Economic Recovery and Long-Run Growth: Agenda for Reforms by Ronald Yacat

ECONOMIC

RECOVERY AGENDA

AND LONG--RUN FORREFORMS

GROWTH=

Volume I Main Report

Florian A. Alburo RoMeo M. Bautista Dante B. Canlas Benjamin E. Diokno Emmanuel So de Dios Raul V. Fabella Mario C. Fe_anil Gabriel U. Iglesias

Ponciano S. Intalv Jr. Mario B. Lambe_te Maha_ K. Mangahas Felipe M. Medalla Rosa Linda Tidalgo--Mi_anda Manuel F. Montes E_nesto M. Pennia Edita A. Tan

May

1986

PREFACE

This volume is the first of a two-volume report on "Economic Recovery and Long-Run Growth: Agenda for Reforms." It contains the Main Report detailing the general principles behind the suggested broad reforms along with some specific recommendations to illustrate them. The preparation for this report began last March 24, 1986 and completed drafts were submitted April 30, 1986. With the exception of Chapter I, the individual chapters were prepared by different committees while the Editorial Committee (the Secretariat of the group) drafted the overall summary (Chapter I) and edited the rest. This Report cannot be a final version. It was put together quickly because of the urgent need to present an internally consistent package of reforms for economic recovery and growth for consideration by the new government and public discussion. More details and special or technical papers relevant to the individual chapters are contained in Volume II. Many individuals from the academe, the government, and the private sector participated in the preparation of this report. They either shared their time in attending Committee meetings, submitted separate notes and papers, or reacted to drafts. A list of their names is appended. A number of institutions also collaborated in the effort. The Philippine Institute for Development Studies (PIDS), in particular, mobilized its resources in support of the various committees. The National Economic and Development Authority (NEDA) created the environment for this work and its staff, including Director-General Solita Collas-Monsod, participated in several meetings. The University of the Philippines School of Economics (UPSE) made its facilities available and provided administrative and secretarial support to the various committees. The International Food Policy Research Institute (Washington D.C., U.S.A.), The Institute for Developing Economies (Tokyo, Japan) and The International Labour Office (Bangkok, Thailand) generously lent the services of Romeo M. Bautista, Manuel F. Montes and Ernesto M. Pernia, respectively, to contribute in the drafting and editing of this volume. We want to emphasize that this is neither an official document nor a NEDA report. Its contents are the opinions solely of the authors and do not reflect official positions of the various agencies of government whose staff may have been drawn in at various points of our work.

The Editorial

Committee

TABLE

OF CONTENTS

Page

PREFACE

EXECUTIVE

SU_RY

PRINCIPLES,

ISSUES

II.

EXTERNAL

DEBT

III.

MONETARY

POLICY

IV.

VI.

VII.

VIII.

IX.

FISCAL

POLICY

STRUCTURE

AND STRATEGIES

....

.............

AND THE FINANCIAL

AND THE PUBLIC

OF GOVERNMENT

DISTRIBUTIVE

POPULATION

.............

JUSTICE

AND BASIC

SECTOR

SERVICES

DEVELOPMENT

POLICY

108

.......

AGRICULTURE

•

...........

TRADE AND INDUSTRY

....

..........

LABOR AND EMPLOYMENT

AND RURAL

SYSTEM.

124

136

.....

.........

160

179

EXECUTIVE

SUMMARY

The package of structural reforms contained in this report addresses the need both for economic recovery in the near-term and stable growth in the longrun. It is being proposed to the new regime as a possible framework for the preparation of a development plan and for the formulation of more specific policies. The proposals have been drawn up with the intention that they (I) be mutually consistent, (2) proceed from a realistic assessment of the situation, and (3) have a common commitment to a set of guiding principles, namely: respect for human rights, social justice and poverty alleviation, a recognition of the urgency of growth and greater efficiency, and a minimum of government intervention. Certain vital reforms have to be implemented in the short-run both to reverse the sharp economic decline and to set the stage for implementing a more forward-looking development strategy. The bulk of these reforms aim simply at undoing the biases and penalties carried over from the previous regime. These include: I.

External Debt - The approach to managing external debt should proceed from what is required for reasonable growth, not what the creditors impose. With a decline in real GNP of 10 percent in the last two years, it is time the government refuse to subordinate growth to an overly burdensome debt service.

Monetary Policy - To insure stability and efficiency of the financial system, reforms in monetary policy should be effected including the following: the independence of the Central Bank from political and other interest groups must be reasserted and preserved; Central Bank functions should be limited to the stabilization of prices, interest rates, and exchange rates in the short-run; the Central Bank should not participate in development finance or issue its own interest-bearing bills (e.g. Jobo bills). To promote economic recovery, monetary policy should be expansionary. In the past, monetary policy had been excessively contractionary -- giving more emphasis on debt servicing rather than on growth.

Fiscal Policy - We call for a reduction in the scope of government, which may require government reorganization, a downscaling, abolition or merger of some offices. We propose a tax structure that relies more on direct than on indirect taxes; local government finance consistent with the spirit of decentralization. Government should intervene only when it can do better.

Government Structure - The key reforms proposed, include decentralization i.e. devolution of power and authority (including broadened tax sourcing); checks and balances.

Distributive Justice -Expansion of the scope of land reform to include all natural resources and crops. If distributive justice is to be achieved, the government should commit itself to poverty targets. Monitoring should be undertakennot only by the regular government statistical offices but also by the private sector.

Population and Basic Services Education, health, housing and social services call for individual and collective reforms to respond to the poverty alleviation objective and, at the same time, to improve the prospects for recovery and sustained growth. In order to allow greater benefits from growth and to make up for recent slippage, a strong commitment to population policy should be enunciated. Social services should receive a much greater share of the government's budget.

Labor

and Employment Changes in the manner of wage setting are necessary to promote employment. Ne must do away with mandatory wage setting and opt for wider information access (by both management and labor) as a basis therefor. We must strengthen collective bargaining and voluntary arbitration as a basis for settling labor-management disputes. For recovery, emergency employment assistance (preferably financed by external donors) should be provided to as many unemployed to undertake infrastructure work in support of agriculture and rural development.

Trade - There should be a more open trade regime, with an exchange rate that reflects the real conditions of the market. Liberalization should be pursued quickly while a battery of consumption taxes is enacted.

/These reforms intend to achieve a more liberal and more neutral policy regime that allows for growth, yet leaves it to private initiative to explore and reveal the areas of true economic promise, with a minimum of government direction and intervention. The direct economic role Of government is not envisioned to be large, although it will be significant in such areas as social justice, the dissemination of information, and the support of research and technology. As distortions

are removed

and the debt-burden

is reduced,

we fully expect

formerly penalized sectors to make a larger contribution to growth. The implementation of these reforms will, therefore, naturally lead to a development strategy that is employment-oriented and rural-based. The government should support this course of evolution by redirecting its infrastructure programs towards the rural areas. In the same manner, for trade and industry, we expect industrial growth and restructuring to occur which rely on competitiveness both at home and abroad, and are supportive of rural development.

PRINCIPLES, ISSUES, AND STRATEGIES

GUIDING PRINCIPLES

The has

collapse of the old regime at the barricades has not exhausted

merelywhetted

-- the people's desire for change.

which political liberation of

was

The

relative ease with

accomplished has bred expectations on the part

each social stratum that the long overdue economic relief

material hourly,

reward it so obviously deserves, newdemands

attention both

are pressed,

new proposals raised,

within and without the government. that

the

should not be far

of this regime and seek adoption.

apprehension

-- it

itself,

behind.

the

Daily,

which compete for the

The sense of urgency is

evident

At the same time there is a hint

present onrush of social demands could,

the

strain and break the existing consensus and bury this government under a

of end,

mound

of crushed hopes and failed promises.

We find no reason to be wary, however, when various groups seek vigorously to

pro_note their

confusing Peril The

interests.

-- component

For this is simply

of political democracy.

to a democratic regime can lie in the true

challe_ge

competing

claims

initiative, that

own

We cannot believe

is in the quality of that government's

on society.

that

rather

The danger is that,

that

response

rather

than working with a vision

reforms and making difficult choices,

merely to survive.

-- if

also the

workings of the democracy itself.

should come to no more than a patchwork;

undertaking

normal

than

government should be reduced to placating each

emerges;

policies

the

taking

the

sectional interest of

the

whole,

its

and rather than leading in the government should

seek

- 2

There are really first is to rebuild the previous

two tasks at hand:

from the ruins,

regime.

The second

recovery

and to heave

requires

and sustainable the deadweight

the reorientation

that we might avoid the pitfalls

of the past and attain

For many of the issues

here,

since

particular

institutions. by applying avoiding

to make

economic

With

reform.

resources,

and the resources. and human

are convinced

were induced

sacrifice

majority

countrymen.

ultimately, become

our

an enduring

possible,

those which

reform,

policies

and

can be concealed

to address

that reforms

growth.

without

by inappropriate

recognizes

to certain

recovery while

it would

waste both

must be

undertaken

its mandate

principles

It is upon this presumed

social consensus

no matter

from

worthwhile.

that this government

but in its adherence

inherited

self-sustaining

be tragic because

We believe

The

of the economy,

is impossible

especially

would

in sheer expediency of

recovery

it will be tempting

Such an approach

the material

problems

some of the issues,

financial

the opportunity

discussed

growth.

interests

accepted

common

and an accompanying

how some specific

does not lie by

basis

economic

the that,

strategy

may be affected

the

short run.

The

period

upheaval; manner,

reconstruction it

implement economic

is a

often

detailed

interests

determining relationships this

following

makes

how

is is

often more

more demanding

easier

to forge

economic

program.

simply

economic

cannot

a political

to propose

the

alliance

One obvious

affect

are often less transparent

than

actual

than revolution.

be reconciled.

policies

it more difficult

difficult

various

social

and clear-cut and to accept

the

than

reason

Another

social

same is

that

some

is the difficulty groups.

Economic

than political compromises

ones, and

and

trade-

-3-

offs, even if there is agreement

If concerted

action

in principle.

is to be taken,

into an economic

therefore,

translate

principles

policies,

around

which a consensus

may be developed.

themselves

which

we take as guides

in our economic

originality

for them, but merely

government

implicity

stands

biases,

hoping

Respect

for Human Rights

We and where

they

as a matter

tyrannize "trust farmers

suppress

recent

rights"

funds"

principles,

"communal

has

the invocation

we admit

which

claim

the present our own

own.

to individual

human

even as we recognize the to

larger

security"

whole be

rights

instances community.

cautious

clever

(e.g.,

only to

lest

excuse

the setting

groups

in the end served

of "national

principles

to revealing

For example,

need to concrete

what we believe

be used as

citizen.

for the benefit

workers)

proposals,

taught us

benefits"

into

As for the

by the rights of

experience

the individual

and overseas

to of

coconut

enrich a

to deny information,

few. or to

dissent.

supposed

Rather

to express

commitment

overridden

ostensibly

Experience the

and the latter

In so doing,

of first

past

and defraud

For another,

for.

government's

may be validly

Nevertheless, "communal

presume

that these are also the regime's

share the present

freedom

strategy,

there is an urgent

under the previous "trade-off"

than obtaining

in fact lost both. as a violation

between

regime has clearly political

one at the price

of the other,

Not only is the denial

of universal

principles,

rights

shown us the fallacy

and

economic

well-being.

the Filipino

of individual

rights

it has in recent years

people

have

objectionable

also facilitated

_4-

the

commission

accountability making

economic public

in the hands of a

expression,

etc.,

determine

Valuable

evolving

liberalization

of the nation's

schools

contending

trends,

movements,

enthusiasm

which

underground.• of its

conciliation

Social

Justice

time.

this

alleviating is

decision-

and continue

to information

of information

to allow political

We too stand for the

not tolerate

to find its source

will

of strength

of the great

and

for a

had

and

groups,

wisdom

pursue

majority,

proliferation

expressions

government

citizens,

by which

It was this pool of collective

regime could

freedom

and drive

its policy

stability

regardless

beliefs.

alleviate that

life,

that the present

and Poverty

Alleviation

There • are many•reasons some

weakened • the

such as the

and behavior.

and their

encouragement •• of the participation

political

concentrated

rights

as a channel

political

parties.•

We are hopeful

the access

preferences

of thought,

and the

of individual

to organize,

economically

the people's

since

and effectively

the exercise

freedom

is itself

officials

and• abuses,

few.

On the other hand•, of

mistakes

why a government

Most •cynically, some aspects is

poverty

as a•sop

to preserve

proceeds

the right of everyone,

by mostpeopie.

even• a completely

of poverty

necessary

might

unscrupulous

to the masses,

its Own

from no greater

seek to reduce

security.

principle

and the presumption

poverty

dictatorship and to Our

than•that

the

may extent

commitment a decent

to life

that such a right is recognized

-5-

distinction

inequality, of

the latter

wealth

poverty

extreme,

country

with

country,

no a

poverty

Indeed,

greater

social

especially rather not

justice

as supported

stands

beyond

adjust

to justice,

unjust,

should

In much

instances majority

be reformed.

they

people

implemented

social

conflict simply

individuals.

