authorized warehouses in Metro Manila as well as Roxas Boulevard and Quirino Avenue in the south and A. Bonifacio Avenue to NLEX in the north.

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ensure the optimum utilization of ports. A possible measure is reviving the short-range freight service similar to the one operated by the International Container Terminal Services, Inc. in 1997–2003, but a PIDS study (Patalinghug et al. 2015) regards this option unfeasible because the current level of freight traffic through Batangas is too small for it to be a major source of base traffic and the use of rail has a negligible effect on the improvement of travel speed. The PIDS study offers another set of recommendations (Table 2.4), some of which have also been propounded by stakeholders in the port sector.

Deteriorating mass rail transportThe MRT-316 riders’ woes in Metro Manila worsened in 2014 as queues got longer, operation interruptions became more frequent, and technical glitches got more aggravated. The MRT-3 system is designed to carry 320,000 passengers daily but takes as much as 600,000 passengers (DOTC 2014a).

There was also an unfortunate train overshooting incident in August 2014, when an MRT-3 southbound train got derailed and overshot the rail line at the EDSA-Taft Avenue station, hurting 38 passengers (Rappler 2014). According to the Department of Transportation and Communications (DOTC), the incident was caused by human error. No clear and definite policy response to the issue of MRT-3 glitches was made since the incident took place besides the conduct of investigations at both the Lower House and the Senate.

To address the problem of overcapacity, the national government allotted budget for and bid out the procurement of 48 light rolling vehicles (LRVs), despite legal hurdles put up by the MRT-3’s private owners. Initially, the private owners were able to secure

16 The MRT-3 system is a facility owned by private stakeholders...

a Makati court’s TRO against the capacity expansion project on the ground that the government did not allow them to exercise the right of first refusal granted by the build-lease-transfer (BLT) contract. But when the TRO expired, the Court of Appeals denied the private firms’ petition to stop the project. The contract was eventually awarded to Dalian Locomotive and Rolling Stocks Co., Ltd., a Chinese company (DOTC 2014b). DOTC officials said that delivery of the prototype and components will start in mid-August 2015 and, should prototype testing be successful, the monthly deliveries of the LRVs could start in late January 2016.

Meanwhile, the maintenance contract bidding is attracting low interest. The bidding for the three-year PHP 2.4 billion contract for an MRT-3 maintenance service provider failed twice in 2014. In early 2015, it was reported that the DOTC is pondering negotiated procurement. The maintenance contract is for three years as the government hopes to have completed the equity buyout of the facility from the private owners during the period. The buyout is another complicated matter. This has been attempted by the last administration and the current administration revived the attempt through EO 126 Series of 2013. The idea is for the government to take ownership of the facility through an equity-value buyout and thereby save on lease payments, which are guaranteed in the BLT contract with a high 15-percent return on equity. In the EO, however, there is no further instruction on what to do after the buyout (e.g., whether or not the government will continue operating it or privatize the operation or privatize the maintenance contracts only).

In December 2014, Congress disapproved the proposed PHP 53.9 billion buyout budget in the General Appropriations Act of 2015. Unsolicited

16 The MRT-3 system is a facility owned by private stakeholders (Metro Rail Transit Corp. and MRT Holdings II) and being operated by the government through the Metro Star Express, a unit of the Department of Transportation and Communications. The facility is subject to a build-lease-transfer contract valid for 25 years from February 29, 2000 (when the first lease payment was made).

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proposals to rehabilitate and operate the MRT-3 have also come in. These are from Metro Pacific Investment Corp., a big conglomerate in the Philippines, and German railway companies Schunk Bahn- und Industrietechnik GmbH and HEAG Mobilo GmbH, which are backed by the local firm Comm Builders and Technology Phils. Corp. (Manila Bulletin 2015).

Clearly, the MRT-3 issue is one large labyrinthine problem where the riding public is the biggest loser. At this point, without additional and adequate information, it is hard to assess which is preferable—a buyout with subsequent private operation/maintenance contracts or subjecting the unsolicited proposals to a “Swiss challenge”. The options should be subjected to a rigorous study. What is important is that whatever the choice of the government, the crucial elements must be there—reducing the return on equity (currently at an onerous 15%), ensuring market risk bearing by the private partner, and handling of interface risk by the private partner.

The government’s pains in the MRT-3 issue are a result of improper risk allocation right from the start. Fixing and guaranteeing the 15-percent return on equity for 25 years is too much of a risk for the payor of the equity return. The government’s total revenue risk bearing (i.e., bearing the risk that the revenues will be enough to cover the cost of operating the system, including lease rental obligations to the private owner) failed because the government has no discipline to do cost recovery and appropriate user charging. Interface risk, a risk inherent in mass rail transport projects, is also not adequately appreciated by the government given its tendency to do piecemeal contracting for maintenance. It should realize once and for all that separating interrelated contracts across space and over time, contracts which have interfacing components and are better bundled, can result in coordination problems and each counterparty charging a premium for bearing the risk that other counterparties would default. In the end, high coordination cost and high

total contract price due to additional risk premia could ensue.

Reforms in public worksFor a very long time, the implementation of public works projects has been marred by charges of corruption, which manifested in bidding collusion, wide swings in implicit unit prices, high cost overruns, implementation delays, and overall poor quality roads and bridges. Thus, when the government was severely criticized by many stakeholders for the delays in the implementation of infrastructure projects in 2011, the secretary of the Department of Public Works and Highways (DPWH) vowed to institute an agency transformation program that will reduce corruption, improve efficiency, optimize resources, and realize an overall organizational culture change (DPWH 2013).

The DPWH then implemented major reforms given this mantra: to implement the right projects at the right cost and with the right quality, and for these to be delivered right on time and carried out by the right people. For example, in the procurement process, the agency removed the requirement for contractors to submit a letter of intent so as to prevent collusion. It also simplified the bidding process by requiring only five documents, instead of the previous 20. Submitting 20 documents in the past provided a lot of room for discretion and opportunities to favor a bidder. The DPWH also implemented the “clustering of projects” in which related projects are joined and packaged into bigger contract packages to attract competent contractors.

In the area of project management, the agency also established standard cost estimation manuals for roads, bridges, and buildings. It also gathered, disseminated, and updated price data on construction materials nationwide. It also adopted standards on construction duration by type of project. Before the reforms were pursued, there was wide variability in unit prices and there was no standard construction duration.

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The DPWH also tapped third parties as partners. It accredited 52 civil society organization partners as partners in the different stages of the project life cycle. It also outsourced some project inspection and quality assurance services.

The agency also set up a web-based communications system for receiving, replying to, and taking action on any complaint, query, or suggestion. It also conducted selective and purposive auditing by concentrating on the most vulnerable areas and giving sanctions to officials with major lapses. As a matter of policy, it also encouraged whistle blowing and internal reporting of bad behavior. It is also currently running an Organizational Culture Change Project, which includes interpersonal and personal skills development related to core public service values such as integrity, excellence, professionalism, and teamwork.

As a result of these reforms, the DPWH has managed to reduce cost overrun: the 13-percent cost overrun in 2010 was reduced to only 4 percent by end-2013. It has also ensured that more projects are completed within the allotted time and budget: in 2010, 55 percent of the projects were completed within the allotted time and budget and this improved to 84 percent by end-2013 (DPWH 2013). It has also been reported that the reforms in the way the DPWH conducted competitive bidding and implemented projects had saved the government some PHP 29 billion from June 2010 to October 2014 (Manila Bulletin 2014).

Such reforms and accomplishments have attracted the attention of stakeholders. For instance, the Makati Business Club (MBC), in its ranking of 62 government agencies based on satisfaction rating and perception surveys of MBC members, gave a high satisfaction rating to the DPWH in 2014, ranking the agency at 12th place from 27th in 2013 (MBC 2014). There are still many reform-related activities lined up in the program of action plans of the DPWH and other government agencies will surely be able to pick important lessons from the former’s experience and action plans.

ReferencesAberia, J.R. 2014. DENR supports greenhouse gas

EO. Manila Bulletin, 10 December. http://www.mb.com.ph/environment-newsbits-for -december-11-2014/ (accessed on January 20, 2015).

Asian Coalition for Housing Rights (ACHR). 2014. 215 cities in Asia. Fifth Yearly Report of the Asian Coalition for Community Action Program. Bangkok, Thailand: ACHR.

Asian Journal (AJ) Press. 2013. Editorial: ‘Mission impossible’. 29 March. http://asianjournal .com/editorial/mission-impossible/ (accessed on January 22, 2015).

Bettinger, E., B. Evans, and D. Pope. 2013. Improving college performance and retention the easy way: Unpacking the ACT exam. American Economic Journal: Economic Policy 5(2):26–52.

Boonyabancha, S. 2005. Baan Mankong; going to scale with ‘slum’ and squatter upgrading in Thailand. Environment and Urbanization 17(1):21–46.

———. 2009. Land for housing the poor – by the poor: Experiences from the Baan Mankong nationwide slum upgrading programme in Thailand. Environment and Urbanization 21(2):309–330.

Chaudhuri, N., J. Friedman, and J. Onishi. 2013. Philippines’ conditional cash transfer program impact evaluation 2012. Washington, D.C.: World Bank. http://pantawid.dswd.gov .ph/images/philippines_conditional_cash _transfer_program_impact_evaluation_2012 .pdf (accessed on November 30, 2014).

Codamon, D. 2014. Institutionalized DRRM councils needed. Sun Star Baguio, 4 June. http://www.sunstar.com.ph/baguio/local -news/2014/06/04/institutionalized-drrm -councils-needed-346447 (accessed on January 21, 2015).

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David, C. and J.R. Albert. 2015. How has basic education in the Philippines fared and what else needs to be done? PIDS Policy Notes No. 2015-08. Makati City, Philippines: Philippine Institute for Development Studies. http://dirp3.pids.gov.ph/webportal/CDN/PUBLICATIONS/pidspn1508_rev3.pdf (accessed on May 30, 2015).

David, C. and A. Inocencio. 2014. Measuring irrigation performance: Lessons from national systems. PIDS Policy Notes 2014-20. Makati City, Philippines: Philippine Institute for Development Studies.

Department of Budget and Management (DBM). 2015. National Expenditure Program 2015. Manila, Philippines: DBM.

Department of Energy (DOE). 2014. Final report of the “Task Force to Study Ways to Reduce the Price of Electricity”. December 2. Unpublished.

Department of Justice - Office for Competition (DOJ-OFC). 2014. Report on the price increase of garlic for the period June 2013–June 2014. September 1. Manila, Philippines: DOJ-OFC.

