The Philippines in 1994-1995: A Time for "Cautious Optimism"

Vol. XII No. 2

March-April 1994

ISSN0115-9097 I

Growth withequity is a hallmark of the East Asian growthfor the regionin 1993is estimatedat four percent. experience. The region has also made great strides in

poverty reduction.

Meanwhile, records of Latin during

n

•

ASEAN

By Josef --

instance, succeeded

•Continues he

U pswi

g

T. Yap

I

of Association South he the uphill climb of of majority EastAsianNations(ASEAN) economies continued in 1993. Their growth coincides with the recovery of someoftheOrganisationforEconomic CooperationandDevelopment(OECD) countries.

That.is, the increase in the aggregate gross domestic product (GDP) growth rate of ASEAN economies from 5.7 percent in 1992 to 6.6 percent in 1993 mirrors the increase in the growth of world output from 0.8 percent to one percent.

opingcountries,ASEAN'sperformance Compared to that of other develwas remarkable, South Asian countries have implemented wide-ranging reforms, although they remain saddled with difficultfiscalandbalance-of-payments conditions and a weak infrastructure base.

Nevertheless,

the

the past

the development American countries ten years

show

that

Chile and Mexico have to implement a number of

their perf°rmanceis re°re diverse"F°r continent, such as Brazil, still face structural reforms while others in the •difficulties in attaining lnacroeconomi4 stability. As a result, aggregate growth in this region in 1993 was at 3.4 percent--lower than that of the South Asian countries.

from

The Middle East has recovered the effects of the Gulf War. Its

growth is expected to stabilize now that it has posted a 6.6 percent growth in 1993.

aggregate

_-To_w,e

_'_Someonemust have pushed the right button. The comltry's economic engine d_,.._ ' has begun to purr softly. Allmacroeconomic indicators are a-okay: Could these

V............

INSIDE The Task At Hand

,

I be just a fluke?

The articles in this issue by Dr. Josef T. Yap, PIDS Research Fellow, herald the good signs in 1993 not just in Asia but in the Philippines, too. However, whatevcr optimism pervading in the domestic scene remains tempered with caution. After all, the bigger question in pragmatists' minds is this: Can this good tidings be sustained in years ahead?

6 Gran ted that the Philippine economy will go in the way of fl_eASEAN trend, will there be costs to its development? In a country where 40.7 percent of the families are poor, there ought tobe safetyprecautions that willprepare themas the economy develops.

This issue of the DRN carries two articles on PIDSprojects that look at possible health care financing schemes for the poor and at the repercussions of economic managerd macro

Deriving Lessons for Health Care

Financing Reforms MIMA

PEn ters

ItsThird

Phase

adjustment policies on the lowesf stratum of society.

I0

Needless to say, government has to see to it that "seatBelts" are fastened as the Philippine economy launches off to the future.

I

III

DEVELOPMENTRESEARCHNEWS

2

March4 )ri11994

Indonesia's economyin 1993 was still in a consolidation phase, with output growth estimated to be close to the 1992 figure. Monetary policy was eased, however, in the middle of 1993, and

ASEAN..

(From page 1)

Africa, on the other hand, poses a serious problem to the world economy, The performance of energy exporters in North Africa and South Africa has improved, but Sub-Saharan Africa still shows deterioration in the sense that its population growth still outstrips production growth. GDP growth in this regionis expected tobe between two to three percent only for the next few years,

The prospects for the ASEAN region in the next two years are even brighter since Brunei and the Philippines are expected to bounce back after successive years of economic de-

GDPGrowth R_te_ ASE_ t_ _ _.d [-]_,a _a_a _ [_= i_ _

_

_

ma _-_ _"_

higher

_

Brunei continues to be heavily dependent on the performance of its oil and gas sector. The steady decline in

Malaysia its lively performance

fuel prices after the Gulf War resulted in a fall in its GDP in 1992 and 1993. To partly offset this decline, its government has been supporting activities in thenon-oilsector,

estimated output expansion of eight percent in 1993. What it still has to con tend with are infrastructure bottlenecks

iiTheprospects = for' the

The servicessector has benefited fromthispolicyto diversify, what

and theinflation,-iry danger ofpresrenewed sure.

In past years, the appreciation of the ringgit

sivegrowthinthe with the impresinsurance and communications sub-sectors,

domestic mitigated prices. the Recently, rise in however, the value of the Malaysian currency has fallen sharply.

Pa)O yeats nextale in the

even brighten.,

jj

manufacturing.

ued inflow of foreign investment will further energize its export sector.

this is expected to lead to a slightly higher growth rate in the next two years.