For this reason,

on the

eliminate

poverty

begin

itself

with.

rights,

then a

a our

political

moral

Judgment

such a judgment,

regime.

by laws

but

government

The law should

is legal

but just,

Ultimately,

not

sense,

What

can be accomplished

is not constrained

is illegal

but

socially

should be liberalized.

should be eliminated.

of wealth

and incomes

in the economy. of social

from a large

reduction

of markets

in the same manner

are valid

extent

most

voluntary

if not

satisfaction

and the lower

such

the

everyone

in poverty,

of the

affirmed,

Unfortunately

To the

justice,

then because

they initially

basis

growth;

and incomes.

to the law.

now poor,

that could result. the

economic

for the previous

intervene

some benefit

a principle

amidst

a profound

and the redistribution

themselves

share the same concept

derive

are

seeing

achieved

and unjust

reduction

would presumably because

What

where the state might of

in human

redistribution

the same way, a revolutionary

tailored

and not justice

And what is both illegal

Poverty

grounded

reducing

exist

equity are to be understood

by a social consensus,

bound by a constitution

would

poverty

and

of poverty

sheer

of wealth

is inevitable.

them.

poverty

to the direct

income

of alleviating

means but as goals proximately involving

through

average

redistribution

and

of social levelling

the target

a meaningful

reducing

only pockets

might be eliminated amount

reduction

between

where

very low stagnant

however,

only through

drawn

being more closely

and incomes.

great wealth, other

is sometimes

benefits

level

cannot

transactions

that it provides

other

of be

among public

- 6 -

II goods

(e.g.,

government

basic

research,

justified

spending,

drive

and sequester

past

regime

achieve

should

social

the economic wealth

recovery

powers

wealth

can be redistributed,

police

protection),

assets

and

to reduce poverty.

obtained

through

as a potentially

and redistribution. and reduces

and

to redistribute

and police

be recognized

justice

parks,

in intervening

using its taxing, to identify

public

To the extent

the burden

on the poor,

the contribution

to reducing

incomes,

The present

corruption

important

the

under

the

instrument

this effort helps or to the extent inequity

such

can be quite

large.

If for

the new government

minimizing

domain.

These programs

natural

resources;

services, of

the

private profits

inequality

is to be credible should

should

the

business

services

those

emergency

of access

to public

excess

health

distribution profits

and policies

engaging

public

education,

the equitable

to government;

corporations

then programs

and in the

relief,

the regulation

linked

among government

sector

the maximization

to the people;

among the people;

especially

(or losses)

in the public

include:

delivery

and other social tax burden

begin

in its commitment,

regarding

private-sector-

type activities.

To time

the extent

should

be allowed

redistribution

The painful

reforms

term growth

in which

may be attempted

severity

alleviation.

such programs

voluntary

add a new dimension

themselves

on the private and mutually

by the economic

the present

It is possible might

impinge

crisis

and

acceptable

limited

systems

agents involved.

the

necessity

to the government's

some of the reforms entail

sector,

some immediate

undertaking

commitment

to poverty-

required

to bring

dislocation.

about

For

long-

example,

-7-

reducing

the scope of government

open trading

programs

employment

Growth

In these

of reducing

particular

the

achievement

improvements

productivity. produce

subject

cases,

the burden

program

always

For

unemployment,

we advocate on those

is called

an acceptable

as might

designing

least able

for

special

to bear the

provide

such higher

emergency

concern

social

important hand,

processes

depending

intervention

hopelessly

hardly utopian.

rather

goals

gains

as respect

effficient

scarce

and

resources,

for human

because

rights

should be

institutions

the widening distribution

unless

and an

allowed

because

of existing

overriding growth

poverty.

On the

the

normal

inequalities;

must be provided

On the other

redistribution

more to the

for;

maintained,

some level of inequality

if not reactionary.

between

there are limits

it can also help eliminate

the social

in asset

necessary

the dilemma

a pure redistribution

Some growth

will entail

conservative, is

its

of priorities,

through

that no growth will be possible extremely

through

must become more

In a poor country,

levelling.

precisely

of growth

future

grasp

is a false one.

of living achievable for

level

redistribution,

poverty.

a regime with a clear

standards

from

of wealth

can come only

the economy

income as possible

extreme

level

conditions

words,

to achieving

growth and equity

becomes

in economic other

much

and reducing

growth

additional

and Efficiency

further

some

entail

to those laid off.

Given

other

system.

for the purpose

adjustment.

might

will

for.

hence To

say

is tolerated

hand,

to say

sufficient

that is

-8-

The it

perverse

largely

(including peddlers, reason,

the incomes

small farmers,

the whole

sources

but

inequity.

the

those

advocate greater

token

giving impact

example,

special

cases where

somewhat

machines

of widespread

labor-intensive would choose

methods

the latter.

consideration

This judgment

of history.

failed on two accounts:

Generally first

is how they were implemented, of for whom,

i.e. whether

the population a

through

development

benefits

were

obviously

of small is based

a technical

were

and

unutilized

employment

poor

and

reduce

impossible Measures

moreover, and

in equity.

to that

on both

only by a few,

its

and a have

fulfill

is a question

broad

sections

of its benefits.

impeccable then

saying

strategies

the second

the

through

first principles

on involving

in an

through

the other We are

a for

with

the easier criterion

and distribution

with

One

plantations,

farmers.

would

Suppose,

output:

past development

was based

programs

labor;

criterion;

implemented

captured

exist,

corporate

and relatively

its formulation

hitherto

separately.

agricultural

speaking,

the strategy

strategy

of settled

cultivation

hawkers

of past institutions

the

to strategies

large

displacement

majority

It is for this

it is virtually

and improvements

is that

and vice versa.

weight

on poverty-alleviation

application

the lot of

real choices

greater

the

(e.g. better

these two problems

there were two ways of increasing

possibility

allocation

growth,

i.e.

repressed.

the biases

circumstances,

society

rural workers,

not only to release

to improve

often enhance

few

landless

Undoing

efficient

that will address

equity will

stagnated.

same

poor,

the old society

be expected

In these rather

design measures promote

economy

inequitable

of the

fishermen,

which

owing to more

a highly

and productivity small

may therefore

of growth

labor)

Of inheriting

and the Unemployed),

and policies

the

advantage

manner,

Even if

continuation

its and

-9-

legitimacy

would always

Material

incentives

coordinating resources

economic

through

where

activity

inequities on

standards not

work,

_For

self-interest is growing,

rents,

all

In markets

important its best

some

act as regulators, is bound

others

concern

this be done

and where

the level

So long

growth,

of an existence

are not

such based

compatible

with

of such inequality

need

for the moment.

selfishly

incentives

activity.

should be justly rewarded;

and net maintained

the

illegal

to arise.

the elimination

for

intentions,

at all, then better through

falter.

means

Of course,

and productivity

we think

overriding

the defects

and inadequacies

- their one virtue

among large numbers

expending

prosaically,

economic

innovation

if it should

short,

private

hard

property

should not be molested.

Role of Government

transactions

most

than

and markets

and entrepreneurship

there are several

without

rather

and do not deprive

unjustly

no matter

to operate

some inequity

the government's

not acquired

Economic

markets

of human dignity,

thrift,

because

are

of any regime are limited.

are tied up with

monopoly

especially

individuals

are to be allowed

competitive

However,

question,

activities,

and attention

and self-interest

comeunder

is that, where

of people

large resources where

of markets

they exist,

and coordinate

or requiring

they are feasible,

institutions

markets

they facilitate

economic

bureaucratic are a

- and

activities

directi_m. "cheap"

mode

Put of

organization.

most developing operate,

complement,

the

i.e. sphere

countries, the purely

however, economic

in which markets

the sphere

area,

in which

is relatively

fail or do not exist

competitive

small and, as a is rather large.

- 10 -

This fact is often taken as a justification fact, in this country, functioning of

markets

the government

problem

would

different,

do exist.

exist

better."

where

the

control

all,

by proving

to enlarge

for government

influence

and to

nontraditional

transactions

in the more

direct

to natural

obtain

traditional

one.

monopolies; economic

such

were

provide

the general

only when

is one is that

have

institutions

the area

areas

can

important

in minimizing

become which

operate

prevent of

the protection

withdrawing

markets

would

superfluous.

reasons

role is

markets

use

and

important

the

privileges;

case

the concentration

eliminating

it occupies.

competitive

in breaking

immediately

we believe

Its more

role will itself

role

government

it isnot

for itself

that area where

resources;

where

economic

to fix prices,

Instead

"win"

take a lead in reforming

domestic

either

of assets

is not a passive

in areas

However,

new

to "do something."

Our position

must first

area, i.e.,

the

should intervene

from taking place:

and access

behind

step in (e.g.,

do better.

its ability

it should

foreign

One

can

intervene.

for the bloated

corruption.

in production).

govermnent

competition

ownership

reason

the redistribution

the government's

means

hinder

engage

times intervened

or do fail, however,

that "government

the economic

where

must

mentioned,

The_role _z

This

government

intervene

and

do not exist,

or directly should

An obvious

there is temptation

that the government

principle

has in recent

even if the interests

if only because

subsidies,

government

in the past was bureaucratic

Even when markets obvious

government

for

or land

given

politic_l from

areas. _

the

important

are

internally

organized

that

in developing

not

countries

exist the

and great

-11

unevenness

and uncertainty

On a lasting the

most

peace

state's

extending armed

basic

level,

powers,

the economic

force

important

in social and •economic

therefore,

in the countryside, police

reason

the

through

After

conditions.

reforms

would make a large

for the Balkanization

armies

contribution

of economic

and paramilitary

and the existence

of a just and

and the application

all, the unholy union

the use of private

•

simple achievement

social

if need be,

area.

(e.g.,

power

groups)

of to and

of petty monopolies

large areas of the country.

_A_other

important

information

prevailing private

prices,

exchanges

precisely a

their

technological exploiters'

tends

for

government

access

both suffer

since and

provider

Information

regarding

serve not only to encourage

for want

once collected

who often

better

recruiter

power lies in that information

individually,

favor the less privileged,

by an unscrupulous

improvements

transact.

and alternatives

lack

victimized

be underprovided,

appropriate

agents

but also tend to

worker

Their

private

role

opportunities,

from

example, of

allow

positive

suffer

da_a•.•_

For

or a farmer unaware

better

alternatives.

one-sided.

Information

its benefits

at the same time it is cheaper

are

hard

if provided

•i

all.

poverty•is

noneconomic•area must

must be reduced

minimized.

form of monopoly, monopolistic (e.g.,

to be reduced

those

and. efficiency

or more precisely,

Rents are simply

being only weakly

features based

related,

of the economy

on privileges

claims on

attained,

the

the sphere• of rent-seeking on

some

if at all, to productivity.

Some

are clearly

granted

and • growth

resources

arbitrary

by the previous

based

and

inefficient

regime which

boiled

-12-

down

to simple

competitive

corruption).

private

These areas

sector.

Where,

structural

features

the limited

size of the market,

shortrun the

(e.g.,

rent

prejudice

itself

some efficient

will be inescapable, the

issue

even this limited

to generate

rents.

efficient,

decisions

will

they will affect. balances

institutions and

all

rights

The same principle levels

achieving

freedoms

the economic

will

equitable,

government.