Department of Public Works and Highways (DPWH). 2013. DPWH Annual Report 2013. Manila, Philippines: DPWH.

Department of Transportation and Communications (DOTC). 2014a. Invitation to Bid: P3.7B MRT3 Capacity Expansion Project. Mandaluyong City, Philippines: DOTC. http://www.dotc.gov.ph/index.php/2014-09-02-05-02-30/item/42-p3 -7b-mrt3-capacity-expansion-project (accessed on December 12, 2014).

———. 2014b. Notice of Award. Manila, Philippines: DOTC. http://www.dotc.gov.ph/index.php/2014-09-02-05-02-30/item/42-p3 - 7 b - m r t 3 - c a p a c i t y - e x p a n s i o n - p r o j e c t (accessed on December 12, 2014).

Export Development Council (EDC). 2014. Exporters’ “seagrass” not prohibited under FAO

250. Makati City, Philippines. http://www .edc.net.ph/page.php?view=news (accessed on January 20, 2015).

Kaji, Hideki. 2003. Compact city and sustainable urban form: Is compact city approach appropriate as an urban development policy for cities in developing countries? Professorial Lecture, Faculty of Policy Management, Keio University, Minato, Tokyo.

Makati Business Club (MBC). 2014. Makati Business Club Executive Outlook Survey: Second Semester 2014. Makati City: Philippines. h t t p : / / w w w. m b c . c o m . p h / e n g i n e / w p -content/uploads/2014/08/2nd-Sem-2014 -MBC-EOS-Results.pdf (accessed on December 18, 2014).

Manila Bulletin. 2014. DPWH: Gov’t savings since 2010 reach P29-B. 23 October. http://www .mb.com.ph/govt-savings-since-2010-reach -p29-billion/ (accessed on December 18, 2014).

———. 2015. DOTC studies unsolicited proposals. 10 March. http://www.mb.com.ph/dotc -studies-unsolicited-proposals/ (accessed on March 12, 2015).

Marcelo, T.B. 2014. Philippines’ commitments on banking services under the ASEAN Framework Agreement on Services. Presentation in the Roundtable Discussion on the ASEAN Framework Agreement on Services, September 18, Acacia Hotel, Muntinlupa City, Philippines.

Mining Tenements Management Division (MTD). 2014. DAO 2014-06 to Address Problems on Mine Closures. Mines and Geosciences Bureau website. http://mgb.gov.ph/art.aspx?artid=692 (accessed on January 21, 2015).

National Economic and Development Authority (NEDA). 2014. Philippine Development Plan 2011–2016 Midterm Update. Pasig City, Philippines: NEDA. http://plans.neda.gov.ph/pdp.

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Paqueo, V., A. Orbeta Jr., T. Castaneda, and C. Spohr. 2013. After five years of Pantawid, what next? PIDS Discussion Paper No. 2013-41. Makati City, Philippines: Philippine Institute for Development Studies. http://dirp3.pids.gov .ph/ris/dps/pidsdps1341.pdf (accessed on July 30, 2014).

Patalinghug, E., G. Llanto, A. Fillone, N. Tiglao, C. Salazar, C. Madriaga, and M.D.G. Arbo. 2015. A system-wide study of the logistics industry in the Greater Capital Region. PIDS Discussion Paper No. 2015-24. Makati City, Philippines: Philippine Institute for Development Studies.

Philippine Institute for Development Studies - Commission on Higher Education (PIDS-CHED). 2015. A framework for tuition fee regulation. Draft report.

Philippine Statistics Authority (PSA). 2014. Philippine Statistical Yearbook 2014. Makati City, Philippines: PSA.

Rappler. 2014. List of injured MRT-3 passenger. http://w w w.rappler.com/nation/66133 -list-injured-mrt-3-passengers (accessed on December 12, 2014).

Reyes, C. and A. Tabuga. 2013. Pantawid Pamilyang Pilipino: Why “deepening” matters in achieving its human capital objectives. PIDS Policy Notes No. 2013-02. Makati City, Philippines: Philippine Institute for Development Studies. http://dirp3.pids.gov.ph/ris/pn/pidspn1302 .pdf (accessed on August 30, 2014).

Senate Economic Planning Office (SEPO). 2012. The MSME sector at a glance. Manila, Philippines: SEPO.

Tetangco, A. 2015. The Philippine economy going forward. Speech at the Membership Meeting of the Rotary Club of Manila, January 8, Manila Polo Club, Makati City. http://www . b s p . g o v. p h / p u b l i c a t i o n s / s p e e c h e s .asp?id=483 (accessed on January 15, 2015).

World Bank (WB). 2012. Comparing apples with apples: An integrated cost benefit analysis. Paper presented at the TWG Steering Committee Workshop on ISF Housing Program, March 8–9, Hyatt Hotel.

———. 2014. World Development Report 2014: Risk and opportunity. Washington, D.C.: WB.

———. 2015. World Bank TA to the NHA: Pursuing safe, inclusive, affordable, and sustainable shelter solutions. Progress Report 3, February 2015. Manila: WB.

Additional sourcesAdelman, S.W., D.O. Gilligan, and K. Lehrer. 2008.

How effective are food for education programs? A critical assessment of the evidence from developing countries. Food Policy Review 9. Washington, D.C.: International Food Policy Research Institute. http://www.ifpri.org (accessed on October 9, 2014).

Albert, J.R. and A.M. Tabunda. 2015. Feeding severely wasted children in school: Examining processes in DepED’s School Feeding Program. PIDS Policy Notes No. 2015-01. Makati City, Philippines: Philippine Institute for Development Studies.

Aldaba, R., A. Navarro, C. Reyes, J. Yap, and Associates. 2013. PIDS Economic Policy Monitor 2012. Makati City, Philippines: Philippine Institute for Development Studies.

Bundy, D., C. Burbano, M. Grosh, A. Jelli, M. Jukes, and L. Drake. 2009. Rethinking school feeding: Social safety nets, child development, and the education sector. Washington, D.C.: World Bank. http://siteresources.worldbank .org/EDUCATION/Resources (accessed on October 9, 2014).

Department of Education (DepED). n.d. http://www.deped.gov.ph/index.php/issuances/deped-orders (accessed on January 31, 2014).

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Department of Trade and Industry (DTI). 2014. Administrative Order 14-5 Series of 2014. Implementing rules and regulations for Republic Act No. 10644: An act promoting job generation and inclusive growth through the development of micro, small, and medium enterprises, otherwise known as the “Go Negosyo Act.” Makati City, Philippines: DTI.

Department of Justice - Office for Competition (DOJ-OFC). 2014. Report on the Onion Industry. 09 January. Manila, Philippines: DOJ-OFC.

Philippine Health Insurance Corporation (PhilHealth). 2014. PhilHealth Circular 033 Series of 2014. Implementing guidelines for the mandatory PhilHealth coverage of senior citizens pursuant to Republic Act No. 10645. Pasig City, Philippines: PhilHealth.

Republic Act No. 10652. An act appropriating the sum of twenty-two billion four hundred sixty-seven million six hundred eight thousand pesos (P22,467,608,000) as supplemental appropriations for FY 2014 and for other purposes. http://www.gov.ph/2014/12/23/republic-act-no-10652/ (accessed on January 8, 2014).

Senate Bill No. 2370. An act providing for a Magna Carta of the Poor. http://www.senate.gov.ph/lisdata/1967816803!.pdf (accessed on January 8, 2014).

Senate Bill No. 2515. An act providing for a Magna Carta of the Poor. http://www.senate.gov.ph/lisdata/2026717375!.pdf (accessed on January 8, 2014).

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Llanto

Gilberto M. Llanto1

The Philippines is slated to join the emerging ASEAN Economic Community and has committed to improve its overall business and economic environment to stimulate investments and growth. To achieve these, it has to align and harmonize its regulatory

frameworks with those of other ASEAN member-states, but a fundamental prerequisite is the improvement of domestic regulatory quality and coherence. This chapter examines the case for reducing regulatory burden and improving regulatory quality as critical measures for reducing the cost of doing business in the country. The chapter first discusses the need for regulatory quality, provides a brief overview of regulatory reform in the Philippines, and highlights challenges for further reform. Second, it explains the advantage of having a formal regulatory management system (RMS) as an instrument for improving regulatory quality. The country does not currently have a formal RMS but it can be developed and institutionalized. A concluding section provides some policy recommendations.

At the onset, it is important to have a clear definition of regulation and regulatory reform. An early definition by Baldwin et al. (1998, p. 3) states that “regulation refers to the promulgation of an authoritative set of rules, accompanied by some mechanism, typically a public agency, for monitoring and promoting compliance with these rules.” Meanwhile, Gill (2014) defines regulation as “a legal instrument to give effect to a government policy intervention. The term used for legal instrument varies by jurisdiction but includes all primary laws, secondary regulations or tertiary rules.” The Organisation for Economic Co-operation and Development (OECD) describes regulation clearly as “any instrument by which governments, their subsidiary bodies, and supranational bodies (such as the EU or the WTO) set requirements on citizens

1 This chapter draws from Gilberto M. Llanto, “Toward an effective regulatory management system: Philippines”. The paper is a component study of a 12-country study organized by the Economic Research Institute for ASEAN and East Asia (ERIA). The author thanks Ponciano Intal Jr. and ERIA for permission to issue it as a PIDS discussion paper. It likewise appears as an ERIA discussion paper.

IIIReduce Regulatory Burden, Improve Regulatory Quality

Gilberto M. Llanto1

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Reduce Regulatory Burden, Improve Regulatory QualityIII

and businesses that have legal force. The term may, thus, encompass a wide range of instruments: from primary laws and secondary regulations to implement primary laws, subordinate rules, administrative formalities and decisions that give effect to higher-level regulations (for example, the allocation of permits), and standards” (OECD 2010).

The OECD’s and Gill’s definitions of regulation are comprehensive and generic. Applying this generic definition to the Philippine setting, regulation covers (a) laws enacted by the legislature, which can be considered the “primary laws”, (b) regulations normally issued by government or a governmental regulatory body to implement a law enacted by Congress, and rules and administrative formalities such as licenses, permits issued by local governments, and (c) local government permits and licenses or the “tertiary rules” in Gill’s (2014) taxonomy.

