Vol. VI No. 4
July-August
SEMINARS I
I
me
PEER EVALUATION I
=-_SEARCH
RESULTS
OF IN
PIDS WORKSHOP
T
PIDS-sponsored he research outputs researchof prothe ject on "Agricultural and Rural Development in the Philippines" was the object of 'peer evaluation' during a miniworkshop held last July 4, 1988 at the PIDS, NEDA sa Makati Building. The first of a two-part mini-workshop series, it also aimed to integrate the results into a unified research report. Presentors include Dr. Cynthia Bantflan who discussed three related papers na_mely: "Rice Farmers' Response to _s and Environment: Laguna and C-_fitral Luzon, Philippines"; "Production Analysis and Econometric Issues"; and "A Comparison of Flexible Functional Farm Estimates: An Application to Philippine Agricultural Data". Dr. Cielito Habito discussed the paper on "Intersectoral Linkages and Agricultural Policies: A General Equilibrium Arialysis", while Dr. Agnes Quisumbing discussed "Regional Consumption Dif, ferences, Marginal Consumers and Nutrition Policy in the Philippines". Dr. Cayetano Paderanga, Jr. discussed "Issues in Modelling Sectoral Migration in the Philippines". Invited as reactors to the papers were Dr. Arsenio Balisacan, Dr. Manuel Montes, and Dr. Dante Canlas, all from the University of the Philippines' School of Economics. •
1988
ISSN 0115-9097
UNDP-PIDS SEMINAR-WORKSHOP SERIES EXPLORE PRIVATE SECTOR DEVELOPMENT Pi_
he United Nations Development
-i-
Programme
(UNDP),
sioner Quintin Doromal. The third ses-
together
sion, was held on July
14-1.5 at the
lib with the Philippine Institute for Development Studies (PIDS), jointly
Davao Insular Hotel and was intended for government and private sector repre-
sponsored a series of four in-country seminar-workshops focusing on Private Sector Development.
sentatives based in Mindanao. Participants were led by Governors Prospero Amatong and Isagani Amatong of Davao
at The the first HyattwasTerraces held oninJune Baguio 3-4, City. 1988 The seminar was intended for Manilabased representatives from the government and private sectors and from the business community. Participants were led by Congressmen Emigdio Tanjuatco Jr. of Tarlac and Margarito B. Teves of Negros Oriental. The second workshop
Finally, and Zamboanga the fourthdelof Norte, the'series respectively. was held on August 12-13 at the Agoo Playa in La Union and was participated in by representatives coming from the government and private sectors based in Luzon led by Camarines Sur Governor Luis R. Villafuerte, Jr. Among the topics discussed during the
was held at the Montebello Hotel in Cebu City on July 8-9 and was patticipated in by Visayan.based represen, tatives of the government and private sectors led by Philippine Commission
workshop series were: privatization, export and investment promotion, joint ventures, the development of entrepreneurial capability and the role of nongovernment organizations(NGOs), i
on Good Goverment
(PCGG) Commis-
EDITOR'S NOTE: This issue focuses on throe of the mum recent studies completed at the PIDS. The summaries are presented under the Research Folio Series and contain the major findings, policy implications and recommendations of each study, The study on pawnshop, by Dr. Mario B. Lamberte, is part of a larger study on informal credit markets supported by the Asian Development Bank (ADB). It analyzes the role and performance of pawnshops in the financial system, The study on the cooperative credit unions in the urban areasis also by Dr. Lamberte, together with Joven Z. Balbosa. Dr. Filologo Pante, Jr. discusses the role and impact of Japan's official deveIopment assistance (ODA) and its contribution to the Association of South East Asian Nations (ASEAN) in one of the summaries. This same study was earlier presented by the author, .as President of the Philippine Institute for Development Studies during the International Symposium on ASEAN-China-Hongkong Relations with the theme "'Japan's Growing External Assets: A Medium for Regional Growth?" held in Hongkong on June 22-24, 1988. Final/y, this issue also contains the usual update on PIDS" latest,publications and seminars.
iii_11[ .......
DEVELOPMENT
RESEARCH ,NEWS
JULY-
AUGUST
1988
111
FISHERY CONCERNS IN PIDS STAFF SEMINAR
SEMINARS I IIIIII
last August 1 at the Institute focused on the paper "Protec-
I
_
mercial Fisheries" written by Fe Selig. man, a Research Associate of the CornInstition and Comparative Advantage: tute.
_
......