For

with respect

Now we end with a lower

It seems,

level -- as an

goals of this government.

not

areas

with more

more major

by people

whom

and checks

this,

freedom

once to

and more,

organize,

therefore,

that we

rights as

to respect

indispensable

and used

since

for individual

the same need

in the

crucial.

in character,

of speech and of the press,

We began

remain

for accountability

are neccesary.

easily be distorted

and

notwithstanding,

they can be influenced

holds

owing

economic

This is not only likely democratic

some

generations).

influence

be decentralized

of the national

to information

of first principle. and

in important

role could

be made at levels where

have come to a full circle. matter

should

also probably

either to capture

or future

accountability

local governments.

such as freedom

free access

public

to the

is in fixed supply

sector heavily

its overall

efficient

Governance

the private

to reduce

and

are based

is called upon

(e.g., the consumers

efforts

governance

given

the state

role for the government

Otherwise,

autonomy

or when some resource

regulate

interest

monopolies

once more

such as when a firm is dominant

forest),

the general

Since

however,

of the economy,

commercial

should be reverted

individual

mechanism

- 13 -

2. ECONOMIC

RECOVERY

Even towards

before

a development

attaining

business

carefully

long-run

achieving

conceived

policies

set

lacks

purpose

this

section

around"

be facilitated

believe

need

objectives

its

recovery

product

austere

following

decreased

increases

recover_& /

success,

the play has been

by an overview

how the

most

past

reforms

the

"turning

term prospects

for policy to

The

out

process

by the new government

urgent

much as a stage

acted

the longer

of areas

and sustainable

left

the short-run

for ultimate

directed

recovery.

the debris

hand,

compromising

there is the

economic

we shall discuss

as the

reform which

advance

the

twin

crisis

took

growth.

pressure

foreign

policies

were adopted

IMF prescriptions,

debt-induced

macroeconomic

nearly

underemployment

underutilization enormous

which

Recovery

and

government

unless

to be addressed

the last two years,

toll

On the other

without

is followed

of economic

On Economic

This

growth,

falter unless

but insufficient

the economy.

can be discussed

goal of

would

away.

characters. can

strategy

self-sustained

strategy

are necessary

when

REFORMS

the immediate

is first cleared

themselves even

AND NECESSARY

existing

the country's

percent. and

capital

There

unemployment stock.

on the new government

exchange by

real

were

gross

national

accompanying

rates,

Understandably,

to find a route

the

and there rapid

sharp in is

the now

economic

- 14 -

The

current

differently,

The solution generated private

situation

deficiency

in aggregate

is superficially

by creating

clearly

investment

there may be little foreign

demand

very simple.

more aggregate

consumption,

one

relative

Greater

demand,

the foreign

imports

exchange

shortage

It should be evident find

ways

possibility measures of

is of course

all export

policymakers already

heavy

the encouragement

and (2)

the undervaluation

must take into account

rate that overvalues

penalty

extremely

adding

to justify.

explicit

Incidentally,

highly

would

also

in exports,

logical

two policy

(I) the removal rate policy

In considering

existing

this,

tariff

15 to 20 percent

export

we must

most

exchange

system through

This is a

taxes would

a more realistic

policy

demand

recovery, The

the peso by the same amount.

on all exports;

difficult

exchange.

by an estimated

is that

effort.

producers:

the fact that the

uniformly

We recommend

of a flexible

of foreign

increases

growth

economic

of exports.

the adoption

aggregate

problem.

to our export

can

the recovery

exchange

put

supply.

The catch

is no commensurate

short-circuit

the foreign

taxes all exports

an exchange

will

price inceLtives

taxes;

that will prevent

if there

that to stage a successful

alleviate

to improve

and,

through

raising .

to increase

to aggregate

expenditure.

to workwith:

or,

output and incomes

likely

capacity

for example,

and government

exchange

excess

very us,

exchange

rate

sectors

not

. i

encourage

efficient

import

substitution

(in

protected).

Greatly

increased

terms

debt

during

the recovery.

foreign

repayment)

would

financia_

also alleviate

We would welcome

the terms of assistance

assistance

are favorable;

foreign grants

(including

the foreign

contributions and very

concessional

exchange

problem

to the extent that

soft loans are of course

- 15 -

to be preferred, note,

however,

assistance, the

while hard that

the greater

so-called

producers. reliance imports

should

recovery.

New

and capacity

The

recovery,

expansion expenditure

(to

the

employment construction

program"

for

and maintenanc_

be done?

of aggregate

in August

back

demand.

environment

Because

realistically

enough

and

The new

that resulted

1983.

we cannot

It is to be

-- will come

that the business

must

initially

the

ways

for

does

from the there

expect

rapid

up only gradually

strategy

seriously

least

be stimulated

indicated

is that

economic

recovery

the next

of rural

toward

through

above)

The latter would

and industrial,

consider at

and foreign

will be built

development

new government

economy

will be strong

on rural infrastructure.

both agricultural

for

are approached.

we believe, promoted

self-

borrowing.

capacity,

formation

limits

of our proposed

producers, that

capital

paying

and lack of confidence

new investment

export

we mean

to ensure

began

for

(via

by "self-reliance"

where

which

financial

for

to the stimulation

excess plant

foreign

for the peso to be overvalued

of the national

to the uncertainty

resurgence

concern

-- both domestic

events

relies

We should

will have a greater

than by foreign

contribution

widespread

proceeds

regime,

rather

political

currently

economy

very carefully.

and the less will be the incentive

has a responsibility

thrust

be the tendency

investment

not slide back

the

will

the pump-priming

make an important government

the

hope the new government

exports

private

chain

than the previous with

should be examined

the

"Dutch disease")

How hoped

loans

and

in the rural areas. the setting two

years

infrastructure

government

be consistent

the encouragement

directed

facilities.

export

with of

the

small

We suggest "emergency toward

the

Experiences

-16-

other developing

countries

labor-based

technology

irrigation,

water

fish

Because

recommend

the adoption

Brogram,

which

ample

many rural

supply,

agroforestation.

indicate

should be started

for fiscal

need, in the next two years, those

the

IMF prescribed

The 10 percent the

current

accept,

decline

account

immediately,

since the burden

to ask the Filipino

coming offers

years.

a less painful

We urge economic foreign

and

creditors

old

a much

regime

smaller

over

employment,

equity

are straightforward.

possible

and growth.

restrictions

the marked

a sacrifice tended

rate,

two

than years.

improvement

for the country

in to

to fall more heavily

growth-oriented

sacrifice debt

should in

the

management

recovery.

with

of the country's

the requirements

The government

1986 - 1991.

The government

in pursuit

urgent

A high debt service

the

social target

need for IMF

and

committed

beginning

than that prescribed

must be

say 5 or 6 percent,

debt service

its policies

policy

for the last

to be cognizant

less compliant

This

foreign

for a similar

authorities

growth

from

to be prepared

to economic

as possible.

to us the new government

below,

and

problem,

is unthinkable

be discussed

for the years

sovereignty

policies

of adjustment

for debt servicing.

a satisfactory

would require

people

route

the monetary

recovery

achieving

the

As will

roads,

"hiddenwealth."

government

in real GNP that made

buildings

employment

less severe macroeconomic

to the previous

on the lower incomegroups. have

and monetary

school

as widely

choice

such

can be financed

in 1984 - 85 was too great

especially

the

technologies

grants and soft loans as well as from recovered

The implications

projects

small ports,

urgency

of labor-based

for the economic

public works

ponds,

the

scope

1987.

This

by the IMF under must

assert

concerns, rigidly

its i.e.,

restricts

- 17 -

fiscal and monetary

policies

incomprehensibly

docile

resulted

the serious

should not repeat

exchange

only to finance will

also

capital

must

external

debt service.

growth-oriented, growth

interest

general

favorable

contend

government

fiscal

to finance

objectives

result

deficit,

monetary

its operating

unreasonable,

which

policy and

not

Rather

the new

government

Finance

as a drag

to our recovery,

restructuring,

that our external

that we should

out a debt

financing (access

debt management

to external

to markets,

balance

falling

debt

payments

with a growth-oriented

with

that.

include not

debt management), and

economic

with

(since

of payments,

interest

that

must

reasonable

plan consistent

of interest

to support

is one area

and negotiations

first aim for

restructuring

the financing

can be shouldered

environment

new

will likely

a higher

patently

of such a reform with respect

external

creditors

from the IMF view point.

and Public

perceived

maturities,

payments

and economic

Policy,

and only then work

extension

The

we recommend

sector

debt negotiations

which means

implications

1985.

A less restrictive

as to its management,

creditors.

prescriptions

government's

to achieve.

debt,

reforms

The past

and timidity.

Therefore

Debt, Monetary

needs urgent

the

of 1984 and

to allow the private

to approach

The external

with

This in itself will entail

the external

the nation

measures.

and the reforms

start from those social

External

rate.

expenditures.

has pledged

The

recessions

recovery

be needed

unpatriotic,

compliance

this stupidity

Rapid economic a higher

to recessionary

and oil prices).

the all a more

- 18-

We and

believe

the government

moral

position It

"selective

repudiation"

there

reorientation that

not important,

is a reduction

Although

restructuring

with

proposed

support by

our

public

and

finances

calls

ineffective

On the other hand, and wealth, more

Government

and in providing

resources

be devoted

and land reform.

manner, rural

to public

for

where

the

therefore,

education,

basic

needed

where

government

Government

medical

that

regime),

function

prescribed

To ensure

The fiscal program

concerns

the tends

adequately.

take a lead role in redistributing

services.

should

in mind.

the previous

markets

dimension

raising,

infrastructure

of government.

the

arrangements

financing

and enterprises

private

must be borne

and social services.

in the scope

social

its

process

national

the problem

in activities

should

stand-by

the overriding

efficient

and inefficient

It is important,

(as was the case under

for the reduction

the

we have proposed.

program,

addresses

strategy,

participant

is indispensable

experience

efforts.

particularly

are not wasted

one calls

What

in the first place

program

adjustment

a reform here is an important

institutions,

imperative

political

debt burden.

recovery

projects,

program

default."

for a new adjustment

development

is an inefficient

our

administratively

proposed

of its unique

whether

thrust and strategy

fiscal

development

all,

cross-country

debt policy,

creditor

which make debt reform

equitable

not much

to compromise

that in any negotiation

The

in the country's

the development

avoid having

after

or "conciliatory

of external

feeds

take advantage

to try to pass on some of the cost of

creditors.

recovery

should

income

suggests

care,

that

nutrition,

19 -

concrete

reorganization

terms,

government

managed

privately

outright

wasteful

nature

public

duplicate

the

are

activities

In the area of taxation,

(especially

than on international

depends

reliance

in the collection

inheritance

taxes.

these reforms

.... An effective any economic

recovery

and

decentralization

the

efficacy

implementation NEDA

councils,

and

properly

those

that are

functions

agencies;

proposes

are

and those

by that

a tax system that minimizes

rather

taxes will

and the reform taxes

than

be of

on luxury

indirect

taxes

to administer. accomplished

income,

consumer

will be increased.

property goods,

Detailed

The an and

whether

proposals

is a sine _ua non for the success

and long run growth of political

government

planning

involving

sector;

the

and consolidated.

of government

of development

Board supreme

are

for

in this report.

structure

effort

calls

those whose

government

indirect

produced,

are included

that

private

more on relative One

and recession

Thus,

have

even a basically

to grant

that the country

and budgetary

support

governments.

for loans

from commercial

concessions

should, instead

Grants

banks

if part of the

as much

and

loans

possible,

of project-tied

get

grants

and

which

were

loans.

In the past, official not

necessarily imports

and equipment

is therefore

popularity

used

quantity

political

choices.

will mean

extending

The adjustment

that the government

so that much of the official

Philippines

and balance

A case

in point

their stay beyond

should

to its creditors.

or were tied to

than

competitive

maintain

its present

assistance

of payments

of official

tied to projects

priorities

that are more expensive

important

for budgetary the

was generally

very high in the country's

however,

assistance

will depend

is raising

suppliers. high

level

that it will receive

support.

assistance

sources

"rentals"

To a on

large very

on the

can

extent, difficult

bases

which

1991.

therefore

try to pass

The willingness,

on some of

and in some

cases,

the

costs

the eagerness

commercial

banks

to lend

dubious

projects,

after,

all

one of the

root

causes of the debt crisis.

The particular label or form in which the concessions on the loans come is z not

as important to us as they are to commercial banks.

Creditors

may • find

"concession" easier to swallow than "default" and "conciliatory default" palatable

than

"selective repudiation."

But whatever vocabulary is

reduction

in the country's share of the debt service burden,

used,

especially those

in the next two or three years, is an important ingredient in setting the stage for economic recovery.

The stance debtors better

foreign against may

commercial banks,

on the other hand,

increasing their share in the adjustment costs

strong

because

other

creditor

governments.

the use of taxpayers' money to help large commercial banks would be

unpopular in creditor countries like the United States. Philippine

ask for similar concessions and because the Philippines is

position than its creditors to ask for aid from

Obviously,

would take

the same time, the

government will naturally be averse to accepting economic aid

with

political strings attached.

It is also true,

however,• that concessions would in general be •harder to

get unless there is at least some probability of at least selective or

partial

repudiation

daring percent

(regardless

of the choice of vocabulary).

the

stance taken by the Peruvian government of limiting debt service to ten of

exports by postponing payments for amortization

unpa&d interest.

A less extreme position,

and •capitalizing

which is probably more

now that oil prices and interest rates•are low_r, without

One strategy

attractive

is to undertake rescheduling

giving up the option not to pay or to pay only partially for bad loans

-48in

cases where it can be shown

(not necessarily

creditor

was

negligent

or was not acting

granted.

addition,

conversion

loans to equity,

commission

doing

repudiated

and

research

in good faith

conciliatory

stance

by continuing on which

by allowing banks

in a legalistic

debt

against

that

the

loan

was

can be taken by service

and how much

to offset

when

way)

while

each

their

allowing

loan

special would

loans hidden

wealth

that they recover.

It should be pointed invite

reprisals.

Thus,

default.