In the Philippines, regulations are commonly understood as circulars, memorandum orders, or executive orders issued by the national government, local governments, and regulatory bodies to influence or direct private behavior toward certain policy goals. This chapter adopts this narrower definition of regulation. The government can issue a regulation through an EO to implement a particular policy objective. The EO can be modified, sustained, revoked, or amended by the incumbent chief executive without going through the tedious process of legislation. This narrow definition also covers regulations implemented by regulatory bodies as mandated by laws, and local government permits and licenses. These are the types of regulation that impact investment, production, and consumption behavior on a daily basis and can be more easily modified or revoked by regulatory bodies such as the BSP, Land Transportation Franchising and Regulatory Board, and local governments, if so desired. The discussion of the need for a formal RMS is premised on Baldwin et al.’s (1998) view of regulation as covering not only the

rules (“authoritative set of rules”) but also the means (“mechanism”) or the regulatory body that ensures compliance with those rules. This is important because in discussing regulatory reform, one has to bear in mind that a principal goal is to establish effective regulatory structures, which require (i) well-designed, appropriate regulatory instruments, and (ii) capable and qualified regulatory bodies (institutions).

The need for regulatory qualityModern societies need efficient regulations to support growth, investment, innovation, and market openness. Governments use regulations as an instrument to influence or direct cognitive and behavioral changes in consumers (e.g., taxing tobacco and liquor) and firms (e.g., permitting and licensing regimes) toward reaching certain policy goals (OECD 2010). The policy goals range from economic to political to social policy objectives. Governments use regulations to mediate diverse competing interests in complex, evolving societies. Efficient and effective regulation is necessary both at the macro level and at the level of firms and consumers. The ultimate objective of such government intervention is to uphold public interest and the general welfare. In many developing countries where many institutions are weak and missing markets result in inefficiencies, regulation is one of several policy tools wielded by government to address the failure of the market to produce desirable social outcomes. This view of regulation rests on standard public interest theory that rests on two assumptions pointed out in Shleifer (2005): first, unhindered markets often fail because of the problems of monopoly or externalities, and second, governments are benign and capable of correcting these market failures through regulation.

When regulation is poor and inefficient, however, it can result in deleterious impacts on the economy. Poor regulatory environments undermine business confidence and competitiveness, erode

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public trust in government, and encourage corruption in public institutions and public processes (OECD 2010). Cases of regulatory failure and capture, which could be very costly and detrimental to affected parties and to the economy as a whole, are well-documented in the literature. Several causes of regulatory failure have been cited: overregulation that stifles business productivity and creativity to innovate; underregulation that enables firms to produce shoddy products and services, thereby impairing consumer welfare; and poorly designed regulation and faulty implementation compounded by weak institutional capacities that create a regulatory burden on businesses. Regulatory capture contradicts the assumption of a benevolent and competent government (Stigler 1971). With regulatory capture, firms can continue with monopoly pricing and even if regulators can intervene to ensure social welfare, they may not have the competence to do so and will rarely succeed (Peltzman 1989). Thus, the scope for government regulation is minimal at best, and such intervention is futile and dangerous even in the rare cases where there is scope (Shleifer 2005).

From either perspective, there could arise regulations that create unnecessary burden and introduce distortions into economic decisions. Recent literature has made a capital case of reviewing and improving regulatory quality, which is an important element in the creation of an environment conducive to investments and growth. Regulatory reforms have always been a work in progress in many countries since the 1970s, which spawned different waves of regulatory reform: (i) deregulation, (ii) re-regulation, and (iii) the creation of independent regulatory agencies (Radaelli and Fritsch 2012). These reforms were the response to overregulation, poorly designed regulation, and faulty implementation of regulation.

There are two main issues in regulatory reform: first, the technical design of regulatory instruments, and second, the quality of regulatory institutions

and their capacity to regulate ( Jalilian et al. 2006). Reducing regulatory burden by eliminating or modifying existing regulations improves regulatory quality. Assessing the likely impacts of new or proposed regulations also contributes to regulatory quality. At the same time, building regulatory capacity works for better implementation of rules. Addressing these two issues of (i) efficient regulatory instruments, and (ii) quality of regulatory institutions is important in the establishment of effective regulatory structures.

The emphasis of regulatory reform agendas has been on improving or ensuring the “quality of regulation” (Radaelli and Fritsch 2012), developing “smart regulation” (Baldwin 2005; Jensen et al. 2010), or installing “regulatory oversight” (Alemanno 2007; Weiner and Alemanno 2010 as cited in Radaelli and Fritsch 2012). Regulatory reform includes both “better quality” regulation through more effective alignment of regulatory means to achieve policy goals, and “regulatory relief ” through administrative simplification and deregulation to reduce the burden of regulation (Gill 2011). To achieve effective regulatory structures, governments have exerted efforts to improving regulatory frameworks, a major interest of policymakers since the mid-1990s with governments increasingly becoming concerned not only about specific regulations in certain sectors such as telecommunications and railways but also about the overall quality of institutions and processes where regulations are set and implemented ( Jakobi 2012).

The Philippines faces an enormous challenge in improving regulatory quality (Figure 3.1) and governance (Figure 3.2). The Asian Development Bank (ADB) observed that the regulatory burden was more acute in the Philippines than in its neighbors (ADB 2007).

Figure 3.2 shows relatively low governance indicators for the Philippines, which were responsible for the relatively low ranking in investment climate assessments and global competitiveness reports.

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Figure 3.1. Regulatory quality, ASEAN, 2008–2013

-1.00

-0.50

0.00

0.50

1.00

1.50

2.00

2.50

2008 2009 2010 2011 2012 2013

Indonesia Malaysia Philippines Singapore Thailand Viet Nam

Note: *Governance score (-2.5 to +2.5)Source: World Bank (WB) 2014b

Figure 3.2. Governance indicators for the Philippines, 1996–2013

0

10

20

30

40

50

60

70

1996 1998 2000 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Perc

entil

e ra

nk

Voice and accountability Political stability and absence of violence/terrorism

Government effectiveness Regulatory quality

Rule of law Control of corruptionSource: WB (2014b)

Policy and regulatory reform and challengesIn tracing the country’s journey in regulatory reform, this section highlights some of the major regulatory reforms in the past and points out some of the

current challenges. The big policy changes occurred between the late 1980s and the 2000s. During at least three decades in the postwar period, trade and industrial policy supported an inward-looking import

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substitution strategy that is supported by an elaborate system of import controls, fixed exchange rates, licensing and permitting regimes2. There were steps taken to liberalize trade in the early 1980s but the real major effort toward greater openness of the economy and more vigorous trade liberalization started in the late 1980s under the administraton of President Corazon Aquino. From then on, trade and industrial policies were geared toward trade liberalization, privatization, and deregulation (Medalla 1986, 1998; Llanto 2014).

The main driver of policy and regulatory reform in the post-Marcos period was the desire to recover growth and stabilize the economy after years of patchy economic performance during the martial rule period. The general tenor of post-Marcos reforms was reliance on private enterprise as the main engine of growth with government providing the proper policy and regulatory framework. Meanwhile, the Corazon Aquino administration dismantled monopolies in certain industries such as sugar and coconut oil, and reduced tariffs covering mainly industry.

Under the Ramos administration, a profound tariff reduction and import liberalization program geared for long-term industrial restructuring was put in place (Canlas 1996)3. Other significant reforms in the 1990s covered central banking, energy, telecommunications, shipping, and water. Monetary policy, financial stability, and regulation of banks were strengthened through the creation of the BSP that replaced the debt-ridden Central Bank of the Philippines. The Public Telecommunications Policy Act enacted in 1995 provided a regulatory framework for the telecommunications industry, which has just come out from a monopoly4. Water

2 This episode...3 This happened...4 President Ramos...

distribution in Metro Manila was privatized, which substantially improved coverage and delivery of water supply to millions of households and solved perennial problems of underinvestment and low-quality service. A regulatory office was established to oversee the performance of the two private water concessionaires tasked with water distribution in Metro Manila. Overall, the regulatory reforms strengthened the market orientation and outward-looking stance of the economy.

Several other important reforms took place in the 2000s; namely, the General Banking Law of 2000 and the Retail Trade Liberalization Act that opened retail trade to foreign investments albeit with certain restrictions. The energy sector was reformed through the Electric Power Industry Reform Act of 2001 (EPIRA), which unbundled the electricity sector into generation, transmission, distribution, and retail supply, and introduced competition in the generation, distribution, and retail supply segments. Transmission was privatized through a grant of a concession agreement to a private operator. It took 11 years for the EPIRA to be passed into a law and only after some political compromises covering generation and distribution, and condonation of debts of defaulting electric cooperatives.

At the local level, the devolution and decentralization under the 1991 Local Government Code (LGC) shifted the responsibility of basic public service delivery to LGUs and expanded the taxing and borrowing powers of local governments5. With the LGC, LGUs have a large role to play in simplifying local regulations and lightening the regulatory burden faced by business firms, which have located in their localities. The local governments (provinces, municipalities,

5 Under the LGC...

2 This episode in Philippine economic history is well told by Bautista et al. (1979) and Tecson (1996).3 This happened mainly because of the support and cooperation of a political coalition hammered in Congress by a pragmatic speaker of the House of Representatives.4 President Ramos and his close adviser, General Almonte, were staunchly against monopolies in certain sectors.5 Under the LGC, the national government has retained major taxing powers (e.g., income taxation, value-added taxation) and shares national revenue collections with LGUs through fiscal transfers, basically the internal revenue allotment.

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cities) are a very heterogeneous lot, with varying capacities for governance. Those LGUs with better-educated and reform-minded local chief executives have managed to turn their localities into local growth centers by providing a local environment supportive of investments and business, e.g., Cebu City, Iloilo City, San Fernando City, Lipa City, and a few others. Still many others have lagged behind and have depended on fiscal transfers and financial assistance coming from legislators (‘pork barrel’ funds) to fund local development expenditures.

However, the regulatory reform momentum weakened amid the charged political atmosphere during the respective administrations of Presidents Estrada and Arroyo. The main factor behind the slowdown was the political uncertainty that clouded these administrations. President Estrada was accused of corruption and other irregularities, while President Arroyo faced questions of legitimacy following allegations of poll rigging6. During these times, the political and economic institutions seemed to have adopted somewhat a ‘wait-and-see’ attitude, an accommodative position that favored vested interests but was ambivalent to push through with reforms because the politial leadership was conflicted and compromised7.