,,.,
,
STAFF SEMINAR ON "FINANCING DECISIONS, RATIONAL EXPECTATIONS AND THE 'CROWDINGOUT" EFFECT: THE CASE OF THE PHILIPPINES"
industry's performance and presented a summary of various policy thrusts and years. She also discussed the theoretical framework, incentives given toestimation the sectorprocedures over the and the results of the various tests used in her study. According to Seligman, efficiency was usually linked with protection. Thus,
1oo producers relied heavily on stro_ng protection measures to survive ;: p o pe , u foat ly, the s cto hadnot developed into a strong
n in-house staff seminar based on paper A the entitled "Financing Decisions, Rational Expec. tations and the 'Crowding-Out' Effect: The Case of the Philippines" by Dr. Maria Socorro H. Gochoco was held last June 28, 1988 at the PIDS. During the seminar, Dr. Gochoco •presented the Fro.dings of -her study wherein the validity of the traditional "crowding-out" effect vis-a-vis the Ricardian Equivalence Theorem in the
ficance of the "crowding-out" effect in the case of the Philippines, such phenomenon was short-lived and arose only because of certain structural features present in the markets of developing countries which allow bonds to add to net wealth, During the discussions, it was pointed out that since the treasury bill is an urban debt instrument, there is a tendeney to leave out a large segment of
commercial base despite the heavy protection it received in the past. One explanation for this was that the industry Oll cheap rely continued to second hand vessels for its operations. Seligman said that the government should look at how the industry can cope with competition. There is a need to inquire on the issues and problems of the industry per se, on seasonality, depleting resources and spiralling fuel costs, and other related issues. Policymakers should find alternative ways to offset the costs of seasonality, to improve productla_tv
case of a less developing country like the Philippines was tested. The study assumed that rational expectations existed in the decision-making process and used a generalized least square procedure with cross-equation constraints. According to Dr. Gochoco, the "crowd-
the financial market, like the agricultural/rural sector, whose size is quite big in less' developing countries (LDCs) like the Philippines. Therefore, the study may not be applicable to other markets, The seminar participants were also unanimous in their observation that eco-
by using indigenous materials an_ manage resources efficiently, she said. While the said prescriptions can be accomplished ha the long-run, Seligman recommends that one immediate measure is to temporarily subsidize the fuel costs of commercial fishermen until such time
ing-out" effect existed in the Philippines and was therefore not irrelevant in the case of developing countries. However, she qualified that such "crowdingout" effect existed not because the
nomic policymakers in the Philippines usually start with different basic assumptions which explain why they have different policy prescriptions, Representatives from the National
that they have fully gained strength from the effect of export taxes, liberalization of fish importation and undervalued foreign exchange. I
public was irrational but because the • government seemed to have behaved "as though there was noday for reckoning" inasmuch as the market was fragmented, Furthermore, while the 'crowding-out' effect was present for debt instruments issued, the said effect only existed for the short.term instruments' like the 91-
Economic and Development Authority (NEDA), U.P. School of Economics, Department of Budget and Management (DBM) and the PIDS attended the seminar. Dr. Gochoco's paper is part of a larger study entitled "Financing the Budget Deficit in a Small Open Economy: The
day treasury bills but not for long-term
2111
II
ones, she said. Hence, despite the signi-
Case of the Philippines, 1981-1986."
IIII
r
,J ,!I'
_
•
IIII
'.',
k
A summary
of a research
study
conducted
by the Philippine
Institute
for Development
Studies
INFORMAL SAVINGS AND CREDIT INSTITUTIONS
IN THE URBAN AREAS:
The Caseof Cooperative Credit Unions Working Paper Series No. 88,06 (162 pages}
Mario B. Lamberte Vice-President, PIDS, and Joven Z. Balbosa, Graduate Student, University of the Philippines' School of Economics
usually characterized by a dualisess developing countries are tic financial system. Govern_ment-regulated formal credit markets (FCMs) vis-a-vis informal credit markets (ICMs) exist in the rural areas as well as in urban centers. One form of the latter is the Cooperative Credit Union (CCU) •"hich, at present, finds haven in the ivate and government offices as well
Cooperative Credit Unions may be categorized as: 1) community-based which are usually spearheaded by civic and religious leaders; 2) institution-based which are found in government/private offices; and 3) market-based which ope-
as in public markets, The whole cooperative credit movement is large, thereby making it dffficult to know the exact number of CCUs, their membership and assets, Like typical ICMs, CCUs are flexible because they operate beyond the purview of Central Bank regulations (e.g., policies on capital, liquidity requirements, ceilings, etc.). And although they are registered with the Bureau of Cooperatives Development (BOCD), no Central Bank-like regulations are imposed on them by the BOCD. Rather, the movement operates like mutual savings and loan "associations, raising deposits from their members, and providing loans only to their members. In certain cases, some CCUs are even larger than the largest rural bank.
rate in public markets. The study focuses on the second and third types which largely operate in urban areas, Only ten CCUs aie included in the sample, six of which are market-based and four of which are institution-based. In addition, 82 sample respondents were randomly drawn from the total membership of these ten CCUs. A CCU may originate from a marketvendor's association for the marketbased or from a "paluwagan" for the institution-based CCUs. Usually, the establishment of market-based CCUs arises from the need to have a strong political lobby to oppose an increase in stall rent or the threat of expulsion of stallholders in public markets. On the other hand, institution-based CCUs normally start from "paluwagan" among
L
Credit Unions Types of Cooperative
to adequatelyThey meetform theira financial employees. CCU in needs order and to encourage saving anmng the CCU members. In its formative years, a CCU faces many problems such as skepticism, lack of enthusiasm of members to open new deposits, and lack of operating capital. Moreover, factionalism among officers and members and anomalies in loan repayments haunt the budding CCUs. Fortunately, however, for the sample CCUs in this study, they were able to survive because of the patience, honesty and dedication of their leaders.