Since sanctions

tend

inflict

sources

should

serviced

out, however, measures undertaken

the greatest

be honored

to minimize

good position

to retaliate

international

inflicted

the economy

declare

imports

constricted

would continue

Similarly,

the cross

through

market)

imports,

supplier

domestic

banks which manage

the

of creditor

from multilateral

however,

reserves

should

to minimize

debts

trade

could

costs

governments

and

bilateral

credits

should be

of trade disruptions.

commercial

banks would

are repudiated.

are

negative, banks

default

great

should

clause,

Given

still be that

damage

decide

which

the

can

withdraw

allows

them

if any debt is repudiated.

the level df international

severely

debts

if the commercial

invoking

to pay certain

the blessings

if some debts

all loans to be in default

Given but

damage,

are taken,

net

credits

with

the probability

country's

trade

should be taken

unconditionally.

Even if such measures in

that refusal

trade

reserves, credit

arrrangements credits

to remain

would

be withdrawn.

trade

of servicing

temporarily

Only a portion

such as "no dollar"

and counter capable

imports

and

(e.g.,

through

importers.

black several

49 -

After Some

some

foreign

private

time,

banks may even resume

sector.

Still,

would have a short-run the

extent

aborting the

and would

the recovery

As mentioned

publicity

Ultimately,

case should be built and the popularity

lethal

retaliation.

and

to delay

increase

however,

credits.

of whether For every

suffficient

of the new government

the

the recovery. of

of losing ensure debt

opinion,

selective in

altogether

should

loan

of trade credits

the probability

public

develop.

exports

the odds

the Philippines

determinant

and given

enough

to minimize

earlier,

in the loss of trade

of imports

trade may

that the withdrawal

would

should be taken

may be the critical

result

financing

that is strong

on the trade credits.

convincing

against

impact

it, every effort

global,

ways of financing

it is very likely

that delaying

trade credits.

service

more alternative

both

local

repudiation question,

publicity.

may be the best

Favorable deterrent

III.

The economic Bank

new

government

recovery.

to satisfy

servicing years.

This

monetary

policy

reasons

concern, stable

reconstruction reforms the

encourage rationalized

has

not

to make

improved

for

Thailand

and

Korea.

financial

institutions

recommend rapid

ceiling

of economic

system which

the current consecutive has

indeed

economically economic

expansionary

economic

recovery,

on reserve money.

measure

recovery,

terms

were freed

efforts

among

them.

Presently,

the

directly

i.e.,

to the

were

relaxed policy

in the to was

of last resort.

and is currently

compete

pertaining

to be desired.

government

initiated

rediscounting

a lender

still leave much 1960,

which were

institutions

Recently,

Bank truly

objective,

The 1980 financial

and regulations

of financial

which

is indispensable

of agriculture.

liberalization

all since

which

the

for

Central

year of negative

to help achieve

financial

the Central

however,

by the

two

especially

We therefore

the issue

types

competition

The reforms,

people,

and the take-off

rates

different

growth

that the cost of such

address

financial

call

is minimal.

and efficient

Interest

pursued

we should not lose sight of our long-run

accelerated

operations

pressure

of industry

mid-7Os.

economic

the IMF-prescribed

to believe

squarely

thunderous

that guaranteed

to have another

measure

going beyond

policy

(restriction

the bottomline.

inflationary

have a more

the increasingly monetary

on the Filipino

as a short-run

SYSTEM

in real GNP for the last two years

We cannot afford

even if it means strong

decline

pains

ones.

growth.

short-run

ignore

the IMF conditionality

10 percent

disadvantaged

While

cannot

AND THE FINANCIAL

The contractionary

great

additional

POLICY

the debt) gave us negative

The

inflicted

have

MONETARY

Financial

well

below

controls/owns

with privately-owned

deepening that

number

banks.

Even

- 51 -

damaging

political

was the use of these

purposes.

It is not surprising

large segment

and

government

and

interest

fluctuation

management

(nominal

exacerbated

discriminated

against

policy

for. The agenda

of the financial

deficit rate

monetary

state

starting

for reforms

of any narrow the misuse

spasmodic

real)

for long-term

political

miserably.

Money

assets. are

rate This

climate

and

Major

reforms

therefore

called

the following:

to the machination

and nonpolitical,

institutions

supply

widely.

investment

that will not be subject

power group,

of financial

fluctuating

changes

at achieving

overtly

with both inflation

financial

with institutional

setting

jfor

are failing.

highly uncertain

is aimed

institutional

institutions

well

an already

institutions

then to see them perform

has been

the market

financial

for the vested

thus avoiding

interests

of such

groups;

efficient

and

surplus

money

The

achievement

Central

Bank

conduct

costly

organization monetary

particularly and government

system

(including

those on reserve bills and bonds;

interest

in foreign

objectives

and role;

policy

that

and therefore requirements

and

deficit

rates, and exchange

rate.

and real investment

exchange

(I)

and real assets.

changes

in the orientation

abandonment

and the marketing

(3) a program

savings

users;

the control

will require

(2) changes

mobilizes

and other

reduce risk in financial

speculation

these

market

by investors

aimed at stable prices,

a policy would help

andprevent

financial

funds for availment

supply management

financing) Such

and expanding

the

and

the

prevailing of

Central

for the rehabilitation

rules Bank

of failing

- 52 -

banks

and

other

services

institutions

rural

Policy

to reduce

accomplished

inflation

in reserve

IMF-inspired

growth

for

afford

by 10 percent

an expansionary

means

strongly

substantially much

have

Secondly, present

the

monetary

further

negative

to achieve

policy

existing

effect

than on

was only 3.7 percent.

two years.

It is to be noted

stock

Real

policy

growth

and

Bank

down bills.

economic

already

money

level

of the economy.

GNP

should

already therefore

rate this year even reserve

supply

high

In this situation,

on output

done

In the first

capital

This was

negative

growth.

ceiling

supply

slowing

on reserve

disruption

a positive

price of oil "is coming down,

prices.

and by

produced

Monetary

money

and Central

the ceiling

economic

on inflation.

rates in the economy. positive

financial

outflow.

That this was excessively

level at least in the next

on domestic

on deposits

oÂŁ Treasury

the IMF-prescribed

pressures

underutilization

greater

sales

to prevent

posture

financial

controlled

exchange

that there is so much room for money

adding

underemployment

foreign

in the last two years.

going beyond

believe

Bank tightly

requirements

through

another

supervision

Recovery

In fact, the IMF relaxed

expansion

or insolvency.

and to prevent

money

of last year

declined

effective

the Central

reserve

in the middle

cannot

(4)

contractionary

today.

and for the

failure

the past two years.

undebatable

assume

and

and Economic

by raising

growth

This

areas;

the last two years,

growth

the

institutions

aimed at preventing

Monetary

financial

money.

expansion

place,

there is so

unemployment

in the

and we expect

and would

short-run.

it to remain at its

This will have favorable

that the inflation

without

pump-priming

prices

impact

rate in February

1986

- 53 -

The expansion rate.

The

on money

weakening

debt payments.

supply will certainly

of the peso will surely

However,

the

1984 and 1985, an unwelcomed peso

due

boost

for our exports.

There expand

are

money

various

supply.

current

level

provided

the growth

of real GNP. discussed

below.) a

necessarily

being

to accelerate

reforms confident

supply

with

is consistent

elsewhere

disallowing

policy

would

Bank

with

reserve

requirement

the

period

growth

is going

rate to be

operations..We

the

system

This approach

the Central

from

certain

the targeted

from

manipulate

requirement

over

of the

therefore

can

open market

bills

should be viewed

This should, But with

.....

without

consistent

Bank to issue

Bank can succeed

Bank

as a short-run

however_

the monetary

in this document

of the Central

The weakening

its

own

B).

Reforms

Role and Organization

the US dollar between

in the reserve

treasury bills.

recovery.

any miscalculation.

vis-a-vis

that the Central

withdrawal

iSee Section

that the Central

external

monetary

for reducing

expansionary

discussed

to our

to say 15 or 10 percent

of eventually

economic

add more burden

wa_ is an expansionary

replaced

bills

monetary

prevent

23 percent of money

exchange

for our exports.

One is a reduction

scheduled

interest-bearing

instruments

Another

our proposal

The

expansionary

(The other reason

recommend

with

on the

pesoâ&#x20AC;˘ appreciated development

our proposed

put pressure

being

be managed

policy set

in this endeavor.

reforms place,

measure carefully and other we

are

- 54 -

The monetary must

independence authority

supervise

Governor the

and regulate

financial

Monetary

Board

financial

system.

individual Monetary

of political

Board to permit goals.

branch

is designed

A government

interest

that of the President's

able

to them

groups.

the Central

Bank

and five (5) members

from

connected

to prevent

the

management

with

of the Monetary

is a necessary

the

or any

is included

economic

of members

with

the government

representative

of short-run

appointment

is the

also assure

of the following:

representative,

the coordination

better

and therefore and other

which

of the government

than two of whom should be

The staggered

terms exceeding

Bank,

Bank will

institutions,

This composition

group to dominate.

long-term

Central

a government

not more

of the Central

from the executive

should be composed

(as chairman), sector

Board

independent

from the intrusion

private

with

of the country,

instituted.

independence

The

of the Monetary

condition

Board

for

its

independence.

Central Persons

power over the supply

appointed

competence Board

Bank

and dedication

shall divest

avoid

Monetary

of interest

rates,

short-run.

Thus,

Bank's

is a public proven

The members

integrity,

of the Monetary

in all financial annually

trust.

institutions the

size

and

and liabilities.

prices,

should be limited

the exchange development

would not be a direct

responsibility

falls

sector

on the private

well-being.

They are to disclose

responsibility

economic

and credit

have to

of their holdings

of interest.

of their assets

Central

Board

to the public

themselves

conflict

composition

The

the

of money

rate,

incomes

and the raising of the Central

and the government

to the

stabilization

and employment

of development

Bank.

the

financing

Such a responsibility

administration.

The

Monetary

- 55 -

Board

should maintain its responsibility of regulating the country's financial

institutions.

Money Supply Management and Financial Intermediation

The

level and the evolution of the money supply should be

instrument for the maintenance of stable prices, rate.

the

interest rates,

principal

and exchange

In this regard, the Central Bank should announce target growth rates for

monetary

aggregates for each quarter as well as for the whole year and explain

why such target growth rates are necessary. In addition, information on reserve money levels and changes,

and on interest rates should be published in leading

newspapers weekly.

The monetary aggregate targets are to be achieved by the more traditional, neutral,

and

non-discriminatory

Operation

(0M0),

changes

quantitative

rediscount

rate,

rules and

such

Open

changes

Market reserve

// //

requirements. and

Central Bank is not to engage in marketing government bills

bonds and should not issue its own interest-bearing bills,

"Jobo" bills. undeveloped inflict

like the CB or

Interest rates are very sensitive to bill issues especially financial markets where the trading volume is small.

serious crowding out effects.

The marketing of government

should

be in the hands of private brokers.

reduce

the

Central

Bill

issues

securities

The Central Bank should gradually

Bank bill issues and make government

primary

instrument for its open market operation.

should,

however,

be competitively traded.

securities

All government

the

securities

They should not carry any special

tax features _hat prejudice the attractiveness of private securitieS. _+

- 56 -

Rediscounting supplying

loanable

rules should

Reserve financial Bank's

requirements

The

thrift

diversification

revised.

requirements current have

financial

and/or but

serious

a tax on savers.

This is aimed

Also,

banks

rediscounting

in all types

at improving

it does away with biases which

not

exploit

that lead to a significant We

liabilities

only

improve

profit

for

the Central in favor

benefited

efficiency

opportunitieB

of few

have through

arising

from

requirements.

suggest

consistent

rate

they impose

of deposit

lenient

not

in the past is that big commercialbanks

rural

rather

control,

and

institutions

experience

reserve

Policies

for all types

money

rediscounts

should be uniform.

institutions.

differential

because

over money supply.

types

for quantitative

Subsidized

never be permitted

control

acquired

to be purely

funds.

institution

certain

immediate

with the monetary

of 23 percent crowding

the

increase but

out effects

gradual

growth

and the reserve

in intermediation

targets

and other

and work as a large

reduction for 1986 portfolio

cost should of

reserve

onward.

The

requirements

intermediation

tax

investors.

Reserve the return which

deposits

on risk-free

hopefully

continue

phasing

There government repeal

at the Central

should issues

will

assets. be

Bank should

earn an interest

This should bring

down

passed on to borrowers.

out all reserve

no_ be other

eligiblegovernment

bank portfolio

or loans to particular

of PD 717 which requires

The

banks

to allocate

the intermediation Central

Ban_

cost should

securities.

rules

sectors.

rate equal

that favor the holding

In this regard, 25 percent

we favor

of their net

of the loan

- 57 -

portfolio to agri/agra loans.

Central Bank financing of government deficit should follow some optimizing deficit

financing

budget deficit:

rule.