In retrospect, the Arroyo administration tried to improve regulatory quality and even provided regulatory relief to business through the passage of the Anti-Red Tape Act of 20078 (RA 9485). The law requires government agencies to process applications

6 De Dios and Hutchcroft (2003) provide...7 See Doronila (2001) and Laquian and Laquian (2002).8 The act aims to promote...

for simple transactions like permits and licenses within five days and other documentation for more complex transactions within 10 days. Moreover, each government agency is enjoined under the law to put up a “Citizens Charter”, a document to be displayed prominently showing “the range of specific services provided by that office, a step-by-step guide on how to avail of these services, and standards on quality and timeliness to be expected from the agency in rendering these services” (LGA-DILG 2008).

However, the problem was that political institutions, including the regulatory bodies and the bureaucracy, seemed to have been compromised by policies and programs designed to ensure the political survival of the incumbent. Thus, despite the raft of economic policy and regulatory reforms, poor governance has muted the impact of those reforms. The weaknesses and incompetence of some Philippine institutions have much to do with the overall poor quality of Philippine regulation and governance as indicated in several studies (Kauffman et al. 2007; Llanto and Gonzalez 2010).

The Philippines has embarked on a number of policy, regulatory, and institutional reforms in recent decades and the hard work has paid off in terms of the economy’s recent remarkable growth performance amid the lingering slowdown in the global economy and the devastation brought about by natural disasters. The economy grew at 7.2 percent in 2013, and 6.1 percent in 2014. With GDP growth averaging at 6.7 percent in the last three years, the Philippines is

6 De Dios and Hutchcroft (2003) provide a graphic rendition of the events surrounding the fall of the Estrada presidency. Malaluan and Lumba (2010) chronicled the case of Arroyo as follows: “Under President Macapagal-Arroyo’s term, constitutional bodies have been damaged by serious breaches of independence in relation to the presidency. The Commission on Elections, the body mandated to safeguard the integrity of elections, has been racked with charges of election fraud involving the 2004 elections. In 2005, recorded conversations between President Macapagal-Arroyo and Commission on Elections Commissioner Virgilio Garcellano during the canvassing of the 2004 poll results surfaced. The conversations indicated voting and canvassing manipulation to ensure the victory of Macapagal-Arroyo. On 27 June 2005, Macapagal-Arroyo appeared on national television to admit having called a Commission on Election official before and during the canvassing of the results of the 2004 elections. She apologized for her ’lapse in judgment’.”

7 See Doronila (2001) and Laquian and Laquian (2002).8 The act aims to promote transparency in government transactions by requiring each agency to simplify frontline service procedures, formulate service standards to observe in every transaction, and make these standards known to the client (Primer on the Anti-Red Tape Act).

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one of the better performers among many developing economies9. Strong macroeconomic fundamentals (low and stable inflation, moderate interest rates and a stable banking system, sustainable fiscal and external positions, political stability, good governance) underpinned this performance. Table 3.1 compares recent GDP growth performance among the ASEAN member-states.

In the past, policy and regulatory reforms had largely been the effort of government, a task that was not easy for it to undertake. But now, with ample democratic space, the private sector has started to collaborate with government in its reform efforts. In the earlier years of the current administration, the Philippines ranked low in various competitiveness reports. In response,

9 The recent economic performance...

the government issued Administrative Order No. 38, Series of 2013, which created an interagency task force, chaired by the National Competitiveness Council (NCC), to initiate, implement, and monitor the Ease of Doing Business (EoDB) reforms. These reforms cover the processes identified under the Doing Business Survey; namely, (1) starting a business; (2) dealing with construction permits; (3) getting electricity; (4) registering property; (5) getting credit; (6) protecting investors; (7) paying taxes; (8) trading across borders; (9) enforcing contracts; and (10) resolving insolvency. To enable the public to access and monitor the progress that different government agencies are making in simplifying business processes, the EoDB Task Force created the Doing Business Dashboard.

9 The recent economic performance was a striking contrast to past chronicles of the Philippine boom-bust growth record. Some analysts observed that while Philippine growth record in the 1960s and 1970s was comparable to that of its ASEAN neighbors, a pronounced divergence from that growth path occurred in the “lost decade” of the 1980s until the early 1990s (Balisacan and Hill 2003).

Table 3.1. GDP growth rates in the ASEAN, 2010–2015

2010 2011 2012 2013 2014f 2015f

Brunei Darussalam 2.6 3.4 0.9 -1.8 1.1 1.2

Cambodia 6 7.1 7.3 7.5 7 7.3

Indonesia 6.2 6.5 6.2 5.8 5.3 5.8

Lao PDR 8.1 8 7.9 8 7.3 7.4

Malaysia 7.4 5.1 5.6 4.7 5.7 5.3

Myanmar 9.6 5.6 7.6 6.8 7.8 7.8

Philippines 7.6 3.7 6.8 7.2 6.2 6.4

Singaporea 15.2 6.1 2.5 3.9 3.5 3.9

Thailandb 7.4 0.6 7.1 2.9 1.6 4.5

Viet Nam 6.4 6.2 5.2 5.4 5.5 5.7

Notes: f forecast based on ADB (2014)a The GDP estimates at constant prices are chain linked at the base year to preserve the price structure. Additivity prior to the base

year may be lost in the process.b In 2012, Thailand changed its concepts, methods, and practices for compiling its national accounts to comply with relevant

international standards. The national accounts compiled on the revised basis are only available for 1990–2012. In the absence of the 2013 estimates, selected key national accounts aggregates were derived by ADB using growth rates from Thai National Accounts compiled based on the old series. Users should be cautious when using the ADB-derived estimates for 2013. The growth rate for 2013 is preliminary and is based on the old national accounts series.

Sources: ADB (2014); ADB Statistical Database System

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Figure 3.3. Starting a business: Old procedures

Buy special books of account at bookstore.

(1 day, PHP 400)

Obtain barangay clearance.

(1 day, PHP 500)

Pay annual community tax and

obtain community tax certificate.

(1 day, PHP 500)

Obtain business permit from BPLO.

(6 days, see procedure details)

Apply and pay for Certificate of

Registration and obtain TIN at BIR.

(1 day, see procedure details)

Pay registration fee and documentary stamp

taxes (1 day, see procedure

details)

Obtain authority to print receipts and invoices

from BIR. (1 day, PHP 0)

Print receipts and invoices.

(7 days, PHP 3,500)

Have books of accounts and

Printer's Certificate of Delivery stamped by

BIR. (1 day, PHP 0)

Register with SSS. (7 day, PHP 0)

Register with PhilHealth.

(1 day, PHP 0)

Register with Pag-IBIG.

(1 day, PHP 0)

Notarize articles of incorporation and

treasurer's affidavit. (1 day, PHP 500)

Register the company with SEC and receive pre-registered TIN.

(2 days average, see procedure details)

Deposit Paid in Capital at the bank

(1 day, PHP 0)

Verify and reserve the company name

with SEC (1 day, PHP 40)

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

Source: National Competitiveness Council (NCC) 2015

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The EoDB reforms will significatly reduce the regulatory burden faced by firms and improve their competitiveness. In How to Start a Business, this takes six days to complete with only three steps in Malaysia, and in Singapore, three days with three steps, as opposed to the Philippines’ 16 steps and 34 days. To address this, the EoDB Task Force worked with various government agencies to reform the process. Now it takes only six steps and eight days to start a business in the country (Figures 3.3 and 3.4).

Table 3.2 shows some of the significant business reforms undertaken by the EoDB Task Force and some reform issues requiring immediate attention.

The regulatory and other reform efforts have yielded positive results. The country has improved its rankings in various global competitiveness indices (Table 3.3). This can be attributed to reforms in business processes including (1) resolving insolvency, (2) getting electricity, (3) registering property, (4) starting a business, and (5) paying taxes. These improvements were mostly in line with efficiency-related measures although there were also some that are geared toward improving the quality of service being provided to the stakeholders (NCC 2014).

Another NCC project in 2015 is the implementation of Project Repeal. The aim is to

Figure 3.4. Starting a business: New procedures

Source: NCC (2015)

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revoke laws and regulations that increase the cost of doing business and hinder competitiveness. This would eliminate onerous procedures that strain firm efficiency and increase the cost of doing business. At present, the NCC is gathering information on what laws and regulations to repeal and once these have been identified, it will work with Congress in repealing

such laws and regulations and establish a structure to oversee the process in 2016 (Remo 2014).

Establishing a formal regulatory management system (RMS)The OECD has pioneered reforms on regulatory policies and practices. Most OECD countries

Table 3.2. Progress in business reforms in Philippines, Doing Business Report 2008–2015

Doing Business Report

Indicator Reform

DB 2015 Trading across borders Truck ban in Manila created logjam in the ports (immediate reform issue requiring action)

DB 2014 Dealing with construction permits

Eliminated the requirement to obtain a health certificate

Getting credit Improved access to credit information by disseminating both positive and negative information to creditors and by enacting a data privacy act that guarantees borrowers’ right to access their data

Paying taxes Introduced an electronic filing and payment system for social security contributions

DB 2012 Resolving insolvency Adopted a new insolvency law that provides a legal framework for liquidation and reorganization of financially distressed companies

DB 2011 Starting a business Eased business start-up by setting up a one-stop shop at the municipal level

Dealing with construction permits*

Made construction permitting more cumbersome through updated electricity connection costs (immediate reform issue)

Trading across borders Reduced the time and cost to trade by improving customs systems and adding such functions as electronic payments and online submission of declarations

DB 2010 Getting credit Improved access to credit information through a new act regulating the operations and services of a credit information system

Paying taxes Made paying taxes less costly for companies by reducing the corporate income tax rate

Resolving insolvency Enhanced the insolvency process by promoting reorganization procedures through the introduction of prepackaged reorganizations and by establishing qualification requirements for receivers

DB 2009 Trading across borders Reduced the time for importing by upgrading the risk-based inspection and electronic data interchange systems

DB 2008 Starting a business Made starting a business more difficult by increasing the paid-in minimum capital requirement (immediate reform issue)

* Policy reforms/changes which made it more cumbersome to do business in the Philippines.Sources: WB (2014a); Author (for the reform issues requiring immediate attention)

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have introduced burden-reduction programs to counteract the growing layers of red tape (OECD 2009). A formal RMS can help reduce regulatory burden and improve the quality of regulations. A good RMS helps to identify the best choice of policy options and reduces unnecessary burdens on citizens and firms (OECD 2009). An RMS looks critically at how new regulations are made and existing rules reviewed and reformed. The envisaged result is a set of regulations that achieve their stated policy objectives and optimize economic benefits (OECD 2009).