Its economic managers are wary, though, of the increase in the inflation rate.Suchincreasemaynecessitatethem to partially reverse their already "relaxed" monetary policy.

region

value-added

Thailand is poised to have the fastest growing ASEAN economy in the next two years. Increased public spending, a reduction in interest rates, and greater availability of consumer credit spurred domestic demand, the primary factor behind the 7.7 percent GDP growth in 1993. The recovery of industrialized nations and the contin-

dineor stagnation. Moreover, the completed negotiations on the General Agreement onTrade and Tariff (GATD have eliminated a major obstacle in world trade growth. It should be noted, though, thattheimmediateconcernsof each country are different, reflecting the differences inboth their respective economic structures as well as the economic policies adopted in the past.

ASEAN

Singapore staged a remarkable economic recovery after four years of successive decline in its GDP growth rate. The strong performance of the manufacturing and financial sectors pushed output growth to 9.8 percent in 1993, the highest in the ASEAN region.

The manufacturing sector, in turn, was propelled by the substantial rise in exports of electronic components.

This can be viewed as part of the process of restructuring the economy toward

WILLPRICES RISE? The ASEAN countries have successfullydealtwithinflation.Theaverage inflation rate was brought down sharply from 8.3 percentin 1991 to only 5.9 percent in 1992.

continued growth with an

_

hfflation Rate ASEAN

_,__, _.0_ _ _o-]

,*_째,d _ _,_ []_

'_ _-o _"t 7_= _] N_

_

i4

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_

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_'_'_ U[_ n_,_,,,_,, i_o,=, _

::iltl_a{; ...................

:::::

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

: ::i: ::

:ASEAN memberi:: i ....

C:ountries : hasll ii revolved: around : ...... the: experience of: ::::: i the East Asian: : :

.......... :: : i:::::::i:

liigli exporf growfll .... , rates....expe: some cout_trles:ml the late 3mingin the:nexti: ...... ....... :: i : :

....

are:_

•

....... : .... .......::21:2 1 :\ : ..... _....._,ooamacroeconom_cmanage--il ...... .... men t, creating an environment of Stability; ..... i

i

....

....... : i::

DEVELOPMENTRE,cIfiARCHNEWl

March-A)ri11994

development, the rest of the ASEAN members will pursue targets rela ted to these key objectives.

AS EAN...

(From page 3)

•

High levels of domestic sayings, which, combined with macroeconomic stability, generatedahighrateofprivate investment;

•

Adoption of the principle shared growth;and

of

•

Investment in infrastructure and human capital development,

The different ASEAN member countries have achieved these prerequisites in varying degrees, and whatever the shortcomings their policymakers perceive in these areas are, •will influence their economic agenda in the medium-term.

Attention will shift, albeit at a deliberate pace, from achieving high rates of growth to steering the economy toward a path of sustainable development.

Although Singapore and Brunei will have largely different concerns since both have already attained a higher level of

_,.,

Ontheotherhand, thePhilippines and Indonesia's macroeconomies have

that have been implemented relate two basic themes: (1) restructuring

been complicated by the presence of a largeexternaldebtoverhang.However, Indonesia has successfully implemented its structural adjustment program in1983, while the Philippines hasmanaged to contain inflation in the past two years. It remains to be seen though, especially in the case of the Philippines, whether macroeconomic stability is sustainable,

the financial system, in particular the development of the capital market, to attract surplus funds; and •(2) improvementoftaxadministration.The recentAsianstockmarketboomreflects a major accomplishment in capital market development.

Foreign capital inflows have managed to cover the investmentsavings gaps in Indonesia, Malaysia, Thailand and the Philippines. Thefirst three countries, however, have been able to attract a substantial amount of direct foreign investment during .the past ten years, leading to the development of a dynamic export sector. In the Philippines, political uncertainty and macroeconomic instability partly frustrated efforts

"_,

7

........

.....

s _.

3- ....

.17

2- "-_ _-

_

_ oo

g_

u2 ,_ y_._

_

_

related

Malaysia •and Thailand, by adopting prudent fiscal policies and soundexchangeratemanagement, have achieved sustained macroeconomic stability,

of Output (1989-1995)

8

Aware of the vicissitudes

to foreign investment, economic managers in all ASEAN countries have adopted measures to increase domestic resource mobilization.

The resource problemismoreacuteinthePhilippines, where the savings-GNP ratio in 1992 fell toits lowest in twenty years. Policies

Real Growth

" _0 0

FIRSTTHING FIRST

_

_-

A_I_6.H

_

wo_

to of

Growth with equity is a hatlmark oftheEastAsianexperience.