There

are four basic methods of financing

given

(a) the creation of currency, when the Central B_nk holds part

of the newly issued debt, thereby monetizing it, and it ends up in the hands of the

public as freshly printed money or

(b)

raising

required reserve when

reserve

reserves

interest borrows

government securities;

vaults as

excess

reserves;

hold

additional

balances with the

Central

Bank,

pays;

abroad.

and (d) foreign borrowing,

The first is an inflation tax,

financing

rule

when the

national

should

for

help the Monetary Board

the

government

while the second is a tax

The third and the fourth are a tax on

borrowing,

debt is voluntarily held by the banks or the public

financial intermediation. deficit

bank

when banks are made

in the form of cash,

eligible

government

requirements,

savings.

The

determining

the

optimal mix of financing a given budget deficit.

The Central Bank is to continue to monitor all foreign debts, private.

Neither

the

private foreign debt. • .-

government

nor the Central Bank is to

public

and

guarantee

any

The decision on the total level of foreign debt is to be

made by•the Monetary Board.

Developing the Financial System

The

above

measures would be conducive to

therefore• encourage reserve

and

intermediation

the development•of the financial system.

requirement and loan portfoliorules

investment

financial

The

reform

and of

will remove the tax on saving and

therefore encourage intermediation

activity.

Abandoning

the

- 58 -

current market

portfolio

rules

and the withdrawal

will free funds currently

for use by the private able to engage including

the

stimulated

by an environment

reduced

the

relative

attractiveness

interest

are still areas where

improved down

"insider banking

Central

Bank should

monitoring

of problem

effective of

Insurance

Corporation

banks,

monitoring

representatives

portfolios

be required to

Bank

The task the

financial

lead

to avoid

high standards to permit

and accruals

Bank,

the rural banks

to enable

by the large

enforce

and break

of more

interest

is to organize

and rules and to develop

the Central

to disclose

must

bankruptcy,

be installed

and enforcement.

there

system.

bank loan portfolios

The Central

standards

banks,

the public

should

their

However,

institutions

of the system

instruments.

the financial

minimize

Collections

(PDIC) and the various

thrift and development

Banks should

long-term

of financial

rates as it means

holding.

to develop

monitor

also

issues will increase

voluntary

reported.

performance

about

government

system

market

and interest

risk and should

banks.

should be separately

force to identify their

will

cartelization

default

Bank securities

in size it will be more

long-term

stability,

strictly

the

The

and regulation

financial

from

set of clients

are necessary

An early warning

composed

loan

reforms

bills

and to lend to a larger

induce their

and reduce

practice.

rate earnings

for

and

power or implicit

abuses"

intensive

task

rate on long-term

in order to assure

The

increases

of stable prices

Bank supervision

monopoly

banks.

sector.

Bank

and Central

about the future and therefore

Freeing

Central

As the market

transactions

agricultural

uncertainty

tied to government

sector.

in long-term

of Central

force

associations

a system

Philippine

Deposit

(commercial

and the quasi-banks).

detailed

information

them to judge

the

about

quality

their the

- 59 -

backing

financial

bank liabilities. report

of banks.

The collection This is intended

only a local real shock occurs. causing

the value

Individuals

shock

depositors

information other

not withdraw

the Thus,

situation

extremely

of the Central

capital. over

If the limit the

of its assets whilethe

of their

banks.

most

liabilities.

banks.

that other

informed have

results.

they

may

full

the

rationally

banks

into a general

from

the real

if depositors

informed,

may

bank

panic,

Bank to handle.

a bank can avail

Bank.

The limit

is exceeded,

management

runs on some banks by

run or panic

as a signal

for the Central

when

Since

turn the local shock

difficult

a generalpanic

of other

no general

be a limit to the amount

take

deterioration

can

in the

deposits

Thus,

are incompletely

be included

want to withdraw

the assets

from them.

some banks

facility

bank paid-up

immediately

they

There should

funds

depositors runs

resort

or deposits

bank portfolios,

trouble.

of-last

to currency

causes

than the value

rationally

it does not affect

about

hand,

interpret

lower

aware of this situation

local,

to prevent

A local real shock

of their assets

these banks and switch

rate should

should be proportional

the Central

of the erring case is being

of from the lender-

bank

reviewed

Bank avoid

should further

by the

Financial

truly

effective

Court (see below).

The

PDIC

deposit

insurance

capital

infusion

F100,O00

income/wealth greater

to be developed company.

into an

Its financial

from the government.

independent

base is to be adequately

The insured

the end of 1986 and subsequently

growth.

than the floor.

Individual

banks

The insurance

and

deposit

floor

adjusted

are to be allowed

premium

increased

is to be raised inflation

to insure

and

deposits

to be paid by each bank will be

- 60-

adjusted the

size

to. its financial

according

of its exposure

individuals

Experience efficiency freedem

specialization, Bank

should

regardless

depositors,

percent

banks should

portfolio

financial

Philippine

banks)

Punitive

or against

require• special

for

system

should be

type

and

same

type

requirements

institutions.

competence

The Central of

activity

legal limits

for the protection

and finance banking

practices,

financial

The

institutions

one

rural and

is a Commission

Court. The Commission

Bank and the six

Court•is

The settlement

and prompt action.

the •competence nor the habit

_40 thrift

of financial

of fast solution

Sound

banks.

justice cases

•but

filed by

cases appears

regular

Of Cases.

(DBP), the

crony

to admit

The existing

is to investigate

Bank of the Philippines

Special

foreign

buyers.

of two bodies,

the Veteran's

should be allowed.

the guilty will not only be a matter abuses.

given

degree

are avoided.

the

of banking

Financial

Bank (PNB),

future

financial

rules

of the Development

against

will help prevent

mean

and default

or be sold to•interested

of the failure

•action

does not necessarily

should be permitted. • Failing

the creation

National

will

institutions.

all areas

the other a Special

the causes

bank risk

size,

competition• and•modernize

commercial be closed

and

of individual

i.e.,

and prudent

to the present

recommend

Banking,

neither

uniform

can foster

for

stockholders

The financial

structure

to controllability

according

officers,

that bigness

that inefficiency

free entry•into

they

equity

provided

shows

stability.

own

of the type•of

Subject

Where

its

have

directors,

record including

to the CB supervisory•responsibility.

even greater

evolve

and performance

The PDICassessment

in the Philippines

nor

to its own

(DOSRI).

be used as a supplement

•position,

courts have

- 61 -

The non-performing were

taken

assets

over by various

of DBP, PNB and the six crony

agencies

of the government

written

off their books so that their carrying

future

intermediation

disposition

company

assets

these

instituted.

v/_B's

activities

and

Proceeds

from the disposal

continued

existence

in the case where it can perform

can

foster

concentrated on

competition in

the

among

banking

in PNB deposits

competitive

basis,

them.

system.

their

disposal

dishonest

commercial

as efficiently

but will be placed

their

asset

non-performing

dispositions

must

Funds.

bank may be rationalized

asprivate

It can act as foil Government

that â&#x20AC;˘

_mmediately

revival.

should go to the General

as a public

only

tendencies

obstruct

Safeguardsagainst

should

banks

cost will not impinge

should be set up for an orderly banks.

private

funds

against will

in any bank,

it should be able to attract

banks

the

cartel

longer

private

funds

and if it

or public, competitive

rates.

The six cronyprivate

banks

_hould

be systematically

privatized

merged

with

Private externalities We

greater the

DBP

two years.

markets

and accept

the extended â&#x20AC;˘payback periods

that

not

discussion,

and its provincial

cannot be expected

of direct

instead

accountability

legislative

within

agencies

financial

subsidies,

extent

by various

of the government

Otherwise,

they should be

PNB.

favor the provision

Direct

acquired

subsidies

of hidden

such as tariff

on the part of recipients

government branches

projects

development

banks

large

the

projects.

to such projects. protection,

and are easier are

capture

of development

from tax revenues

subsidies

all development

to adequately

induce

to withdraw.

enough

merit

have a role to play.

and theâ&#x20AC;˘ Land Bank of the Philippines

(LBP)

The are

- 62 -

continue

encouraged sale

their development to replenish

at competitive

credits

from

foreign

sources.

identifiable plans.

the national

budget

may

and increase•their

The DBP and the LBP are

loanable

The Central

development

role.

rates of bond and bill issues

operations. • These •clearly•

financing

banks

as explicit

worthwhile

and

from

the available

Bank is •not to finance

projects"

rate subsidy

subsidy

on the basis

to these

loans

term deposits,

special

their • loan

should lend only for projects

"development

Any interest

funds

that•are

the

current

is to be done

allowing

to the borrowers.

to explore

the possibility

DBP

concentrate banks

in wholesale

thereby

which are doing retail banking

Soft loans or grants •private

financial

many

instead

small

of directly

by DBP from foreign

financial

•institutions have

rural

risk.

obtained

supporting

enterprises

A negative

services

shied away

• because

gross receipts

unequally

of their high relative tax rate to cover

savers.

are

Development

areas.

securities

to be required

to small

for their purchase.

has not yet fully developed,

current

bonds

with

them.

may be farmed

out to

market

banks and other banks

and bills. Development,

Commercial rural

services

thrift

banks

transactions

urban

cost

and

transaction

and

should actively

market

documentary

the secondary

bonds

time intervals

are encouraged

banking and

While

Private

small-scale

Zero or minimal

the long-term

level at regular

the marginal

its small-denominated

the

development

distributed.

from the lending

The government

market

competing

sources

risk cost for these loans is recommended.

stamps

private

developmen t banks,

Access

and

banking,

long-term

arQ to be repriced

of say every 60 or 90 days.

to float

similarly

are not available in the

featured

in most

provinces

are

rural to

- 63 -

encouraged

to provide

term capital

market

this service.

and reduce

The social security development presence

finance. in

comprised

between

financial

system

between

during

system

during

priorities

therefore equity

banks,

recommend

investments

allowed

certainly enhance

1977-82.

of the total

in hotels,

improve

only the

the development

those

returns

We,

however,

their equity

financial investments. capital

market

banks.

the

ranged entire

investment

investments

Lines

themselves

in the two commercial

of the long-term

Its

outstanding

portfolio

find the

Air

role in

system.

outstanding

portfolio

and the Philippine

on their

loans

Its investments

especially

competitive

an important

Its

loans

both GSIS and SSS divest

including

invest

visible.

the long-

services.

to the financial

investments

the same period.

that

to financial

of the total

GSIS and SSS undesirable,

commercial

funds

system is clearly

the period

financial

of access

long-term

11 percent

18 percent

will help develop

(i.e., GSIS and SSS) plays

It provides

two

inequality

system

the financial

These measures

(PAL). all

their

They should

instruments.

This

will

Moreover,

this

will

and foster

competition

among banks.

The

GSIS,

appointments

SSS,

PNB,

LBP

in any government

and DBP officers

corporations.

should not

have

concurrent

IV.

Within the

case

an economicsystem

for

government

failure".

Markets

must

jointly

externalities,

increasing

fail,

objection

cases in economic obvious

them

subject

this

reason

to a number

Main Features

The proposed

fiscal

First,

reduction

the

does not mean expenditures

government

Second,

much

reform,

would result

in the minimum

However,

must

even in

markets

step

with it its own

in.

has,

in recent

do One

distortions.

its decisions economic

for

agent,

the makes

It is the lack of appreciation times,

intervened

exist.

will include

of the scope

government

the following

government (expressed

to GNP) but Concentration

such as land

nature

adequately

competitive

it makes

"market

Package

a smaller

emphasis

account

like any other

government

reform package

intervention

heavy

entity;

that by their

that the government

functioning ,markets

of the Reform

theory where

of constraints.

that the Philippine

even in areas where

government

and,

fail

initiative,

the concept

goods!' (goods

may bring

is not an omniscient information

around

on private

to scale and uncertainty.

is that state intervention

basis of imperfect

for

Markets

SECTOR

principally

revolves

"public

returns

not immediately

government

course,

relies

intervention

consumed).

well-specified

AND THE PUBLIC

that

fail to provide

these

The

FISCAL POLICY

features:

activity;

this,

in terms of the ratio

in activities_where

of of

the basis

is strong.

on measures

public education, interference

for redistributing basic medical with economic

income

and

care, and nutrition efficiency.

wealth which

- 65 -

Third,

a program

the public

enterprise

Government

Reorganization

An While

immediate it

Budget

and

propose

and specific

reforms

designed to

rationalize

sector.

concern

recognized Management

for

government

of general

for the new regime

that this task belongs

and the Reorganization

consideration

and the strategy

Principles

the following

government

principally

Commission,

basic

principles

reorganization. to the

would

the

Office

design

for implementation.

in the Design

of Government

(i)

The government should intervene only in unambiguous cases where there is market failure of a competitive market economy, as in cases such as public goods, externalities, increasing returns to scale, and risk and uncertainty.

(ii)

The mere hint of the existence of market failure immediately construed as a justification intervention.

Take

specific

case:

one

resources

are

not fully utilized.

resources

may

rightfully

imperfect

information,

For example, minimum

preferred

While

case for

the

due to the absence

wage legislation industries.

capital

underutilization

and investment As such,

state intervention,

i.e.,

trade

laws, and withdrawal

of investment

the appropriate

inceutives.

intervention

underutilization

universal in government

markets

and

policies.

may be due to past policies

incentives

liberalization,

state

observed

it may also be due to "errors"

the observed

possible

should not be for government

with

capital

policy

elimination

using

bias

may well be

less

of minimum

wage

- 66 -

(iii)

The government should recognize _ublic provision and public _.