The RMS is composed of four elements: (i) regulatory quality tools, (ii) regulatory processes, (iii) regulatory institutions, and (iv) regulatory policies ( Jacobzone et al. 2007). Regulations influence or constrain firm or consumer behavior but they can also

be inefficient or ineffective. A formal RMS provides the policymaker with the institutional tool to identify the best choice among several policy or regulatory options.

There is no formal RMS in the Philippines the way it is commonly understood and implemented in countries such as New Zealand and Malaysia, among others. Discourse in Philippine policy space has yet to consider the need for a formal RMS although various steps have been taken to improve regulatory quality, such as, for example, the establishment of the NCC to work on reducing the cost of doing business. However, the basic elements of such an RMS are already present in the country. The challenge is to pull those basic elements together to form a formal RMS.

To understand what the Philippines lacks in the area of RMS, it will be useful to compare the Philippine practice with that of Malaysia, which has developed

Table 3.3. Philippines’ rank in global competitiveness indices

2011 2012 2013 2014

WEF Global Competitiveness Indexa 75/142 65/144 59/148 52/144

IFC Ease of Doing Businessb 134/183 136/183 138/185 108/189

IMD World Competitiveness Reportc 41/59 43/59 38/60 42/60

TI Corruption Perception Indexd 94/177 105/176 129/183

Economic Freedom Indexe 115/179 107/179 97/177 89/178

Global Information Technologya Report 86/138 86/142 86/144 78/148

Travel and Tourism Reporta 94/139 n/a 82/140

Global Innovation Indexf 91/125 95/141 90/142 100/143

Logistics Performance Indexg n/a 52/155 n/a 57/160

Fragile States Indexh 50/177 56/177 59/178 52/178

Global Enabling Trade Indexa n/a 72/132 n/a 64/138

Global Gender Gap Reporta 8/135 8/135 5/136

Sources:a World Economic Forumb International Finance Corporationc International Institute for Management Developmentd Transparency Internationale Heritage Foundationf World Intellectual Property Organizationg World Bankh Fund for Peace

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a fully functional RMS10. The brief comparison in the succeeding section shows that the Philippines has some of the elements of a functional RMS but they are not effectively coordinated and woven into a coherent, requisite RMS implemented by a central oversight body.

Malaysia’s regulatory management system11

The Malaysian government’s New Economic Model (NEM) envisioned Malaysia as a developed economy by 2020. This will require substantial improvement in regulatory quality, which helps to fulfill several policy objectives of the NEM:

• Removal of barriers and reduction of cost of doing business;

• Improvement in decisionmaking for policy implementation; and

• Improvement in economic efficiency through enabling fair competition.

According to the National Economic Advisory Council, as of 2010, there were over 3,000 regulatory procedures weighing heavily on businesses, administered by 896 agencies at the federal and state levels (Latif 2014). To improve regulatory quality, the government established a formal RMS with four elements: regulatory policies, regulatory institutions, regulatory procedures, and regulatory tools. Malaysia adopted a regulatory impact statement (RIS) process. The government issued the National Policy on the Development and Implementation of Regulations (NPDIR) to address gaps in the management system for regulations12. The NPDIR is implemented by distributing specific functions to the following institutions:

10 Malaysia was chosen as comparator...11 The discussion of the Malaysia...12 Good regulatory policies help to...

National Development Planning Committee (NDPC), responsible for overseeing the implementation of NPDIR, assessing its effectiveness and recommending improvements; and examining RIS for adequacy and making appropriate recommendations.

Malaysia Productivity Corporation (MPC), responsible to NDPC; develops guidelines and programs for the implementation of the NPDIR; ensures capacity-building programs for regulators; assists the NPDC in assessing RIS; provides guidance and assistance to regulators in regulatory impact analysis (RIA) and preparation of RIS.

National Institute of Public Administration, responsible for providing training on RIA.

Regulators, responsible for developing, maintaining, and enforcing regulatory programs, and meeting the regulatory process management requirements. A regulator-coordinator who is a senior officer is appointed by a ministry or a regulator to act as the focal point for communications with MPC.

Stakeholders, responsible for inputs into the design and review of regulations.

Attorney General’s Chambers, responsible for offering legal advice on regulatory

10 Malaysia was chosen as comparator because it is by far the only ASEAN country that has developed a formal RMS, which has started to contribute in improving regulatory quality and coherence. Viet Nam is still in the process of establishing its own requisite RMS.

11 The discussion of the Malaysia RMS comes from the MPC (2013a, 2013b). The reader is referred to these sources because space limitations allowed only a brief treatment of the Malaysian RMS in this section.

12 Good regulatory policies help to enhance transparency and credibility of regulatory actions and create a climate for better quality of life and business environment (Tan Sri Dr. Ali Hamsa, Foreword, National Policy on the Development and Implementation of Regulations, 2013).

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solutions, drafting of resolutions, harmonization of regulatory requirements, etc.

In addition to the aforementioned functions of the MPC, the corporation was also tasked to (i) review existing regulations to remove unnecessary rules and compliance costs; (ii) undertake cost-benefit analysis of new policies and regulations to assess the impact on the economy; and (iii) make recommendations to the Cabinet on policy and regulatory changes that will enhance national productivity. The Malaysian government also created a Special Task Force to Facilitate Business (PEMUDAH) chaired by the Chief Secretary to the Government to ensure that Malaysia remains

an attractive and competitive investment location. PEMUDAH addresses specific issues impacting on firms’ decision to invest such as starting a business or establishing a factory. Its main task is to improve the quality of existing regulations. NDPC is tasked with ensuring the quality of new regulations (Figure 3.5).

Regulatory procedures apply to all federal regulators and are confined to regulations that impact on business, investment, and trade (MPC 2013a). The regulatory process requires regulators to notify MPC on proposals to introduce or amend regulations. MPC will assess whether the regulator is required to submit an RIS for the proposed regulation. Regulators proposing new regulations or regulatory changes must

Figure 3.5. Malaysian quality regulatory management system

Source: Latif (2015)

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undertake an RIA with the following components: problem identification, objectives, instrument options (feasible means for achieving desired objectives), and assessment of impact, which demonstrates benefits and costs. Timely and thorough consultations with affected parties constitute an important component of the RIA.

Notice of proposed regulations and amendments must be given so that there is time to make changes and to take comments from affected parties into account. An important item is coordination with other regulators to avoid duplications and possible inefficiencies in implementation (Figure 3.6).

Figure 3.6. Regulatory impact statement process, Malaysia

REGULATORY MANAGEMENT SYSTEM

RIS NEED ASSESSMENTMPC assesses the need for RIS

(3 days)

UNDERTAKE RIARegulatory to carry out impact analysis and

consultation

ASSESSMENT AND REVIEW OF RISMPC review RIS

(3 weeks)

SUBMISSION OF RIS TO NDPCMPC present RIS to NDPC

(1 week)

NDPC EXAMINES RIS FOR ADEQUACY(3 weeks)

PROVIDE RIS TO DECISIONMAKERRIS is forwarded to the Cabinet, Minister, or

other authority responsible by the regulator

PUBLICATION OF RISMPC to consul: regulator on publication of

RIS

RIS is submitted to MPC

Source: Malaysia Productivity Commission (2013a)

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Philippine “regulatory management system”At present, the next big wave of reforms covers barriers to private investments, especially foreign direct investments and employment generation, such as inadequate infrastructure, perceptions of instability in policy and contract, and inefficient regulations. Tackling inefficient regulations may be properly done through a tool like a formal RMS.

Figure 3.7 may help in understanding the country’s “RMS”13. The Philippines has the four basic elements of an RMS (second row of boxes) as described in OECD (2010). However, the elements in the third row of boxes do not necessarily represent integral parts of a coherent and coordinated RMS nor are they always regularly undertaken, e.g., cost-benefit analysis, public consultations in preparing regulatory

13 The RMS is enclosed...

changes. The NCC is an outsider in the regulatory review process. It is essentially an advocacy body peopled by government and private sector industry associations whose main concern is to promote key regulatory reforms, among others.

A formal RMS requires the conduct of an RIA and a subsequent issuance of an RIS prior to any decision to impose the regulation. In a formal RMS, an institution conducts a systematic analysis (RIA) of proposed new regulation, or of a proposal to revoke an existing regulation. The RIA is supported by formal empirical studies. A formal statement of the expected impact of the proposed change (RIS) is later issued by the regulator. A formal RMS also has a central oversight and coordinative body that will review proposed and existing regulations.

13 The RMS is enclosed in quotation marks to signify that there is yet no formal RMS in the Philippines as stated earlier.

Figure 3.7. Elements of the Philippine “regulatory management system”

NATIONAL COMPETITIVENESS COUNCIL

REGULATORY POLICIES

REGULATORY POLICIES

REGULATORY POLICIES

REGULATORY POLICIES

REGULATORY MANAGEMENT SYSTEM

MACRO SECTOR • INTERAGENCY COMMITTEES

• CONGRESSIONAL OVERSIGHT

• PUBLIC CONSULTATIONS

• PUBLICATIONS

• COST BENEFIT ANALYSIS

• DESCRIPTIVE ANALYSIS

Source: Author’s rendition

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The nearest Philippine equivalent, albeit imperfect, to a formal regulatory policy statement is the government’s declaration of national competitiveness as a goal through EO 571, Series of 2006, which created the Public-Private Task Force on Philippine Competitiveness to promote and develop national competitiveness. The mandate was to ensure that the Action Agenda for Competitiveness is implemented effectively through the collaborative effort of the public and private sectors. Particular key reform areas, such as business efficiency (reducing cost of doing business), infrastructure, and governance, which are critical in developing a more competitive business and investment climate, are targeted for implementation. Regulatory reform at the national and local levels is expected to bring down the cost of doing business. Administrative Order No. 38 created an interagency Task Force on Ease of Doing Business to initiate, implement, and monitor Ease of Doing Business reforms.

Philippine regulators are neither required to undertake an RIA nor issue RISs because these processes have never been required of them. The standard practice is to notify the public, affected parties, and various stakeholders about a proposed change in existing regulation or the introduction of a new regulation, and invite them to public hearings and consultations where affected parties and stakeholders can express their opinion or view on the pending regulatory change14. Vigilant members of civil society often attend such hearings, e.g., National Association of Electricity Consumers, Transparency and Accountability Network, and actively engage the regulators in dialogues over particular regulatory issues. The approved regulation is published in newspapers of general circulation to inform the affected parties and the general public. Regulatory institutions also publish regulations in their respective

14 An example is the public...

websites, e.g., BSP publishes circulars, etc., affecting the banking system.