Set-Up
and Operations
The organizational structure of a CCU consists of the General Assembly (GA), Board of Directors, Management Staff, and Elective and Appointive Committees. The GA consists of members in good standing. The Board of Directors, meanwhile, formulates policies which the Management Committee implements. There are also three Elective Committees, namely: a) Credit; b) Supervisory or (Please turn to next page)
IIIII
Jill
IIIIII
Audit/Inventory; and c) Election Com. mittee. The Credit Committee is incharge of loan processing while the Supervisory or Audit/Inventory Committee installs adequate and effective accounting systern. The Election Committee, on the other hand, supervises the conduct of elections. An appointive Committee is likewise set up like the Education and Training Committee wtfich promotes the objectives of the CCU. A CCU may offer three types of saving facilities, viz., fixed, savings and time deposits. However, some offer only the first two types. Fixed deposits serve as share capital of members; they earn interest contingent on the yearend profit of a CCU and cannot be withdrawn. The savings and time deposits offered by the CCU, meanwhile, have similar features with those of ordinary banks,
FACTORS
MOTIVATING
II
Interest rates on savings offered by CL_LIsmay be lower than the average bank rates. Note, however, that mereber-borrowers still save in order to have collaterals for their loans in the future. Lending rates, are determined by the Board of CCUs. Generally, CCUs charge different rates for loans of different maturities, sizes and repayment schemes. At a first glance, CCU lending rates seem to be lower than banks but because service fees and collection charges are included and because the rates are discounted in advance, the CCU lending rates approximate those offered by banks. One good thing about CCUs, though, is that they accommodate small loans while banks do not. The loan capacity of both market-based and institution-based CCUs is determined by fixed deposits of member-borrowers. But in addition,
MEMBERS
Frequency
FactorsConsidered
Absolute Value
%
1. To havea accessto credit primarily for home consumption purposes.
1 2 3
43 32 7
52.4 39.0 8.5
2. To have access to credit primarily for business purposes.
1 2 3
52 10 20
63.4 12.2 24.4
3. To save
1 2 3
18 57 7
21.9 69.5 8.5
4. To socialize and fostercamaraderie among the members.
1 2 3
9 45 28
11.0 55.0 34.0
5. To avoid borrowing from moneylenders.
1 2 3
61 18 3
74.0 22.0 4.0
Note:
* 1-- varyimportant 2- important 3- not important at
all
the monthly basic salary of the employee is taken into account in the cornputation of loan capacity. A member may borrow for any purpose. This is one advantage of credit unions over banks because they allow their borrowers to have greater flexibility in the use of loanproceeds. Based on the availability of funds, a member may apply for loan refinancing provided that he has paid a certain percentage of his old loan on time. Also, loan restructuring is allowed provided that the borrower has a valid reason. With regard to loan maturity, market-based CCUs have a range from 100 to 540 days on a daffy or weekly amortization basis. Institution-based CCUs, on the other hand, have a range from one to four years. -._ Members make deposits through sa_ deductions in case of institution-based CCUs and thxough collections in case of market-based CCUs. Similarly, loan repayments are deducted and collected in the same manner.
TO JOIN THE CCU
Degreeof Importance*
IIIIIIIIIIII
Aside from saving and lending facilities, CCUs may also offer other services like Death Assistance Benefit, Retirement Benefit Plan, Free Medical and Dental Services, etc., depending on the availability of funds. In terms of service facilities, six out of the ten CCUs under study have their own office buildings. The managers revealed that a formal office for the CFII_ boosts the morale of members, ma_ them actively participate in its operations. Unlike banks, CCUs choose office hours that are most convenient to their members. In the sample taken by the study, the number of full-time staff/ officers ranges from 5 to 40 while the number of part-time personnel ranges from 10 to 23, depending on the number of members and size of assets being managed. As regards membership, meanwhile, the growth rate of total members ranges from four to fifteen percent in the period 1982-1986. The year 1986 had the highest growth rate of 15.7 percent. On the average, institution-based CCUs have a bigger number of members because it is easier to maintain permanent personnel, majority of whom are secreta-
THE ORIGIN OF COOPERATIVE CREDIT UNIONS
I ALUWAGAI 3
market -based
Institution -based COOPERATIVE CREDIT UNIONS
THE ORGANIZATIONALSTRUCTURE OF ATYPICAL CCU i
I
i
General Assembly
I
Board of Dlre_tors I. Chairman 2. Vice - Chalrman 3. 4. 5. 6.
Committees
Secretory Treasurer Manager Members
.......
Committees
i .on..* ] Bookkeeper r
Accountant/ Note: ....