There

are

various

only one of them. decides means

Consider

that the provision a

justification

construction incentives may

low

for the creation

to the private

bureaucracy,

the following

housing

sector

and less private

of tertiary

is a public

for the poor;

sector

If the present

of a public

involves

direct

good,

agency the

massive

between

it is by

charged

grant

public

production,

Similar

medical

care,

leadership

with

no the

subsidy

low cost housing

participation.

education,

distinction

and public production

example.

to undertake

The former

in the provision

a service

of low cost housing

cost

be even better.

used

forms of providing

the important

projects a

larger

arguments

can be

and local

public

services.

A. Expenditures

During percent

the budgetary

or 1.0 percent

which while higher

international

budget

1970-80,

of GNP.

was 4.0 in 1981 and 4.2 in 1982.

percent,

first

period

of expenditure,

deficit

the

quarter is

Given

of 1986 (estimated

expenditures 4 percent

standards.

than the IMF

during

external

the transition

of GNP for 1986 appears

deficit

As a percent

The estimated program

the budgetary

at _8.9 billion), debt

service,

period, warranted.

averaged

target deficit

about

of GNP, budgetary

level

for 1985

(0.9) percent, realized

a budgetary

proposed

deficit

is low

during

that _12.2 billion

and the

9.5

program

the the of

of approximately

- 67 -

An This

immediate

concern

reform measure

design

has several

of an administrative

priorities.

Second,

and

Finally, priority

Short-run I.

structure

appropriate

the release

facilitate

workers

government First,

reorganization. it will allow

to the government's of funds

and

and payment

to ratify the new for the

who will be separated

the reallocation

needs

the

for the more immediate

of a plebiscite

of local elections,

pay of government

will

features.

such as the conduct

the holding

retirement

positive

it will allow

needs of the government, Constitution,

for the new regime

of public

separation

from

resources

service. to

other

areas.

Recommendations Dismantle agencies to the new regime's

The list in Table might not be consistent few obvious for savings.

examples.

and ministries whose set of priorities.

I (and in Table

2) is suggestive

with the new government's A more

thorough

functions

do not

contribute

of some operations

priorities.

review will probably

These

reveal

that

are just a

greater

room

- 68 -

Table I.

Some Possibly

Ministry . â&#x20AC;˘ .

Unnecessary

Government

Operations*

of Human Settlements

Office of the Minister (P199.6) KKK Secretariat (_71.7) National Livelihood Program Support

Fund

( 117.o) Sacobia .

Metropolitan

Project:

Ilocos

Philippine (P1.4)

President's

Development Manila

Gintong

Authority

Commission

â&#x20AC;˘Numbers in parenthesis million pesos

Projects

for Special

arecurrently

Examine critically other justification for government

For

most

Is government

or direct

government

production

level of government

that might be subjected Table 2.

intervention

(P6.2)

Youth

Year

Studies

(_14.8)

budgeted

amounts

programs and agencies where intervention is not clear-cut.

existing 'agencies and programs

raised.

Office

of International

the current

(P6,104)

Alay (_30.0)

Norte Development

Center

(_4.0)

the following

justified?

the "best" expenditures

to such scrutiny

Is the creation

form of government appropriate?

is quite

questions

long.

may

the

of the agency

intervention?

A list of operations A possible

list is in

- 69 -

Table 2.

Agencies

Office • • • • .

•

Economic

and Development

Authority

Kalinga Special Development Region (_4.1) National Productivity Commission (_2.8) of Agriculture

and Food

Fiber Development Authority (_23.7) National Food and Agricultural Council

Ministry .

be Re-examined*

Management Coordinating Board (_4.95) Commission on Filipino Overseas (P7.3) Office of the Director General (Media) (_41.5) Bureau of Broadcasts (P32.0) National Media Production Center (_144.3)

Ministry • •

Should

of the President

National . .

Whose Justification

of Education,

Culture,

(_38.2)

and Sports

•

Cotton Research and Development Institute (P6.4) Philippine Tobacco Research Training Center

Cagayan

( 15.2) State

Bureau

•

Trade and Industry • • . • •

of Energy

Development

(_54.7) (_166.1)

Construction Industry Authority of the Philippines (_24.6) Garments and Textile Export Board (_4.3) Philippine Textile Research Institute (_7.9) Philippine National Alcohol (PI.9) Technology Transfer Board (_1.9)

*Numbers in parenthesis million pesos

University

Merge or economy•

are currently

consolidate

budgeted

some agencies

for

amounts

better

coordination

and

- 70 -

This

set

Protection and

the

might

Council

(F7.3M)

Intramuros

Committtee

include

the

following:

and National

Administration

the

Pollution

(P6.5M)

and

National

Environmental

Control

Commission

National

Parks

(_16.1M)

Development

(F22.8M).

In the allocation of scarce public resources, the new government should give priority to income redistribution programs which would result in as little interference with economic efficiency as possible.

and

Such measures

include

nutrition.

(We propose

The proposed

pattern

not to mention

the

partly

could

employment

redistribution of

Long-run

will

contribute

objective

property

implementation

unemployment

and

the

taxes

of the above proposed

cadastral

Invest in infrastructure projects rural-based development policies.

survey

mobilization

tax

VIII.)

grounds,

nationwide

will

reorganization.

The long-run total

on equity

such

cadastral

resource

in Chapter

care,

stability.

payoffs

of government

of the new regime. wealth

effort

political

nationwide

impact

basic medical

also be justified

effect on long-run

short run the proposed

the initial

long-run,

an emergency

of expenditures

its positive

public education,

Invest in projects with considerable cadastral survey and tax mapping.

land reform,

effort

revenues

absorb In

and

the

income

to raise

the

requires

the

survery.

consistent

with

agriculture-led,

Recommendations To reduce net lending, consider the following measures: (a) improve the operational efficiency of existing public enterprises; and (b) design a mechanism whereby budgetary subsidies to state-operated enterprises are negotiated and justified on an annual basis.

- 71 -

The 41.5

new

percent

service _24.7

and

is faced

billion

the _111.5

net lending.

billion

guaranteed

administration

with a fiscal proposed

Servicing

while the expected

by the national

government

expenditures

of national

defaults

program

Revert to the legislative body its original decision-maker in the budgetary process.

Work for a Constitutional President to transfer funds.

The

new

increasing

should

provision

expenditures

least

debt

debts amounts

corporate

position

limiting

pursue a conservative

share of government

liabilities

to _21 .6 billion.

regime

will

government

in government

amount

in which

should

fiscal

the

power

policy,

be financed

principal

the

meaning

through

taxes.

B. Taxation

To finance rely

past,

its expenditure

heavily

there

convenience

direct

been too much

and political

and effective

than indirect

The proportion high. through

There

raising,

explains

should:(a)

to production

In the

administrative

the heavy

favor

processes;

taxes; and (c) be easier

of indirect

to pay" principle.

revenue

-- which

tax system

tax share

should be a determined

improvement

will have to

reliance

taxation.

of and less costly

rather

the new government

the "ability

emphasis

feasibility

on indirect

An equitable disruptive

on taxes that embody

has

the tax system

requirements,

in total

effort

the tax collection

that are less

(b) rely more heavily

to administer.

tax revenue

to raise effort

taxes

is still

rather

the share of direct

(by

reorganizing

the

taxes tax

- 72 -

machinery income,

and

curtailing

property

and inheritance

Taxes on luxury etc.

should

externalities. should be

Taxes

that

general,

reforms

such as on liquor,

the

punish

assumption

cigarettes, that

entrepreneurship

these

cars, perfumes, have

such as

negative

turnover

taxes

there

drastically

should be no earmarking

reduces

the discretion

of tax and

nontax

revenues.

in fiscal planning.

for Tax Reform

Personal

Income

Taxation

10.

Institute measures to professional or business

The

National

using

and

taxes.

consumption

increased

in the tax collection)

scrapped.

Earmarking

Agenda

corruption

Tax Research

standardized

putting

deductions

a cap on allowable

_ax administration. the progressivity

11.

Center

deductions

of tile personal

use

(NTRC) has studied

for business

The proposed

resourcemobilization

minimize the abusive income taxpayers.

or professional

should be accompanied

measure

will accomplish

income tax

and contribute

the

deductions

possibility

income.

However,

by improvements two things:

improve

to the government's

effort.

When administrative capabilities permit, adopt personal income taxation to promote equity within different groups of taxpayers.

a global system of as well as between

- 73 -

This

measure

first "slabs of

the

will

of income

two

also increase

from different

schedules

revenues

sources"

(which is inherent

since

being

under

the possibility

taxed

the

at the bottom

schedular

the rates

approach)

eliminated.

12.

Subject to safeguards against double claiming of exemption, treat the individual, rather than the family or the married couple, as the unit of taxation.

Under

the

aggregate

present

income.

earners

among

marginal

tax

eliminates

system,

married

This has resulted

married

couples

rates than single

the bias against

couples

are taxed

in efficiency

(usually

the wife)

people.

losses are

More equitable

the increasing

labor

force

based

because

subjected tax

their

secondary to

higher

treatment

particpation

also

of women

the Philippines.

13.

Impose higher

uniform rates on passive income from various sources at rates than the present ones (maybe 20 percent as NTRC suggested).

14.

Retain the withholding at source characteristic of these taxes to promote compliance especially for taxpayers at the upper income brackets; however, to avoid undue burden on the poor taxpayers, they should have the option to claim it as a credit against personal income tax.

The differential percent

on interest

transactions investments. countries.

tax The

taxation

of passive

and 15 percent

income

from different

sources

-- 17.5

on dividends

and royalties,

and 5

percent

on sale of real property rates appear

-- is non-neutral

to be low compared

with

rates

with

regards

imposed

in other

- 74 -

Corporate

Income

15.

Impose percent.

There basis. While

Tax

economic

Graduation

the promotion

obvious

uniform

corporate

basis

income

for taxing corporate

rates has a built-in

of small/medium

that the corporate

income

tax

rate

income

bias against

enterprises

large

may be desirable,

tax is the proper

instrument

graduated

enterprises. it

to address

not this

objective.

16.

To eliminate the double taxation of dividends, tax only to undistributed profits.

17.

Impose a final tax of 25 percent, withheld at source, on dividends received by a domestic or resident foreign corporation from a domestic corporation.

18.

Review, preparatory to their rationalization, special rates to selected corporations as well as special rates on selected of corporate income.

Property

corporate

income

granted sources

Taxes

Tax

collection

outdated

property

on real property values

maps on a large scale, the reasons governments estimated

apply

assessed

poverty

take

legal action

that

only

50 percent

values

remained

unpaid.

on "actual

and high delinquency

for delinquency:

assessed

has been plagued

is collected.

use" basis,

rates.

and the

delinquents.

of the real property From 1976 to 1985,

the absence

NTRC has documented

of taxpayers,

against

by the continued

tax

failure has

based

approximately

use of

of tax

some of of local

also

been

existing

_I0

billion

- 75

19.

As a .short- run measure, real property.

20.

Conduct

a nationwide

21.

Replace

the "actual

22.

In view of high delinquency rates, offer a one time amnesty for the interest and surcharge component of real property taxes, and impose a high surcharge after the amnesty period.

23.

Study for immediate adoption a system of presumptive income of real property. If the presumptive income tax on real is adopted then capital gains and transactions taxes on should be abolished.

taxation property property

The

"presumptive

real

property

of the

property

owners

earn

-- whether part

tax

must is

are

For example,

an income

of property. subject

incorporation

The

the interest

increasing

the

assessed

that value

Such a return must

owns a

a return

then be declared

by virtue

piece

of 10 percent,

then he must

The administrative

treatment

tax rate would of evading

pay

to a schedule

property

worth

If the taxpayer

to be worked

whose out

on this incomes prevent

thiatax.

from a low level, deposit)

income

a tax of _5,500

return will be fixed in any given year. start

to his

of corporations

have

then the taxpayer

of his ownership._

income bracket

on savings

values

by a survey method.

will presume

taxpayer

presumes

of P50,O00

return

according

the taxable

who must pay a tax according

if a

a different

stipulated

do so.

only for the purpose

that the presumed than

return

of the citizen

in the 11 percent

of assessment

income _' tax method

and the tax burden

declare

piece

use" basis

stipulated

the income

for inflation

tax mapping/cadastralsurvey.

or not they actually

bracket.

PSO0,OO0

adjust

say 6 percent

but announce

up to a maximum

in advance (say,

proposed

(which is lower that it will

12 percent).