The most common tools used in assessing the effect of regulatory changes are the usual descriptive analysis and standard cost-benefit analysis. It can be assumed that Philippine regulators typically undertake a cost-benefit exercise to determine the efficiency and perhaps the distributional effects of regulatory changes. However, the results of such exercises are neither published nor made available to the wider public and not even to academics or policy analysts for scrutiny. The public and affected parties could only assume that such an exercise has been done prior to the issuance of a regulation.

Three pilot RIA agencies have been identified, namely, the Department of Tourism (DOT), the Department of Labor and Employment (DOLE), and the National Economic and Development Authority (NEDA). Through a technical assistance under the TA-PHI Strengthening Institutions for an Improved Investment Climate with the Philippine Government, ADB is assisting the implementation of an RIA process at the DOT and DOLE (ADB 2012). At the NEDA, the RIA pilot project is under the ADB-supported technical assistance on Increasing Competitiveness for Inclusive Growth Program 215.

The RIA pilot projects will focus on developing the capacity of the pilot agencies in conducting RIA that is based on regulatory best-practice principles that are suited to local conditions. It will be progressively rolled out across other departments backed by an executive order for full implementation across the Philippine government in 2015 including the establishment of a central Office for Best Regulatory Practice (ADB 2012). Progress to date includes:

• Establishment of RIA pilot projects in DOLE and DOT

15 Personal communication with Governance Staff, NEDA.14 An example is the public hearings conducted by the National Telecommunications Commission on proposed regulatory changes.15 Personal communication with Governance Staff, NEDA.

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• Development of RIA guidelines including templates

• Conduct of RIA training across participating departments

• Various awareness-raising activities on RIA among senior representatives from Philippine government and business

There is a plan to establish the Office for Best Regulatory Practice at NEDA (Box 3.1).

Current challenges include the need to improve the level of skills and knowledge in analyzing the impacts of regulations, weak coordination across ministries in the development and assessment of laws and regulations, and weak interface between government and business in regulatory development

and implementation, e.g., poor consultation practices and access to regulatory information (ADB 2012).

There is no strong central oversight body or institutional mechanism that systematically coordinates, checks for consistency, and reviews new regulations or amendments to existing regulations proposed by regulators, e.g., Metro Manila Development Authority, Energy Regulatory Commission, Toll Regulatory Board, Land Transportation Office, etc. The effort to review the relevance, coherence, and quality of regulations is diffused to as many as 60 different regulators. The DOJ is tasked with reviewing policies and other proposed measures for consistency with international obligations and advises the chief executive or the department concerned on these matters16.

16 The DOJ was also designated...16 The DOJ was also designated by EO No. 45, Series of 2011, as the Philippines’ Competition Authority, with the Office of Competition under it as the implementing arm with

the mandate to enforce competition policies and laws and to prosecute violators.

Box 3.1. NEDA RIA initiative

In late 2014, the NEDA was identified as lead agency in the institutionalization of RIA. Once a regulatory management system is established, it will also be responsible for reviewing and providing advice on standards and quality of RISs. Preparatory tasks are now being spearheaded by the NEDA Governance Staff whose primary mandate is to oversee and monitor progress of the governance reforms as well as review policies pertaining to good governance and the rule of law, which include competition and antitrust enforcement.

The NEDA is currently undertaking capacity-building activities, which include the creation of the interstaff NEDA Good Governance Movers, conduct of RIA training sessions, and development of RIA Guidelines and Manual that will eventually be used as a reference in the review of RISs from government agencies that are performing regulatory functions.

For 2015, the NEDA is set to conduct research studies that will look into the governance framework for key strategies in agriculture, industry, and services as well as on their institutional arrangements and regulatory quality. In addition, it will expand the RIA pilot agencies and undertake capacity-building activities for these agencies. The NEDA is also exploring the possibility of conducting a comprehensive review of the Philippine regulatory system and formulating a regulatory policy.

Source: Personal communication with Carlos Abad Santos, NEDA Governance Staff Director

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In effect, regulatory bodies function as regulatory silos that focus only on their particular sectors to regulate. The national (central) government or a local government may create ad hoc task forces to tackle specific regulatory issues or problems that arise from time to time and this may require coordination of concerned government agencies. An example is the creation of an ad hoc task force to review and propose solutions to the problems arising from the local ordinance enacted by the City of Manila regulating movements of cargo trucks during particular hours of the day. The cargo truck ban triggered rising complaints by transport and logistics operators, importers and exporters, foreign chambers of commerce about the economic costs of this local regulation. It seems that proper coordination with various stakeholders was not done prior to the issuance of the local regulation (i.e., the cargo truck ban).

The creation of a temporary, short-lived ‘after-the-fact’ ad hoc task force to solve regulatory problems or any problem in government is a common approach. This is an inferior approach compared with having a formal central oversight body tasked with a systematic review and consultation regarding amendments to existing regulations or proposed new regulations prior to approval.

But this is not to say that ad hoc approaches are the norm in the Philippine regulatory system. There are standing governmental interagency committees, e.g., Infrastructure Committee of the NEDA, that could look into particular regulatory issues whenever such issues arise. However, they are not focused on regulatory reform but have a broader mandate that includes reviewing and approving sectorial plans, e.g., national road plan, and assessing proposed infrastructure projects seeking foreign or local funding, and other tasks. These interagency committees are not geared either for undertaking a systematic review

of regulations because of lack of mandate, focus on regulations, proper staff, and technical capacity to undertake a formal regulatory review process.

There are also congressional oversight committees that can examine and assess regulations, e.g., Joint Congressional Power Commission, Joint Congressional Oversight Committee on the Clean Air Act. However, these are legislative committees that merely exercise an oversight function to check executive compliance with a particular law, and sometimes, they are more interested in promoting popular interest for political reasons. Similar to governmental interagency committees, those oversight committees neither have the technical capacity nor the proper staff to undertake formal regulatory review process.

Yet it seems the government has finally realized the need to establish a relatively permanent institution to advocate for regulatory reforms. The impetus for the establishment of the NCC17 derives from the strong advocacy by the private sector, especially the local and foreign chambers of commerce to combine public and private resources in finding solutions to barriers to investment and growth.

However, it must be made clear that the NCC is not a central oversight body to review regulations for consistency, coherence, and coordination among concerned government agencies. The NCC could potentially be the equivalent of the Malaysian PEMUDAH, if properly structured and empowered to work on reviewing existing regulation and applying a “regulatory guillotine™”18 ( Jacobs 2006) on those regulations that constitute unnecessary regulatory burden on firms and consumers. Regulatory guillotine has been used in several countries as a basic tool for regulatory simplification ( Jacobs 2006). Box 3.2 summarizes the regulatory guillotine approach taken by Viet Nam for an effective regulatory reform.

17 Amending EO No. 571 (s. 2006) renaming...18 Trademark by Jacobs, Cordova and Associates...

17 Amending EO No. 571 (s. 2006) renaming the Public-Private Sector Task Force on Philippine Competitiveness as the NCC and expanding its membership.18 Trademark by Jacobs, Cordova and Associates. http://regulatoryreform.com/regulatory-guillotine/ (accessed on December 5, 2014).

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Assessment of Philippine ‘RMS’and policy recommendationsThe process of regulatory reforms was never, and will never be, an easy path for a country such as the Philippines. Just like any developing country finding its own growth path, the Philippines went through stages of regulation reform fraught with challenges brought about by bad governance during the martial law regime, the 1997 Asian financial crisis, which started in Thailand, the 2008 global economic crisis, which originated from US subprime mortgage markets, and a domestic political crisis during the Arroyo administration. Notwithstanding these challenges, reform efforts were undertaken with positive results. The question is whether the country can sustain growth and make it more inclusive or whether growth will again be short lived and episodic. It is a

question basically of staying the course of the reform path wherein a formal RMS could certainly help the economy. There is a need to manage the reform process in a more systematic and deliberate way through an effective RMS. A number of reform efforts succeeded but there were failures as well.

Regulatory policyRegulatory policy is the first of the four elements of an effective RMS (Figure 3.7). Market-oriented and outward-looking regulations are a substantial element of an effective RMS for the Philippines. The Philippines has the first element of a formal RMS; namely, regulatory policies. Overall, the country’s regulatory framework includes market-friendly regulations, rules, laws, and administrative and executive orders that try to provide the policy and regulatory environment as

Box 3.2. Objectives and methodology: Using a regulatory guillotine approach

Objective: Simpler, more efficient, and more transparent administrative system. The marching orders are: (i) to simplify at least 30 percent of administrative procedures and reduce administrative costs by at least 30 percent (hence the name Resolution 30), and (ii) reduce the implementation gap in the domestic regulatory system with the WTO and international trade agreements through the establishment of a modern and better regulatory system.ProcedureInventory: prepare standardized list of administrative proceduresSelf-review: check legitimacy or necessity of administrative procedure; check suitability and reasonability of administrative procedureReview: review by a Special Task Force to review and assess administrative proceduresRecommend: retain, simplify, or abolish administrative procedureProgress so farInventory: more than 5,000 administrative procedures in more than 9,000 legal normative documents were added to the database of administrative proceduresReview: participation of ministries, business community, and foreign business representativesRecommended for simplification: in June 2010, 258 administrative procedures have been reformed; in late-2010, 25 special resolutions requesting all ministries to simplify 4,723 existing administrative procedures were submitted.

Source: Vo and Nguyen (2015)

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well as incentives for increased private participation in the marketplace.

However, there are national and local regulations that have to be reviewed, simplified, or even revoked, if necessary to lighten, if not to eliminate, regulatory burden on firms and consumers. A thorough and detailed review of all national and local regulations for simplification and improvement has never been done in the country. There is a need to review the country’s stock of regulations to revoke or amend those that have stifled entrepreneurship and innovation.

Cutting red tape and tackling regulatory inflation are fundamental measures to cut the cost of doing business (OECD 2010). Most OECD countries have burden-reduction programs to counteract the growing layers of red tape (OECD 2009). Applying Scott Jacob’s idea of a regulatory guillotine appears very appropriate at this time.

Regulatory institutionsThe Philippines has the second element of a formal RMS—regulatory institutions. Regulatory institutions cover various sectors, e.g., banking, telecommunications, energy, water, while government departments (ministries) also discharge regulatory functions, e.g., the DENR is in-charge of environmental laws and regulations. A critical issue with respect to ensuring regulatory quality is the inability of regulatory institutions, including some government departments, to translate regulations into efficient regulatory outcomes. This could be due to inefficient regulatory policies, weak institutional capacity, or resource constraints.