Staff Authorities (function Is odvlsory lfl nature) Llne Authorltles (directly engaged in the planning and operation of the CCU) Need not be members of the Board
I
I
ries and clerks. Market-based CCUs, on the other hand, have market vendors as members, The real assets of the sample grew from 1)21.4-M in 1982 to P33.5-M in 1986. The high inflation rate in 1984 however, caused the sharp reduction in the real assets of most CCUs. The increase in total assets in 1986, meanwhile, can be attr_uted both to membership expansion and increase in members' contribution, As compared to banks, CCUs seem to be less vulnerable to a general economic crisis because of three reasons,
entirely different clientele, with the CCUs servicing small households and businesses which cannot be accommodated by banks. In addition, banks serve as a depository of CCU funds. Large loan amounts are encashed in the banks via checks issued by the CCU treasurer, in contrast, borrowing from banks is viewed by CCUs as contrary to the spirit of cooperativism, Thus, CCUs refrain from bank borrowing, With regard to sources of funds, CCUs rely mainly on fixed and saving deposits, Since CCUs are outside of the CB regnlation, they can use a greater proportion of funds for on-lending. From 1982 to
One such innovation would be to make lending rates more flexible, i.e., CCUs should adjust their rates to market conditions like banks. Moreover, CCUs should include all fees to be charged in addition to lending rates in order for borrowers to know allthe costs of borrowing and not just the lending rates which, if taken per se, seem to be lower than those of banks. In addition, CCUs should tap more saving and time deposits to increase funds. Lately, some federations of CCU organizations have devised inter-lending schemes or central liquidity funds so that
First, a CCU member has "loyalty" because he can withdraw his fixed deposits only if he resigns, which is seldom done by members. This "loyalty" is absent in banks, making them victims of deposit runs. Second, in times of crisis, households turn to CCUs for liquidity. However, their borrowings will of course depend on the amount of deposits they put in the CCUs. Third, subsidies enjoyed by banks before 1984 were taken away from them; thus, when the crisis period came, the banks started to collapse. Since CCUs are independent from subsidies, they are spared of the "feast and famine" phenomenon, Banks are not viewed by the CCUs as competitors because both of them service
1985, the data show that although the real loans granted by CCUs have been increasing, the loan size granted has been declining. This is because duiing times of crisis, CCUs chose to reduce the size of their loans to accommodate all credit demands. This is one thing which makes CCUs different from banks since the latter tend to ration-out small borrowers,
CCUs with surplus funds would not have to deposit in banks and those with deficit or are experiencing sudden increases in demand for credit can have access to external funds without resorting to credit rationing. Furthermore, it has been shown" patience, strong determination and smcerity of leaders count a lot in successfully developing a cooperative. Leaders with such qualities can easily secure genuine participation from members. Therefore, it is recommended that a concerted effort be made to provide the proper environment and incentives for others to develop their leadership potential. I
'Conclusions
and Recommendations
To sum up, the ten sample CCUs in the study have performed well even without government subsidies. It is observed that without being regulated, CCUs are likely to introduce more innovations,
THE
PHILIPPINE
FINANCIAL
SECTOR
Unregulated .',... _
Financial
.%
Icommerclal Banks I Thrift Banks Rural
Investment Financing
Banks
Cooper,o.tive Specialized
"_ -_
Sub-Sector
Houses Co. '
IGS1S JSSS
Sac- Dealers Rural Banks Gov't Banks
ILite LNoN-Life
I Community-based J nst tut on- based IMarket'based
Investment Co, Fund Managers Lending
Investors
Pawnshops Gov't NBFIs Venture
II
II
JII
Capital
Corp.
illllI II
IIIII
I
III
A sunlmary
of a research
study
conducted
by the Philippine
Institute
for Development
Studies
JAPAN'S AID TO ASEAN: PRESENT REALITIES AND FUTURE CHALLENGES BACKGROUND
Working Paper Series No. 88-08 (44 pages)
in principle as the opposite seems to be the case in actual practice, what with the process involved in project develop-
n recent years, Japan has been I
experiencing unprecedented current account surpluses; a end that is being predicted as likely to _,mtinue in the next few years. Japan's response is essentially three-pronged, namely: a) expanding her domestic demand; b) improving access to her market; and c) recycling part of her external surpluses to the developing countries through "various means, such as the accelerated disbursement of official development assistance (ODA)targets. This study is concerned with the third response, with special emphasis on Japan's aid to the Association of Southeast Asian Nations (ASEAN). It reviews the realities of existing aid relations between Japan and her neighbors, .... ticularly ASEAN. It likewise looks _the major challenges which Japan's -ODA must face at present and in the future. Trends and Characteristics From being a m-:nor ODA contributor in the 1960s, Japan rose to become a major contributor in the international assistance effort, making her second only to the U.S. in terms of ODA volume (please refer to Figure I). Nonetheless, despite the tremendous increase in her ODA contribution, Japan still trails behind other Development Assistance Committee (DAC) countries in terms of certain parameters used to assess the quantity and quality of ODA.
ment andof funding heavilyMoreover, stacked in favor Japanese still suppliers. the proportion of grant-aid that is still tied remains at a high level at 55.3 percent in 1983.