- 76 -

The

proposed

discourages

tax

discourages

land the

has

some

speculation

conceptually

and

other

attractive

unproductive

on property are taxed every year, theoretically

capital

gains

investments.

accumulation of wealth in the hands of _ few. It raises

possibility of increasing tax revenue from direct taxation.

which

properties.

embody

Since the returns

there is no more need to tax capital

higher capitalized

returns.

the

abolition

Thus we have a system

tax may also encourage disposition.

The

gains,

indirect land reform.

Estate and Donor's Taxes

The

revenue from estate and donor's taxes is low partly due

outdated

values of real property, and to poor control measures.

24.

Restructure evasion.

The IMF, an

the

for instance,

estate and donor's tax rates so as not

provoke

suggests a halving of the top rate of 60 percent,

increase in exemption level to _300,000 for estate and P100,OO0 for donor's

taxes and increase in bottom rates to 10 percent for estate and 5 percent

for

donor's taxes.

Export Taxes

25.

Remove the possibility further.

export duty on all products except on of increasing the export tax on logs should

logs. The be studied

- 77 째 Export

taxes impose a penalty on exports.

This penalty is in addition to

the undervaluation of foreign exchange that the existing industrial system defends.

Thus,

as a general principle,

protection

export taxes are not desirable

from an efficiency viewpoint.

the

case of logs and lumber and plywood/veneer,

conservation logs

the

interaction

considerations and the Philippines' comparative advantage in both

and lumber/plywood/veneer production (stronger comparative

logging) export

indicate a first best package: tax

processed increase

second

wood

(3) a 20

percent

best

package

products,

activity),

(2) no

subsidy

But this would imply tax and transfer problems for the is recommended:

(I) no

(2) elimination of quotas on log

in export tax on logs (to promote processing which

advantage

of (I) no ban on log exports,

on logs and lumber/plywood/veneer,

processed wood exports. government.

(4) increased forest charges,

export

ban

exports,

(3)

comparatively

(5) improved land tax

forest concessions.

Sales and Specific Taxation

26.

Adopt a general value added tax (VAT).

turnover

tax

lead@

cumulative taxation

goods

pass

through

successive stages of production and distribution. The introduction of the sales tax

on subsequent sale brings with it additional distortion in the

process.

Various

classes

of goods are characterized by different

production number

stages of production and distribution. The same class of goods may pass through different numbers of stages of production/distribution and would be subject different effective tax rates.

- 78 -

Regardless wholesale

whether

or retail

level,

tax is its relative

With regards a

unit

tax

administration. treat imports

the

products

and locally

The effective petroleum

Review the feasibility the wholesalers/retail long run,

margins

manufacturers, types of

sales

the retail

products

(or retail)

To bring

are lost rather

occurs

on combined

with

are presented

then only

than the whole

the wholesale

many

seems

be taxed

adopted

stage

is taxed

through

and

even

or retail

wholesale

tax on the product.

of VAT up to (or retail)

the tax on wholesalers'

and

at 10 percent

at the same rate

The advantage

essentiality".

to the kind of product

If textile

orthodox

petroleum

in Table

structure

according

respect

it should

the more

unit tax and

the VAT to the wholesale

sales for example.

level over

that if evasion

through

taxes are perceived

A two-rate

of the sale.

level,then

tax

impossible

taxes

of extending the VAT system stages in the

be differentiated

in all subsequent

product

of the goods

stage.

complicates

it almost

has increased

of VAT rates.

to the sequencing

tax

and

evenly.

tax rates based

added tax may be extended

manufacturer's

wholesale is

number

the classification

rates should

percent

goods

Taxes on petroleum

29.

the

of both ad valorem

specific

of a unit tax makes

produced

Review

not according

last few years the Philippines

through

the imposition

subject

imposition

28.

stage,

tax

The

rates for various

value

of the VAT over other

taxes,

products

Reduce the optimal.

further

most

27.

is imposed

advantage

to the specific

as oppressive.

ad valorem

the

VAT

neutrality.

repeatedly.

sectors

the

10 the

sales

(retailers')

- 79 -

The question of whether to extend up to the wholesale/retail stage or will

depend

on whether the additional revenues generated from such an

not

action

will justify the additional administrative costs.

Natural Resources Taxation

30. Increase Forest charges.

has been noted that forest charges have declined in real terms in

the

past and that the present rates represent a very light tax on output of logs -less

than six percent ad valorem.

raised

substantially

without

They suggest that forest charges could

reducing

incentives

output

below

be the

conservation target.

31.

Impose a presumptive income tax on forest/mining concessions to capture the economic rents arising from natural resource exploitation.

enable the government to appropriate economic rents arising

exploitation

mineral

forest concessions is conceptually

and

natural resources,

from

an auction system/competitive bidding attractive.

the of

alternative

would be the inclusion of forest/mining concessions in the proposed presumptive income

tax

property

with

the

intention

capturing

the

excessive

returns/monopoly rents from the exploitation of natural resources.

32.

Pending the completion of (recommendation 31), adjust the taxes and royalties currently imposed on natural resources to be more reflective of the monopoly rents on natural resource exploitation.

- 80 -

Tax Ezpondltures

33.

Withdraw

34.

Review regards market.

The

tax expenditures

system.

The

billion

annually

We expect of

various

all tax exemptionsincentives

the to

NTRC

outlined

estimates

above

the eventual

dismantling

other distortions

opportunity

for fine-tuning

in the short-run.

However,

contribution)

scrapped

right away.

the

revenue

Admittedly, administration, itself

incentives

leakage

in the tax

cost the government

_4.5

should

The correct of these

increase

the proposed however,

to the installation

time (say, by December

there

the Philippine are some taxes (e.g.,

phasing reforms

total

right away.

tax system may be

limited

that are so regressive

turnover

tax) that they

of the tax reforms is positive.

may

In the

(e.g.

should be

will ensure

that

long-run,

take time to install.

put its reputation

of the new tax program

1986).

dismantling

the

tax reveDue.

tax reforms

should

upon the

environment.

tax should be scrapped

and so unwieldy

effect

of B0I incentives

in the policy

The

system

a large

in 1980-1985.

payroll

improved

constitute

that non-BOI

The PAGIBIG

net

of the B01 system.

coverage of the B0I incentive system specifically with. the incentives to industries producing for the domestic

35.

PAGIBIG

outside

The

new

on the line by committing

within

a reasonable

period

- 81 -

TABLE 3 EFFECTIVE TAX RATES ON PETROLEUM PRODUCTS BASED ON THE UNIT (SPECIFIC) TAX AD VALOREM TAX MARCH 7, 1985

Effective Tax Rates (in percent of wholesale price)

Rates Under Proposed System

Petroleum Gasoline

31.6

Regular Gasoline

33.3

Avturbo

31.7

Kerosene

12.3

Diesel

16.0

Fuel 0il

11.5

LPG

!7.9

Asphalts

12.3

Solvents

32.3

- 82 -

Improvements

Any

in Tax Administration

program

Philippines revenue

must

system.

Philippines its

of economic

recovery

include

completed

At the moment,

is in fiscal

tax laws. would

improve

incidence

modifications

collections

reforms reform

in revenue

can

perhaps

The

new government

most

talented

the Bureau

effects

more intensive and benefits

system of the

the definitions

unless

fiscal

taxable

much

the glaring

less

loopholes

substantial

else,

success

tax of

a thorough-going

in the Bureau

portions

in effecting

and the Bureau

Internal

quickly

before

of valuation

personnel.

of its energies

a thorough

revamp

and of

of Customs.

data processing,

and customs

upon the

(BC) has to be mounted

men and women

use of automatic

that the

wanes.

should direct

Revenue

depending

particularly

of Customs

Revolution

system estimate

than anything

will entail uew methods

of revenue

in the fiscal

the

government

the level of tax collections,

agencies,

and honest

of Internal

These

to fine-tune

be doubled,

administration.

of the February

existing

or at least minimized.

(BIR) and the Bureau

the fervor

the

growth

not in the lack of sophistication

of the Philippine

in all tax collection

Revenue

its

observers

economic

point

of the tax burden as a whole,

the tax net are first plugged

revenue

overhaul

the weakest

not do much to improve

Many keen

for sustained

administration,

Further

income

and Collection

of income and imports,

and increase

in the

salaries

- 83 -

PUBLIC

ENTERPRISES

There

has

during

been a dramatic

the

last

corporations

and

increased

From

closer

beyond

undertaken

entered

the

into

transportation

strategic

public

consisting

the number

enterprises

public

parent

enterprises

153 subsidiaries,

fields

hostelry

observed

and

real estate tourism

firms

of these most

range of activities

and political

such as trading,

recent years, banking

those

the government and

finance, services.

activities.

enterprises,

on the basis

however,

firms, a sizable were

designed

not a few firms which

power,

and

and other

can be justified

sector,

the

has engaged

utilities

and housing

distressed

There are undoubtedly

Philippines,

government

public

In more

in the manufacturing

economic

the

manufacturing,

of state

For example,

revenues.

consolidate

areas

and other

quite a number

the Philippine

behavior.

while a majority

bn other grounds.

generate

traditional

such

includes

failure,

65,

enterprises

First,

and communication,

Second,

jcan

in 1970,

of public

emerge.

to control

The latter

total

of 93 parent corporations,

study

conclusions

activities

market

consisting

in the number

assets.

following

from

18 subsidiaries

to 303,

57 acquired

has

decade:

increase

and these

firms

were initiated chunk

of which

initially

were initiated

come from a wide

manufacturing,

banking

and finance,

of the public

enterprises

and

real estate. Third, designed

/approximately

to generate

one-third

revenues

either

to increase

domestic

savings

1982

were

or to finance

- 84"

essential

public

firms

burden

of public

the

enterprise

a fiscal

the period

GNP,

and

rather

a consolidated

fragmentary during

contribution

equity

expenditures,

While

is unavailable,

budgetary

transfers,

During

services.

net

lending

instead

under review,

a budget deficit

that

the

1975 to 1984 has been

netted

of deficit surplus

equal

analysis

suggests

enterprises

were

surplus

than a budget

evidence

the period

to public

financial

in the form out

would

these fiscal

enormous. of

total

current

government

have been the

rule.

equal to more than 1.5 percent

to 2.3 percent

of GNP,

would

have

resulted.

General

Recommendations

the Philippines,

allocative

efficiency

established set

a great

grounds.

majoxity

of state

In practice,

however,

on the basis of some non-economic

justification

consequence

that

competitive

markets

for public

the Philippine work,

unjustifiably

has

number

on were

The use of the latter

resulted

has ventured

enlarging

can be justified

a sizable

motives.

enterprises government

firms

the

even in

the scope

unwanted

areas

of public

where sector

activity.

The general to:

(a)

rationalize

organization; public future.

recommendations

and

(b)

the

in the area of public

use of the public

foster efficiency

firms which will be retained

enterprises

enterprise

and fiscal

and those which

form

discipline

are designed of

government on

will be established

existing in the

- 85 -

36.

All ptl_lic sector _be $o1_.

firms

that compete

directly

with private

firms must

37.

After a careful financial and management review public firms undertaken for purely commercial purposes that cannot cover current operating costs (excluding depreciation) should be closed immediately while buyers are being sought.

We the

believe

new

government

private

enterprise

than undertake

must strive

some

to assign

direct

an important

as a means of coordinating

economic

economic role

39-

No Minister or Deputy Minister should sit in the Board Executive Officer of public enterprises.

The

rationale

this Deputy

policy

Minister

necessary

assignment

40f

sits in the board

should

However,

deserves, firms.

will prevent

for a government

Ministry.

schemes should be devised so that stock ownership (e.g., sales of

An incentive

when the issue of the enterprise's

general

representative given

to a

career

The representative

representative

official

problem

a Minister

of the

If it

serve

in more

should not be of a rank lower

or is

corporation, supervising

SOE the full time attention

should

In addition,

corporations.

to sit in the Board

to give the individual

government

arises.

in the past where

of state

or serve

incompatibility

disposition

the practice of dozens

and

activity.

In the process of privatization, privatization results in broader stocks to employees).

is straightforward.

functions, markets

38.

may emerge

the

that rather

than three

that it state

than Bureau Director.

It is recommended that tax exemption privileges be enjoyed by any public enterprise be withdrawn.

of all forms

as may

- 86 -

41 .... It is recommended that a system of performance evaluation that takes ................ into account explicit and implicit subsidies be installed for _: application to all public enterprises.

42...... All forms of government assistance -- equity contribution, budgetary ........subsidy, government guarantees, net lending -- should be requested ' • and justified by the individual public enterprise on an•annual basis. To oversee the implementation of this proposal and to provide overall review of the public enterprise sector, it is recommended that a Commission on Public Enterprises be organized and placed under the Office of the President.

TheS•above on

state

public

three recommendations

firms. •.•.• In general,

resources

that

are

are designed

the measures

pumped

to foster

would

the

fiscal

put in focus

government

discipline

the amount

each

individual

enterprise.

4_,• It is recommended _•• fixed percentage dividends.