The Philippine experience shows that bad governance and inefficiencies in institutions, including the bureaucracy and the judiciary, tend to blunt reform efforts and weaken the positive impact of regulatory reforms. To some extent, weak institutions form a strong barrier to reforms. The country may have very good regulations (laws, regulations, rules) but these

may not fully confer the expected outcomes if not properly implemented. There is a need for competent institutions to effectively implement those regulations. Implementing good regulation is not a disembodied phenomenon but is nested in an effectively functioning institutional setting (Llanto and Gonzalez 2010). Lim (2010) bluntly noted that bad governments not only increase government failures, but also reduce the chances of urgently addressing market failures.

Competent regulatory institutions will be an indispensable element in an effective RMS to ensure regulatory quality. Such institutions will monitor, assess impact, and re-examine the usefulness of regulations. A key insight at this juncture is the critical importance of having functional and credible regulatory institutions in a country’s regulatory system. The absence of such credible institutions compromises the efficiency and effectiveness of regulation in the economy. In this regard, there is a need to continue with efforts to strengthen the civil service, especially those civil servants in regulatory institutions, and to create an appropriate incentive structure for efficient public service delivery and better regulatory policies.

This leads to the question of whether the right approach for the Philippines is to create institutions such as that in Malaysia, which has the MPC and the PEMUDAH as critical institutions in its formal RMS. The Philippines does not have a formal institutional framework or arrangement similar to Malaysia’s that has a clear delineation of the different roles of institutions (e.g., MPC, PEMUDAH) in the review and assessment of regulatory policy changes. In the Philippines, there is no central oversight body that reviews the appropriateness and impact of existing or future regulations, and that is accountable for promoting whole-of-government regulatory reform. Each regulator takes care of imposing regulation, monitoring and evaluating regulatory changes, whether they be new proposals or amendments to existing regulation.

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The APEC (2009) points out the importance of having a comprehensive regulatory reform to improve the competitiveness of firms and industry.

While the PEMUDAH is not a permanent institution but a task force established in 2007, it is a respected platform where the public and private sectors can discuss and advocate regulatory reforms.19 Because it has acquired credibility, the PEMUDAH may be expected to stay around for quite some time until it evolves into some other organizational form as may be decided by the authorities. In the Philippines, the NCC can assume PEMUDAH’s role but it has to be properly empowered and resourced. The Philippines has institutionalized public-private collaboration in regulatory reform and this is a good start in developing an appropriate institutional structure for regulatory reform. The Legislative-Executive Development Advisory Council (LEDAC), which was established by President Ramos during his term of office to act as a venue for getting agreements on what proposed legislation to push and support, could be a starting platform for the executive and legislative branches to discuss, agree, and monitor priority regulatory reforms20. At present, the NEDA is trying to develop its capacity to do RIA with the objective of establishing an “Office of Best Regulatory Practice that will oversee advocacy, capacity building and roll-out of regulatory impact assessment (RIA) to the national government on a sustainable basis”21. Whichever institution may be tasked to function as a “PEMUDAH” will depend on the commitment and decision of the political leadership. This is an issue that should be tackled at the cabinet level to build consensus and resolve to implement a similar system in the country. There is a

19 Comment of Dato Abdul Latif...20 The LEDAC has been created...21 Information supplied by Director Carlos Abad Santos...

case for informing and convincing the president and the cabinet about the importance of a formal RMS for the country. This task seems to be an in-built role for NEDA, being the government agency that coordinates government policy.

However, there is a more fundamental issue than the presence of credible regulatory institutions. Governmental institutions that are tasked to implement regulation and arbitrate among competing interests could be weakened by the willingness of the political leadership to compromise good regulation in exchange for political support and expediency. In the Philippine setting, it seems that in the past the problematique in policy and regulatory reforms was not so much about the lack of interest or willingness of the bureaucracy and/or regulatory institutions to implement good regulatory policies but the lack of political will and commitment of a compromised leadership to reform. This seems to be the experience during past administrations.

Fortunately, strong political will and leadership to reform are not an issue now in the Philippines as described earlier because a reform-minded administration currently occupies the seat of political power. But what of the future? Hopefully, the positive effects of governance reforms pursued by the current administration can lead to the formation of a constituency for reforms composed of private business firms, an expanding middle class, academe, civil society, returning overseas Filipino workers who have experienced the results of better governance in countries where they have found jobs, and other stakeholders that can exert pressure on the succeeding administration to stay the course of

19 Comment of Dato Abdul Latif, MPC Deputy Director-General, during the Second Technical Workshop, April 25, 2015, Kuala Lumpur, Malaysia. 20 The LEDAC has been created through RA 7640 approved by then President Fidel V. Ramos on December 9, 1992. The LEDAC serves as a consultative and advisory body

to the president, chair of the NEDA Board, on certain programs and policies essential to the realization of the goals of the national economy. The LEDAC also serves as a venue to facilitate high-level policy discussions on vital issues and concerns affecting national development. Source: http://ledac.neda.gov.ph/about-ledac/ (accessed on December 8, 2014).

21 Information supplied by Director Carlos Abad Santos, NEDA Governance Staff.

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policy and regulatory reforms, and even to accelerate the process of reform22.

Policy dialogues, notificationsThe Philippines has the third element of a functional RMS. Policy dialogues, notification on proposed regulatory changes, consultations, and even workshops are standard procedures in the process of changing or introducing new regulation. The Philippines is an open society and takes great pride in providing various stakeholders with space to air their views on policy and regulatory reforms and in general on government performance. Political freedom is a cherished value in the country. A political culture of freedom, openness, debate, and dialogue, which are critical elements of a functional RMS, exists in the Philippines.

However, these procedures (consultations, dialogues) happen on a sectoral basis and are not necessarily coordinated across regulators that may be involved or affected by the proposed regulatory change. Regulatory reviews are undertaken by agencies responsible for specific sectors but they act as silos with no attempt at coordination with other regulatory bodies. OECD (2010) avers that some regulations have sector-specific implications but many others have much broader effects. If this were true, then coordination among affected regulators should be a default feature in the Philippines’ management of regulatory changes. Unfortunately, coordination across regulatory agencies or bodies is an exception rather than a default arrangement.

The procedure for issuing regulation by the executive branch of government is simpler and less laborious than that of the legislative branch. Public consultations or hearings are conducted to get reactions, comments, and suggestions on a proposed regulation to be issued, for example by a regulatory body. Those

22 The national election of the next...

comments and positions presented by stakeholders and interested parties serve as input into the internal decisionmaking process of regulatory bodies.

In addition, there are no established protocols or procedures for review and there is no central governmental unit or agency that is mandated to do this. Regulatory bodies can choose to internally review the regulations they impose on economic agents but it is not known whether they actually conduct a regular review. Another matter is the methodology for review and vetting of proposed regulation or proposed changes in existing regulation. There is also no mechanism for national government-local government coordination on regulatory impositions, and sometimes some local governments could be overzealous with their exercise of local autonomy. The example of the cargo truck ban (discussed above) imposed by the City of Manila without proper coordination and consultation with stakeholders, which produced a monstrous logjam in the main international seaport and impacted on the cost of doing business, is a case in point.

The formal assessment of a proposed regulation or law undergoes a formal process in the legislature. Passing a law is undertaken in the legislature voting on a proposed legislation that has been reviewed and approved at the committee hearings and finally brought to a plenary session for voting. A proposed legislation is subjected to at least three readings in a committee. Conversely, a proposed legislation may be stopped or disapproved during any of those three readings. Various stakeholders and interested parties are invited to committee hearings to present position papers on the proposed legislation. Approval at the plenary session through a vote of a quorum of legislators moves the process to a bicameral committee meeting where representatives from Congress and the Senate deliberate and agree on the final shape of the

22 The national election of the next president and other national officials will take place in May 2016. The elected president will have a six-year term, without re-election, as provided for by the Philippine Constitution.

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proposed legislation that has been approved earlier in their respective chambers.

Formal assessment of proposed regulation or proposed changes in existing regulation is much simpler in the executive department because it is only the concerned regulatory body that is tasked to conduct an assessment, if warranted. There is no need to go to the legislature for changes or reforms that may be done through executive fiat. At the local level, proposed local ordinances have to get the approval of the local council. The local chief executive after consultation with stakeholders may issue a local executive order.

Regulatory impact analysisThe Philippines does not have the fourth element of an RMS, the RIA. However, it can be safely assumed that some cost-benefit analysis or comparison of advantages and disadvantages of a proposed change in the regulations is undertaken prior to formal issuance. It is not a standard practice in the country to subject existing or proposed regulation to an RIA but some form of ex ante descriptive analysis of the effect of proposed regulatory changes is presumably done by sectoral regulators, and sometimes by researchers23. Monitoring and impact evaluation of regulatory policies are not yet done by Philippine regulatory institutions. There is a need to continuously assess regulatory impacts and share the information with the public, which can use the power of public opinion to motivate government agencies and regulatory bodies to perform well.

The three pilot projects in the DOT, DOLE, and NEDA are important steps toward developing capacity to conduct RIA in those departments and later in all Philippine departments (ministries) as envisaged by the ADB Technical Assistance Program.

23 For example, the Philippine Institute for Development Studies...

It is ideal to have the RIA as a whole-of-government policy. Principle No. 1 of the Recommendations of the OECD Council on Regulatory Policy and Governance encourages countries to commit at the highest political level to an explicit “whole-of-government” policy to assure regulatory quality (OECD 2015). However, as stated, this is the ideal and perhaps it is only the OECD countries that have gone that far in making RIA a whole-of-government policy. Developing a culture of regulatory quality and conducting an RIA will take time but the Philippines can profit from investing in developing capacity for RIA. It is central to an effective RMS, and embedding it as a whole-of-government policy in the future will be imperative to meet the goals of regulatory quality and regulatory coherence. The Philippines can benefit from using more systematic and empirical approaches such as the RIA in identifying rules and regulations to be subjected to a regulatory guillotine ( Jacobs 2006). The RIA is an important tool in a formal RMS as indicated in the experience of Malaysia and other countries that have incorporated it in their respective regulatory reform process.

At present, it will be difficult to operationalize the RIA across the board, so to speak, but its adoption and implementation could be started in critical regulatory bodies such as the National Telecommunications Commission, Energy Regulatory Commission, or even in a few local governments. Policymakers can prioritize sectors, e.g., financial markets, energy, water, or regulatory institutions where the requirement to conduct an RIA will be established. Establishing the RIA as a process in regulatory institutions will take leadership and pressure from public opinion. This makes a case

23 For example, the Philippine Institute for Development Studies was asked to estimate through a computable general equilibrium model the likely impact of tariffication when the government was bent on liberalizing trade in goods.