Filologo Pante, Jr. President, PIDS
JAPANESE For instance, in terms of both ODA contribution as a percentage of GNP (Figure 2) and ODA per capita (Figure 3), Japan ranks only number 14 among the 18member-countries. With regard to quality, data show that the grant
meanwhile, element of
Japan's ODA was the lowest among of the DAC member-countries in 85 despite improvements in earlier In fact, it was way below the
those 1984years, DAC
average of 90.3 percent for that period, Conversely, the interemt rate on Japanese ODA loans was the highest at 3.7 percent, Japan ranked number six when it comes to the length of maturity of loans and number four in terms of the length of grace period, In terms of aid untying, Japan has followed a policy of general untying of ODA loans since FY 1978, as manifested in the rate of untied assistance in Japan's bilateral loans which reached 60.7 percent in 1985 and in the percentage of Japan's tied bilateral ODA loans which levelled off to 3.7 percent in the same year. However, noteworthy as it was, the policy of general untying of Japanese ODA loans seems to work only
AID TO ASEAN
Amidst Japan's role in the international assistance front, how significant is her contribution to Asia, specifically the ASEAN? What are the prospects for the future? Japanese aid, in fact, has traditionally catered to the Asian region, with a substantial proportion going to ASEAN. This priority given to ASEAN reflects Japan's high regard to ASEAN as well as her recognition of the region's economic potential as a source of raw materials and as a destination of exports and overseas investments. Moreover, Japan views the economic progress in ASEAN and the Asian region as crucial to the promotion of peace and stability in Asia and the world. On the part ofASEAN, Japanese ODA is very significant, considering that slightly over one-half of the ODA it receives comes from Japan. in addition, Japan's ODA contribution becomes doubly important because like other Third World regions, many ASEAN members suffer from the instability of primary export earnings, vulnerability to external shocks, and difficulty of access to markets of (Please turn to next page)
developed countries. Further compounding these difficulties are the resurgence of protectionist tendencies among developed countries (DCs) and the drying-up of new resource flows from private sources to developing countries. In recent years, while Asia has remained as the major recipient region of Ja-
Total _-/
panese bilateral ODA, the shares of other
cam
regions, Africa, Middle East andparticularly Central and Souththe America
INDICATORS OF
had risen from just 1.7 percent in 1970
JAPANESE
to
35.2 percent
PARATIV
F /
ODA
in 1986. Accounting,
[9r84_iI
in Japan's aid in Asia is China, which, meanwhile, for an increasing importance since 1982, has in fact become the largest single recipient of Japanese bilateral aid. These trends reflect Japan's effort to expand the reach of its ODA to other regions of the world and her recognition of China's growing role in the Asian region.
! ,
Nevertheless, it is unlikely that the emphasis of Japan's ODA programs on Asia, and within Asia, on ASEAN, will change in the foreseeable future. What remains to be seen, however, is whether Japan's recent emphasis on China as well as the attention to Africa will be pursued at the expense of ASEAN countries. This need not be a question of trade-of f s, however, if-!apan's overall ODA volume is substantially raised in the coming years. Such scenario depends to a certain extent on Japan's acceptance of a leadership role in the international assistance effort.
]_i
Ii I
1/
I-, I
I I
Avero_
Corollarily, this calls for the redressal of several problems and inadequacies of Japan's ODA program.
FUTURE
A. Aid
CHALLENGES
Volume
At least three arguments have been advanced to "persuade" Japan to substantially increase her volume of aid to the developing countries. First, Japan's inability to raise her ODA relative to her GNP makes her ODA contribution not Commensurate with her economic power. In 1986 alone, lapan's ODA toGNP ratio of 0.29 percent fell short of the DAC average of 0.36 percent and the United
Source:
Journal p-9
of
Japanese Trade and -
Industry
-
(Vo1.7,
Nc
Nations target of 0.7 percent. Second, Japan should share in the promotion of peace and stability through her aid program, since she does not carry a largescale defense burden. And third, Japan should recycle her current account surpluses to the developing countries.
B. Aid Implementation A number of problems had been cited regarding the efficiency in the administration of Japan's ODA, specifically in the packaging and delivery of ODA inputs. These include: a) the inadequacy of Japan's ODA administrative structure;
Without doubt, Japan has recognized the need to raise the level of ODA she is
b) the problem of disbursements from OECF which is partly due to delays
extending. In fact, since 1978, she has set several Medium-Term targets to raise her ODA volume. The first Medium-
in decision-making, particularly on loans in Tokyo; and c) the lack of coordination within Japan's technical assistance pro-
Target, aimed at doubling the 1977 level
gram and between the teclmical assitance
of ODA (in dollar terms) in three year,,,
program and the capital assistance pro-
4ooo i_'] " aooo
starting in 1978, was easily achieved while the Second Medium-Term Target of doubling the 1976 to 1980 aid disb'ursements within 1981-85 was only 84.6 percent achieved. The latest Medium Term Target, announced on June 14, 1988 aims to increase Japan's level of ODA to at least $50 billion during the period 1988-1992.
_ooo
One bold initiative that should firm up
gram. The severity of the situation especially in terms of administrative structure may best be illustrated by the fact that while the volume of Japan's ODA grew more than 5.1 times from 1976 to 1986, the total number of staffs.engaged in ODA administration increased by only 1.1 times during the same period. This is compounded further by, among others, the centralized and cumbersome bureau-
Japan's commitment to help developing countries is Saburo Okita's call for the recycling of the current account sur-
cratic procedures as well as the_lear institutional, responsibility over the program.