This surplus

measure

and payment

Recommendations

The grouped

designed

on •Individual Public

into seven policy to

consolidations; integration

with

asymmetry

the

disposition

a of

another (4)

removal

Enteprises

respect

actions:

(I)

to individual outright

supervising conversions

into an existing (6)

to prevent

SOEs be required to contribute to the government in the form

of deficits.

recommendations

supervision

•sector;

that profitable of its profits

public

abolition;

Ministry; into

regular

public enterprise;

from list of public

(5)

enterprises (2) transfers

(3) government transfers

enterprises;

and

mergers agencies

are of and or

to the private (7)

further

- 87 -

Public

enterprises

operations

should

that

are patently

be abolished.

Table

engaged

lists

private,

commercial

name of enterprises

that

think should be abolished.

The existence

of public

enterprises

to do with the enterprises's For

example,

the Ministry

the Cultural of Education,

Settlements. ministries should

Table 5

improving

efficiency

Social

institutions

(HFC) absorbed

contributions on

wasteful

Security Social

Administration.

the

of workers

Medicare

new

in both

large scale projects

Services

little

from the previous

regime.

should

instead

authorities.

be supervised

of the Ministry

of functions of enterprises

from

of Human

whose

supervising

between

enterprises

for the

purpose

out.

into one agency

The consolidated program.

Home Mortgage

agency. the private

Finance

reduce

also

Financing (NHMFC)

likelihood

of the old regime,

the supervision

In addition,

Home

sectors

financing

Corporation

the

will

home

(HMDF),

and government

characteristic

agency

Existing

Mutual Fund

will be placed under

and Development.

by higher

had

that the @SIS and SSS be merged

and the National

Administration

prescribed

The duplication

revitalized

ministry

list of corporations

such as the Home Development

Corporation be

and Sports,

should also be carried

Security

the

of the Philippines

The consolidation

recommended

administer

will

Culture

supervising

is an artifact

is a suggestive

dismantled.

called

Center

might be changed.

function

whose

are

that spent

the Social

of the Ministry

its investment

policy will

of be

~ 88 -

Table 4.

Public

Enterprises

That Might

Be Abolished

Human Settlements Development Corporation Kalinga Special Development Region KKK Processing Center Authority NIA-Consult, Incorporated Pambansang Katipunan ng KB ng Pilipinas People's Livelihood Enterprises, Incorporated Technology Management Development Corporation National Sugar Trading Corporation National Investment and Development Corporation Marikina Plaza Agora, Incorporated Phividec Construction and Development Corporation Philippine International Trading Corporation Museum of the Philippines Costumes

Table

Some Corporations Whose Changed

Cultural

Supervising

Ministry

Center of the Philippines (from MHS to MECS) Home Development Mutual Fund (from MHS to CSIS/SSS) Home Financing Corporation (from MHS to GSIS/SSS) _ National Food Authority (from MHS to MAF) National Home Mortgage Finance Corp. (from _HS to GSIS/SSS) Southern Phil. Dev. Authority (from MHS to NEDA)

Must

- 89 -

We recommend Administration Virginia

and

Tobacco

regular

the merger Farm

of the following Systems

Administration.

government

agencies

enterprises:

Development

These merged and

Corporation;

agencies

placed

National

under

Irrigation

and

Philippine

should be converted

the

Minisry

into

Food

and

Agriculture.

recommend

Guarantee agency

Fund

Board,

should

preferably

the merger

Philippine

attached

Insurance

Agency

Crop Insurance

to an existing

Corporation,

Corporation.

government

Quedan

The merged

financial

institution

the Land Bank of the Philippines.

Another

artifact

corporations

carrying

undertaking their

of Grains

frola the previous out function

on a normal

operations

basis.

transferred

government

is the existence

that the government

These

corporations

bureaucracy

should be

into the proper ministry.

Table

public

should

dismantled 6

lists

be and

some of

these enterprises.

For better is

recommended

National

A orderly be:

coordination

and Development

fashion.

and temporal

development Authority

set of corporations

Philippine

Bancom

that all regional

Economic

whole

in both spatial

economic

authorities

planning,

be attached

Builder's

should be sold to the private

Bricks,

the

(NEDA).

sector

The list is very long but some of these corporations

Airlines,

Inc., Philippine

Genetics

might

Inc., and

Realty Corporation.

is recommended

its existing

subsidiaries

that NDC be dismantled have been completed.

as soon as the privatization

o 90 -

Table 6.

Enterprises For Conversion Into Regular Agencies

Development Bank of the Philippines Data Center, Inc. (DBP) Employees Compensation Commission (GSIS/SSS) Instructional Materials Corp. (MECS) Laguna Lake Development Authority (NEDA) Leyte Sab-a Basin Dev. Authority (NEDA)

- 91-

For lack of information on their activities and their financial performance, it is recommended that the following enterprises be subject to further scrutiny:

Communications and Electricity Development Authority (MOE) Cooperative Dev. Loan Fund (MAF) Export Credit Corp. Philippine International Dev. Corp. (MTI) National Realty Development Corp. (PNB) National Service Corp. (PNB) National Sugar Development Corp. (PNB) National Warehousing Corp. (PNB) NIDC 0il Mills, Inc. (PNB) Phil. Shipyard Engineering Corp. (PNB) PNB International Finance, Ltd. (PNB) PNB Venture Capital Corp. (PNB) Philippine Trade Exhibition Center (MTI) Phividec Industrial Authority (PVB) Panay Railways, Inc. Philippine Sugar Corporation

V째

Our social

view

justice

dominant

increasing

The

institutions

participation

in our

of government, creation

activity

development

particularly

case

of public

environment

to conservatives

Their

groups and

opportunity

their perception parties

development

where

particularly

the in

bilateral,

role,

however,

intiatives

and

goals.

degree

extent

intervention

to exist.

political

instrument

societies

of presenting

alternative

political

economic

be the

party

competing

policies

(expanded

for Conservative

the

from

for providing

of the role of government

can best

parties

A pluralist

the size and

role of government

ideological

government

the

as was the propensity

in democratic

or llmited

is,

to a large

enterprises,

are allowed

the best mechanism

of socialist

attaining

important

participation

of international,

if the principal

programs

looking as the

society,

-- that

-- determines

resolved

political

of local and domestic

The issue of the most appropriate

growth

development.

old regime.

system

It is inward

greater

of Philippine

or supportive

government

in economic

is through

socialists

genuine

for development.

intervention

used

and on the_lipino

economic

to achieve

members

does not preclude

complementary

role

structure

anchored

their share of the fruits of development.

remain

resources

While

be pursued

and nationalism.

on Philippine

it must

multi-national

should

self-reliance

and disadvantaged

This approach and

is one which

its development.

goal,

more numerous

OF GOVERNMENT

development

and dependent

force

development

national

and equity,

in perspective

STRUCTURR

and

the

parties)

- 93 Efforts not

only

at reforming

appropriate

define

its

structure

which

shapes

people

of the most

developmental

needed

government

government's

and reorganizing

appropriate

development

structures

created

contemporary

performing

political

allocating

resources

its

task.

determining

devise

important

among

the

most

dimension and the

Necessarily,

reflect

and serve as a major and

need

organization

Structures

current

the

influentials

in development.

expression

and social values and

also

is the perception

finds

must consider

this role.

role of government

role

role but

to perform

structure

government

future

and

important

determinant priorities

in for

development.

Special balance

attention

and

-- in

goals of efficiency, To

parallel

two key organizational

decentralization

reorganization integrity.

is given

strengthen

measures

the

economy,

and reinforce

ensure

that our

principles

examination

responsiveness,

our

policy

-- checks and

the

accountability

proposals,

recommendations

government

will

and

propose

achieve

their

objectives.

Political short-term existing

recovery

political

First, supreme dismantle control

stability

is a sine

and

long-term

private

growth

strategy

development must

so that any

contend

with

the

power structure.

there is a need

throughout

_ua non to economic

to ensure

the country, armies.

of local political

that national

and therefore

There warlords

is a need and place

political

authority

there is a need to to remove CHDF

them under

reigns

immediately

units

the new AFP.

from

the

- 94 -

Second, pluralist

recommend

party

system

orientation, â&#x20AC;˘ including participate

Finally, regarding

Limited

advantages

and

Role

creating the

or replacement

as a reform

strateg_

a bureaucratic

ideological

_an legitimately

process.

in maintaining

should

of the armed

national

enunciate

of local official

the

old or

(i.e.,

..... (I)

"trimming

forces

security.

clear

and civil

predisposition

"over

unnecessary

cost of government

for

servicing" obstacles services;

any way ensure

that certain

as communities

"bypassed"

graft

specific

offices

criteria

servants

important

(3)

tasks

by development

business

assumes

they

certain

of retrenchment

spawn; economic

(vociferous

and services

seem to suggest.

(2)

demands

not),

"growth"

new it

activity

and needlessly

this erratic

certain

over the years

"over-reaction"

groups

to private and,

process

of accumulating

might be "over-regulating"

regime,

the fat")

it is a natural

tasks and the corresponding

that government

criticism)

whatever

through

for Government

often redundant

(under

of the Philippines,

that government

the size of government

streamline

implies

parties

climate

service.

_Reducing

political

the professionalization

instruments

recommend

the removal

the career

Party

and electoral

strongly

effective

democratic

political

the Communist

recommend

them more

where

in the political

Third, to make

or thus

increasing does not in

areadequately

served,

- 95 -

Reducing (1)

the size of government

abolition,

abolition

divestment

and mergers

retrenchment

involves

or reprivatization

of regular

of personnel

generally

three parallel

of government

government

ministries

or discontinuation

actions:

corporations,

and offices,

of recurring

(2)

and, (3)

government

services

and programs.

Criteria

for

Divestment

Corporate

From

the

above,

divestment

and

competing

directly

provides

(4)

with

and

and industrial groups

activity

being performed or

effectiveness

the

Public

which

activity

in service

can adequately

of the business

by a governmental

community

(2)

organizations

community

corporation less

already

there

private

Direct

Intervention

are

engaged

involved;

are not

adversely

(5)

can be done by

Through

left

interest

and,

cost

are

the latter

and

delivery.

Criteria for Government Corporations

which

fill the void

public

corporations;

with

abolition,

firm is purely

no redeeming

of government

any

public enterprises

if a government with

in an area where

organizations

the withdrawal

sector

(3)

may be used

(I)

service;

or sectors

affected

criteria

effective

enterprise;

if certain

companies

measures:

the private

or community

a government

commercial

Reprivatization

the following

privatization

efficient

enterprises

and

Sector

Public

with

the

private greater

- 96 -

Reducing

the size of the public

reprivatization

requires

of non-intervention privatesector firms

have

gestation

ideological

where

through

Criteria

bureaucracy

clientele,

and foreign

growth

a specific

is a product groups,

the private

sector

of high

concerned

risk,

and

economic

sector.

in the

endorsed

fail,

yardstick

and,

such (5)

standard

and Offices

as well as a reactive

politicians,

instruments

provide

long

is crucial part

elites

and penalties

of diverse

policy to the

the activity

of Ministries

is a proactive

interest

pressures

from

international

instrument the

general

organizations,

governments.

criterion

abolition

reserved

if other policy

incentives

and Merger

the general

(I)

or influential

action

participates

in regulating

(2)

area

parties

providing

exist:

cost;

divestment

traditionally

in an activity

the

government

directly

its inevitable

public,

direct

for Abolition

Government

(3)

of political

and regulations

necessary

to invest

abolition,

reaffirming

areas

conditions

enormous

security;

commitment

government

performance

and

and involving

national

by the people as policies

the following

through

guidelines

or business

not or are reluctant

period,

preserving

clear policy

in economic

unless

sector

that

fusion

overlapping

convenient

guide

clientele,

provide

are candidates

often

invoked

of government

functions

similar

for abolition

ministries

or redundant

to reformers

reorganization

and offices

structures.

and reorganizers. services

any

This Offices

is is which

and overlappingterritorial

or merger.

involving

duplication a

useful

serve

or and

the same

jurisdiction

- 97 -

One

cautionary

product case

Redundancy

of area and clientele

which

advice.

the Ministry

maintain

former

serves

redundancy

limitations

of Agrarian

similar areas

programs and

Reform

the

extension, land

that a vital

often

coverage

and the Ministry

under

to ensure

services

or jurisdictional

for agricultural

farmers

may be tolerated

in government

the

as in the

Agriculture

except

reform service

that

program.

the

Hence,

is not neglected

delivered.

Another

criterion

coordination, elements

implies

to produce

organizational principle

stronger

an improved

work.

approach.

rigodon

which

however, asserts

impinges

disintegration

greater

specialization)

and integration

whether

the National

irrigation irrigation

Of better

left

government

to nongovernmental Alternatively,

nongovernmental Development

Corporation

various

is attained

product,

service,

facility

agency

operating

engineering

could

role

farmers

MNR

are

achieve

the MAF

the

since

MPWH

since

expertise.

considered

be a strong

function

organizing

with

and of