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for educating the public and civil society in particular on the RIA so that they may put pressure on political leaders to adopt the RIA as a component process for good governance. Since the NCC is already with its foot in the door of the bureaucracy, so to speak, it could advocate the RIA and a formal RMS. The Department of Trade and Industry (DTI) and the NEDA, being oversight agencies could trigger the process. The DTI’s advantage is of being headed by a Trade secretary with a better perspective than other stakeholders on the importance of reducing cost of doing business. A plus factor for the Trade secretary is his perceived closeness to the president and the wide support he enjoys from the business community. The same thing may be said of the incumbent secretary of Economic Planning, who enjoys the respect and support of academe, policy analysts, legislators, and is also perceived to be very close to the president.

The current technical assistance to the NEDA Governance Staff is auspicious. Under this donor (ADB) effort, the country could start to take stock of regulations that impose regulatory burden on the private sector. The NEDA Governance Staff is presently in talks with the PIDS on a number of studies on governance and regulation.

There is no formal, much less effective, RMS in the country. However, the review has revealed that the elements of a formal regulatory system are present. While the different elements can be further strengthened or improved, the review implies that the country is ripe for a formal RMS, if the political will is there. Establishing a formal and effective RMS needs strong political support at the highest level. The key issue is to convince the political leadership at the executive and legislative levels of government to

think in unison about the timeliness of establishing a formal RMS. How can this be done? In general, policy reforms do not arise from the bureaucracy, which may resist changes in its daily routine for a range of reasons. Fortunately, the NCC is working with the bureaucracy to implement the necessary reforms to cut the cost of doing business. The NCC can walk the extra mile by advocating for a formal and requisite RMS. Its advocacy can be bolstered by the wide credibility and support it has with the private business sector. The NEDA and LEDAC are other institutions already in place that can be harnessed to establish a formal and effective RMS, but again, this will happen only if the political will is there.

Political willPolitical and institutional factors play a pivotal role in ensuring regulatory quality and coherence or in waylaying good regulations. Philippine experience confirms this. Alignment of political and institutional interests with regulatory objectives and the expected benefits arising from the regulation can ensure support for and implementation of good regulations, e.g., passage of excise taxes on “sin” products24 and spending of proceeds in support of health sector projects. Political support to impose excise taxes on tobacco and liquor (the so-called “sin” products) and earmark the proceeds thereof will project a good image of the supportive politicians into the electoral space25.

On the other hand, in other instances, satisfaction of personal political objectives collides with regulatory reform efforts, for example, derailing efforts to pass a competition law so that monopolistic or oligarchic structures in private business can

24 The “sin” products are demerit goods such as tobacco and liquor. 25 Lobby to dilute the sting...

24 The “sin” products are demerit goods such as tobacco and liquor.25 Lobby to dilute the sting of sin taxes is strong but nevertheless, the proposed taxation passed.

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continue with their grip on product and distribution markets26, 27. Thus, tension exists between implementation of good regulations on the one hand, and the weak capacity of Philippine institutions and the intervention of conflicted politicians beholden to vested interests, on the other hand.

In the past, critical regulatory reforms were vigorously undertaken under reform-minded administrations. However, regulatory reform efforts can be attenuated by political events that may distract or compromise the political leadership (e.g., Estrada and Arroyo administrations facing political upheavals during their respective regimes). Reforms in governance under the current administration seems to have restored business and consumer confidence in the economy. This opens a window for regulatory reform in the country.

Certain regulatory reforms covering various sectors (water, telecommunications, banking, sugar, and coconut oil) were successfully undertaken by the executive branch of government, but not without serious opposition from vested interests. This demonstrates the paramount importance of political will and able leadership to surmount even the strongest opposition from vested private groups and conflicted politicians. The importance of committed reform champions28 as a significant factor in achieving those regulatory reforms despite opposition by vested interests has to be recognized. Regulatory reform efforts happen at two levels: the national and local government levels. Local

26 A good example is the...27 The long struggle to pass...28 For example, Corazon Aquino, ...

goverments exhibited varying success in reforming local policies and ordinances. Reform-minded local governments that have good governance frameworks, including regulatory frameworks, have succeeded in attracting investments and businesses in their areas of jurisdiction.

Despite the raft of good regulatory reforms, regulatory quality was poor. A weak point in the regulatory system is poor implementation of regulatory measures. Private firms have complained of regulatory burden such as regulatory processes that increase the cost of doing business. Weak institutional capacity for regulation and enforcement, and the absence of a more deliberative process of review, consultation, publication, and approval of proposed regulatory changes (new regulation or changes in existing regulation) had much to do with poor regulatory quality. There is a need for a more systematic approach to regulatory reform, which otherwise could appear as serendipitous or even sporadic in the face of opposition to reforms by vested interests, including the bureaucracy, which may not always welcome the idea of change. It will be to the country’s advantage to have the political leadership commit political capital to a sustained and systematic program of regulatory reform within a realistic time frame.

In sum, it is clear from the assessment that the country does not have a formal, much less effective, RMS that will help ensure regulations that deliver the envisaged development outcomes. What an observer sees is different degrees of regulatory quality across

26 A good example is the reported crony capitalism under the Marcos regime, which political allies of the reigning strong man used to allegedly accumulate wealth at the expense of the common weal.

27 The long struggle to pass a competition law came to a halt on July 21, 2015, when the landmark “Philippine Competition Act” (RA 10667) was finally signed into law. This act seeks to promote fair competition in trade, industry, and all commercial activities. It penalizes anticompetitive behavior and abuses in dominant position such as price setting, imposing barriers to entry, and other restrictions to fair competition. It also provides for the creation of a Philippine Competition Commission under the Office of the President to oversee the enforcement and implemention of its provisions. (Source: http://www.gov.ph/2015/07/21/republic-act-no-10667/ [accessed on August 6, 2015]). While this law holds a lot of promise, its efficacy will undeniably depend on its strong and vigorous enforcement by the commission.

28 For example, Corazon Aquino, Fidel Ramos, and Joe Almonte. General Jose Almonte was the foremost and most trusted adviser of President Ramos.

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regulatory institutions. There is a lot of unevenness in the way regulation is conceptualized, evaluated, consulted, approved, and implemented. Regulatory changes may be proposed and considered by a concerned government agency but only in response to a critical event or a crisis. For example, an impending shortage of rice, the staple food of the population, may trigger a review of import protocols and licensing regimes to expedite importation29. However, a review, if ever conducted, is not a deliberative, coordinated process but rather responds sporadically to emerging situations calling for such a review. A well-coordinated and effective RMS could result in more consistent and coherent regulations, and a lower regulatory burden on consumers and firms.

On a positive note, the elements of a formal RMS are present in the country but are not coordinated into one coherent RMS with a central oversight body that reviews proposed new regulations and proposed changes in existing regulations. In developing an effective RMS for the country, it is important to heed the advice of OECD (2010) that for regulatory policy to support economic and social renewal, its core institutions and processes need to be developed further. This includes (i) a strengthening of evidence-based impact assessment to support policy coherence; (ii) institutional capacities to identify and drive reform priorities; and (iii) paying more attention to the voice of users, who need to be part of the regulatory development process.

In view of the foregoing, the following are recommended:

• The government must exercise firm leadership and political will in reducing regulatory burden and improving regulatory quality. It can do this by

29 In the Philippine setting,...

establishing a formal RMS. It can start by issuing an executive order announcing RIA as a whole-of-government policy, and not for sector regulators alone.

• The political leadership should identify or constitute a central oversight body that will oversee the implementation of a formal RMS. It can establish an institution such as the contemplated Office of Regulatory Practice that will oversee the conduct of RIA in national government regulatory agencies and the issuance of RISs.

• Regulatory agencies should build their capacity in undertaking RIA and formulating RISs.

• The role, mandate, and stock of regulations of regulatory agencies should be reviewed to reduce regulatory burden.

• Government oversight agencies (e.g., NEDA) should ensure a more intensive involvement of the private sector, civil society, academe, research institutions, and media in regulatory reform.

• Research institutions such as the PIDS should intensify its efforts in conducting impact assessment studies, especially those bearing on regulations.

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The Authors

Marife M. Ballesteros is senior research fellow at PIDS. She has a Ph.D. in Social Sciences from the University of Nijmegen. Her areas of specialization are economic anthropology and housing and urban development issues.

Roehlano M. Briones is PIDS senior research fellow. He has a Ph.D. in Economics from the University of the Philippines. His areas of specialization are in agriculture, CGE modeling, and rural development.

Danilo C. Israel is senior research fellow at PIDS. He has a Ph.D. in Applied Economics from Clemson University and a Postdoctoral from the University of British Columbia. He specializes in resource and environmental economics and fisheries economics.

Gilberto M. Llanto is president of PIDS. He was formerly deputy director-general of the National Economic and Development Authority, vice-president of the PIDS, executive director of the Agricultural Credit Policy Council, and president of the Philippine Economic Society. He obtained his Ph.D. in Economics from the UPSE. He has written and published on financial markets, public economics, local governance, institutional economics, and infrastructure regulation.

Erlinda M. Medalla is senior research fellow at PIDS. She has a Ph.D. in Economics from the UPSE and a Postdoctoral from Yale University. She is also the project director of the Philippine APEC Study Center Network. Her area of specialization is trade and industrial policy.

Adoracion M. Navarro is senior research fellow at PIDS. She has a Ph.D. in Economics from the UPSE and a Master of Public Administration in Economic Policy Management from Columbia University. Her areas of specialization are infrastructure, electricity markets, and public-private partnerships.

Aniceto C. Orbeta Jr. is senior research fellow at PIDS. He has a Ph.D. in Economics from the UPSE and a Postdoctoral from Harvard University. His fields of expertise include demographic economics, social sectors, impact evaluation, applied economic modeling, and information and communication technology.

Celia M. Reyes is senior research fellow at PIDS. She obtained her Ph.D. in Economics from the University of Pennsylvania. Her specialization includes econometric modeling and poverty analysis.

Ramonette B. Serafica is senior research fellow at PIDS. She obtained her Ph.D. in Economics from the University of Hawaii. Her areas of expertise are on services and trade in services.

pids report on "effective regulations for sustainable growth"

Documents

growth outlook

global economic growth

gdp growth rates

regulatory quality

stock prices

philippine economy

regulatory reform

policy recommendations