_19-
I
ODA LEVEL '_oMILLION 5000
o
Fig. 2
RATIOTO GNP
pluses of countries like Japan and West Germany to the developing countries at an annual rate of $25 billion over the
C Effectiveness
and Quality
of Aid
next five years for a total of $125 billion. Considering that Japan alone would continue to post a current account surplus of $60-80 billion a year over the period 1988-92, a huge capital transfer to the developing countries may take place which will help break the vicious
Undoubtedly, there is a need to inrprove and streamline the organization and system for delivering Japanese ODA not only to facilitate the achieve" ment of ODA targets, but also to enhance
cycle of low growth and low demand in the developing countries and thereby provide the spark needed to energize an
the effectiveness of aidby way of delivering ODA where it is needed (sectors, programs, projects) and when it is
tso
otherwise anemic world economy,
needed. The question
oo 5c
Unfortunately, the implementation of simple inasmuch as surplus capital in the Proposal may bynotthebeprivate that Japan Okita is held principally sector. Still, many believe that the problem is not insurmountable if Japan decides to take the lead in a so-called
however, should be approached with quantifying the impact of ODA on caution because thebestdifficulty of recipient countries. ofThe way therefore is to look at it qualitatively. Quality here refers not only to the financial 'terms and conditions of aid (grant ele-
"Japanese Marshall Plan". Japan's emergence as a major ODA donor, however, depends, to a large extent, on how her aid administration machinery would be able to keep up with rising expectations about the contribution of Japan's aid to growth and development.
ment, grant loan mix, interest rate, maturity and grace period, tying or untying status) but also to the type of programs and projects supported by ODA and the flexibility by which aid program_ are implemented. (Please rum to next pa24:'
(%) 2
o Fig.
:3
PER CAPITA ODA
i_o
__,March/April
19881,
of
aid effectiveness,
DEVELOPMENT RESEARCH NEWS
SHARE OF JAPANESE ODA IN TOTAL BILATERAL ODA RECEIVED BY ASEAN COUNTRIES AND CHINA, 1985
The fact that the substantial increase in the quantity
JULY- AUGUST 1988
of Japanese aid has not
been matched significantly by an improvement in quality may be traced to the sometimes conflicting set of motivations for extending aid, e.g., national selfinterest (economic reason) vs. humanitarian objectives. Still, there has been some softening in the financial terms and conditions of Japan's aid. But such changes have not been enough to make significant a dent in the quality of Japanese ODA. For instance, even if a major portion of Japan's loans are said to have been untied, much of these have, in fact, often been de facto tied. Also, the case of grants provides a good example. Although grants are by and large tied, the real problem involving them has been the strength of the lobby of Japanese firms through government agencies to have their firms awarded contracts for the supply of the goods and services for projects under the grant assistance program. Thus, it is quite possible that projects may have been funded not necessarily because of their priority in a particular country's development program but because of the strong lobby of certain Japanese firms, Another problem area is the sourcing of goods and services, especially under grant assistance, which calls for a larger proportion of materials to be used for, say, a building project, to come from Japan. The matter of emphasis/allocation of
ASEAN Indonesia Malaysia Philippines Singapore Thailand Brunei* Total ASEAN China
Total Bilateral ODA 502.74 202.66 437.56 21.77
II
125.59 240.00 7.94
62.0 54.9 36.5
1,05 800.01
80.8 51.6
673.67
387.89
67.6
68.5
*1984for Brunei. Source:
Ministryof ForeignAffairs, Japanese ODA 1987,(Tokyo, 1988).
panied by the rise of China as the largest single recipient of Japanese aid as well as Japaws increasing assistance to other regions in the world, The nagging question remains, as mentioned in an earlier section, on whether or not this new stress on China and other regions will mean a de-emphasis on, or will be done at the expense of Asia, particularly ASEAN. However, considering the economic and political importance of Asia and ASEAN to Japan, the chances that this may happen seem quite slim.
Suggestions have been put forward to improve the efficiency of Japan's ODA, including: 1.) the provision of quickdisbursing loans such as program or sector loans; 2.) the increase of the proportion of local costs eligible for funding; 3.) the expansion of the OECF staff; 4.) greater coordination among departmeats to easily facilitate the decisionmaking process; 5.) the strengthening of linkages between technical cooperation and capital assistance; and 6.) co-financing with other bilateral donors, With regard to the effectiveness and quality of aid, efforts need to be coatinuously exerted to "soften" the financial terms and conditions of Japan's aid. The
With regard to the geographical distribution of aid, Asia, particularly ASEAN still accounts for a major proportion of Japanese ODA although its share in Japan's total aid disbursemeats has been declining in recent years, This decline seems to have been accom-
32.1
1.30 1,551.40
often gone into the construction of various centers which are in many cases urban-based and not geared towards serving the needs of low-income groups in the rural areas,
of Aid
161.33
264.10
RECOMMENDATIONS
Distribution
Japan % Share
385.48
aid poses another weakness. Under the Japanese aid program, assistance had
D_ Geographical
Japan
IIIIIII
IIIIIII
study further recommends that Japan should continue her policy of allowing individual countries to identify and submit projects in accordance with their development plans. It suggests that Japan extend assistance to recipient countries, where it is needed, to strengthen their capabilities for the identification, development and pridritization of development programs and projects. At the same time, the possibility of expanding the practice of local sourcing of materials and supplies for projects under grant aid should be looked This goes true for the experts to_ involved in the projects. Finally, the goal of rural development in many of Japan's aid recipient countries can probably be better served if grant-aid is focused on small infrastructure projects like schoolbuildings, rural roads, etc., instead of on the construction of buildings. The challenge to Japan's ODA in the future, as far as ASEAN is concerned, is to balance its allocation so that its growing assistance to other parts of the world does not severaly affect the level of aid to ASEAN. The ASEAN countries, on the other hand, should continuously strengthen their capability for program or project identification, preparation, evaluation, prioritization and absorptive capacity for effective aid utilization. []
III
A summary
of a research
study
conducted
by the Philippine
Institute
for Development
Studies
AN ANALYSIS OF THE ROLE OF PAWNSHOPS IN THE FINANCIAL SYSTEM _awnshops are becoming popular as an alternative source of credit. Not
Working Paper Series No. 88-04 (36pages)
II only are transaction costs very minimal on the part of the borrower but
Mario B. Lamberte
l_ans are also easily obtained, provided _1 item of value can be presented as col-
Vice-President, PIDS
lateral, Despite its popularity, however, very little attention has been accorded to the study of pawnshops. To date, there is hardly any thorough study about it. This paper therefore is an attempt to partly bridge this. gap. It analyzes the role of pawnshops in the financial system with
With. regard to the uses of loans, no infonuation can be obtained from pawnshops because these entities, in practice, do not ask about the purpose of the loan. Nor do they worry about the repayment capacity of borrowers since all loans aresecured by collaterals. Moreover, since
special emphasis on the following: a) sources and uses of funds; b) interest rates on loans; c) profitability and operating efficiency of pawnshops; and d) linkages between pawnshops and banks,
these collaterals may be appraised at a lower value by the pawnbroker himself, he (pawnbroker) is not worried of loan defaults because he can sell the collaterals later at market prices,
--
Sources and Uses of Funds Unlike in other countries, pawnshops ,_, the Philippines belong to the formal non-bank financial intermediaries simply because they are regulated by the Central Bank. Since pawnshops are not allowed to mobilize deposits, the owner's capital serves as the major source of funds. In fact, about 70 to 80 percent of the pawnshops' total resources come from equity while the rest are from borrowings. It is interesting to note that during the period of economic crisis in thecountry in the
Interest Rates on Loans
early 1980s, the pawnshops under study did not switch to liquid assets as the banks did. Pawnshops cater mainly to small enterprises and households which are faced by temporaryliquidity problems, About 80 percent of the loans granted are t_500 and below while loans over _2,000 are negligible,
For this study, the interest rate is derived by taking the ratio of interest income to total loans outstanding. Similady, the effective interest rate is derived by adding income from service charges to interest income. It can be gathered from the results that service charges contribute 2 to 3 percentage points to the effective interest rate. This is above the prescribed
On the interest rates on loans, meanwhile, there is a general perception that non-bank financial intermediaries usually charge higher lending rates than banks because unlike banks, they mainly use their own funds which have a high opportunity cost, and they service small loans and exact high transaction costs per peso lent. Banks, on the other hand, concentrate on big ofloans achieve economies scale. and therefore
service charge principal loan.
of one percent
The real and nominal
of the
lending rates
charged by both banks and pawnshops fluctuate depending on the state of the economy. For instance, in 1984, only Finance companies were able to adjust their rates significantly above the inflation rate whereas after 1984, the lending rates of these companies went down as a result of the decrease in the demand for consumer loans. The influx of new entrants 'to the pawn. business has led to the stiff competition among pawnshops, prompting them to do away with service charges and liquidated damage fees. Despite these, though, pawnshop operations still remain to be very profitable because of the high interest rates. However, it seems that this profitability is inversely related with the state of the economy. For instance, during the crisis in 1984-1986, pawnshops improved considerably their profitability while the five biggest commercial As themade economy the coming years banks only ainslight improvement. begins to improve, the profitability of pawnshops will likely decline although they will continue to be a profitable business_ Profitability and Efficiency of Pawnshops The profitabihty of pawnshops may be attributed to their operational efficiency_ At least 25 percent of their gross operating income were retained as net profits. Furthermore, the relative efficiency of pawnshops looks to be independent of the state of the economy.
I
I
I
Pawnshops
I can
I
be
linked
to
III
the
comprising
total
assets
only
4-11 percent
of pawnshops.
LINKAGE
WITH
THE
BANKING
SYSTEM
Collaterals
of
I depository ofreserves[
Second,
additional liquidity. About 28-34 percent of the resources of pawnshops come from borrowings. In this way, banks provide pawnshops credit treat tobanks as a source of wholesale pawnshops which in
_ dewetry,etc.
turn retail them to small borrowers.
*'i5,_]_'_12I
viding it is imperative Sincealternative pawnshops credit, are effective in proto determine the existence of economies
pawnbroker
_1_ 8orrower_____-/, _&'[k"_'-[
.ha oleages I [ E_
of scale. The study utilizes a simple cost
I
collaterals in I _ / ex_an0efor loans
function in. logarithnfic forms. Results show that about 70 percent of tire sample pawnshops are experiencing scale econo. mies. Generally, results suggest a policy that would encourage pawnshops to increase their size. In addition, a liberal policy towards pawnshops should be maintained.
IIII
tile
banking system in two ways. First, pawnshops utilize banks as a depository of their reserves. However, such deposits are small,
I|
I
I--_rransaet/o_ &
/
T
Additionalliquidity or borrowings of pawn_ from banksto augmenttheir resources
•
LENDING
RATES
OF PAWNSHOPS,
BANKS AND FINANCE
COMPANIES
(in percent) Pawnshops Interest Rate +Service CharlF Nominal Real
Bank Rate on Secured Loans Nominal Real
Finance Companies Nominal Real
13_4
16.5
3_4
28.0
14_9
23.4 (11.6)
13.2
16.5
6.3
28_9
18_7
22.1
35_3 (14.0)
25.3
18.6
8.6
34.3
24.3
40.4 (23.2)
-9_9
43_2 (24.8)
-7.1
26_2
-24.1
58.9
8.6
1985
45_6 (28.8)
22.5
48.2 (29.9)
25.1
26.9
3.8
40.4
17_3
1986
49_5 (32_3)
48.7
52.2 (33_7)
5l_4
14.0
13_2
27.5
26.7
Year
Interest Rate Nominal Real
1981
23.8 (8.8)
10.7
26.5 (9.6)
1982
21.6 (9_8)
11_4
1983
32_1 (12.7)
1984
Note:
Figures in parentheses are standard deviations. Finance companies included: Bank of America Finance Corporation, Manila Bank Finance Company, and Filinvest Credit Corporation_
Source of Basic Data:
I Ill
(1) (2) (3)
N'nancial Statements of a Sample of Pawnshops Central Bank Review [various years) Unpublished reports of finance companies.
II
I
I1|1
IIII
I
DEVELOPMENT
RESEARCH
I
NEWS
JULY-
JPD, Second
Semester
.m.=_
1988
V. "An Evaluation of the Cooperative System in the Philippines"
....
NEW PUBLICATION _
AUGUST
--
1987
by VICTOR A. TAN The study examines the problems of the cooperative system in the country and their implications on the cooperative movement as a whole. It also looks into other rural-based organizations and their performance, and reviews the various existing studies regarding cooperatives.
of Philippine he the secondJournal semestero[ 1987 issue Development (JPD) is now off the press. This issue contains the follow, ing articles:
lic Macroeconomic Enterprise in Overview the Philippines, III."A of Pub1975-84"' by ROSARIO G. MANASAN and CORAZON R. BUENAVENTURA
other rural-based can and still Evidences suggest organizations that cooperatives become a potent set of small-producer associations, capable of developing income,generatgag activities for the benefit of their members, provided that they get assistance and benefits from an
_Domestic Credit and Balance Payments: Some Empirical Results by G[LBERTO M. LLANTO
The paper provides an overview of the macroeconomic role and impact of public enterprises in the Philippines. The study presents the economic contribution of the said sector in terms of value added,
appropriate policy mix.
T
of
VI_"Defense Growth:
Spending and Time-Series
Econ,3m'_'c Evidence
The study presents some empirical evidence which show that excess money, which results from domestic credit ex_ pansion, brings about a deterioration in the balance of payments. A number of policy implications can be drawn from
investment and employment, and the over-all financial status of the sector. In addition, the study examines the efficieney of the sector as measured by commonly used financial profitability ratios and by factor productivity mea-
this study, foremost of which is the need to manage domestic liquidity judiciously
sures,
The study iests the causality issue between defense spending and economic growth for the Philippines. A model to test for Granger causality_ is presented. Results of the study sIlo'w' thai-t-dr -_he___
IV."The Structure of Rural Household Income and its Implications on Rural Poverty in Bicol, Philippines" by EDNA ANGELES-REYES
Philippines, causality runs from economic growth to defense spending and laot the other way around as had been assumed by many writing on the Philippines. Thisauthors suggests that for
in view of the pressure of excess money on the balance.of-payments. In addition, a determined effort to mobilize resources ' _ugh private saving and efficient tax ,_____ctionwill enable the government to sustain its development programs without relying on the monetization
of its
oxa Causality for the Philippines, 1956-82" by P. C. FREDERIKSEN and C. J. LACIVITA
the Philippines, at its level of economic
budget deficit.
The study aims to present a clearer picture of the rural household income in
development, a policy of increasing the defense budget to promote growth is
II. "Technical Change and the Structure of hfformal Credit Markets in Philip.pine Agriculture" by SAGRARIO L. FLORO
the Philippines over time. An important aspect of the study is the extent to which non-farm employment opportunities have affected this structure. Using data gathered from a survey in the Bicol region, the study shows a decline in farm income
inappropriate. Instead, t ° promote economic performance, these same funds might be better used at the margin in other government programs such as investments in infrastructure projects, among others. •
The study examines the impact of technical change oxl the structure of informal credit markets in the Philip. pine rice and corn sectors. It investigates how technical change has affected both the debt burden and repayment capacity of borrowers and the composition of lenders and their perception of the different groups of bozrowezs,
and productivity with the shift of workers from farm to non-farm activities. With these ffmdings, the study recommends the encouragement of growth in non-farm activities coupled with efforts to improve productivity in farms; the iraplementation of specific programs to increase access to crediti and the improvemerit of the tenurial system in the farms.
_
_,,_