Theregion has also made great strides in poverty reduction.

In this respect, Indonesiaj and Malaysia have a headstart when! compared to Thailand and the Philippines.

The World Bank publication cites explicit mechanisms relatedto theprincipleofsharedgrowth in these two countries: Indonesia used rice and fertilizer price policies to raise ruralincomes;andMalaysiaintroduced explicit wealth-sharing programs to improvethelotofethnicMalaysrelative to the better-off ethnic Chinese.

to attain the same in v e St m e n t performance, but steps have been taken to correct the

To keep up with Malaysia and Indonesia's success in alleviating poverty, both Thailand and the Philippines have made the issue one of themajorcomponentsin their economic

situation. example,

programs.

Under (1992-1996) of

For the 1991

the Seventh Plan Thailand, rural

F o r e i g n Investment Act was implemented

developmentobjectivesarefocusedon raisingpeople'sincomeandimproving their quality of life in accordance

toincreasethelimit on foreign equity participation in non-priority investment areas.

economic and social changes.

In the case of the Philippines, the present administra.tion has created the Presidential Commission to Figh 4 Poverty which, as the name suggests, is

with

To page 11

DEVELOPMENTRESEARCHNEWS

March-A)ri11994

i,)Km/ Macteconomlc ,indlcato_' , Philippines ' ', ' The

Philippinesin

1994-1995:

1989 199o

1991

1992 1993

1994 1995

A Timefor "Cautious

oo, ,o.,, o.,,., e,o,ooo,,o

Optimism"

GrowthRole(%)

By Josef

Inflation

12,7

17.7

8.9

7.6

Imports GrowthRate(%) 27.7

17.2

(1.3)

20.5

21.2

14.3

20.3

8.0

I 1.I

1S.8

11.7

16.4

10.6 4.7

_ 8.9

,,

i 10,6

10.0

T. Yap The macroeconomy, however, remains fragile primarily because of a sharp drop in the savings ratio and the

Three macroeconomic

years

after,

deterioration

irtdicators

of the trade balance.

In

duction, resulting in a mere 1.5 percent growth for 1993.

Tile services

sector

remained

light of this concern, three key issues will impact greatly on the performance oftheeconomyoverthenexttwo years,

steady with only value-added in the government sector experiencing a decline.Thisresulted from thebelt-fight-

First is the ability of the government andprivatesector tomobilizeresources for better infrastructure.

Second is the

ening measures adopted to control

ability of the economy to drawin foreign investment and promote a dynamic

On the overall, growth servicessectorwastwopercentin1993.

scenario forecast nalysts over the anext bullish two years after the Philippine economyfinallybegan to turn toward a less bumpy path. Real ou tpu t growth as measured by gross domestic product(GDP)registered 1.7percentin1993.

The estimated 2.6percent growth in the

Ramos sector. export administration Third is the to forge need afor social the consensus on what path to take to achieve devt_lopment (see page 6).

ON A POSITIVE NOTE

third quarter is the highestannualized quarterly growth in nearly three years,

The industry sector---manufacturing in particular---experienced the biggest turnaround, from a decline of approximately half a percentage pointin 1992toa1.4 percent growth in 1993.

show

a brighter

sceD_rio

for

the next two years.

_

Data indicate a modest recovery in 1993, with gross national :, product ) (GNI)growthfor thewholeyearmeasured at 2.3 percent. The improvement in the energy situation and more stable

SECTORAL PERFORMANCE

' The

agriculture

sector,

the bureaucracy the fiscal deficit. in the

The brightest signals about the economy came from favorable macroeconomic indica tors such as the average inflation rate, which was at 7.6 percentandinterestrates, at12.Spercent (based on the 91-day Treasury Bill rate) for the whole year. Fixed capital formation, including construction expenditureandinvestmentindurable equipment, was also on the upswing, growing by 8.6 percent in 1993.

mean-

macroeconomic conditions are behind themodestrecovery.

Also, recentstructural reforms, which include (1) the rehabilitation of the Central Bank (re-

while, would have posted a growth of as much as three percent for the whole year. During the second quarter, large increases were already recorded for

Consumption spending, however, remained weak, growingby three percentonlybecausetheslowrecovery in real income had not restored both

named the Bangko Sentral ng Pilipinas); (2) the liberalization of the rules governing the foreign exchange market; and (3)and thesenseofgreaterpolitical stability have buoyed investors' confidence.

palay, corn and sugarcane production, Unfortunately,inclementweatherconditions and the lahar flows in the Central Luzon area adversely affected pro-

purchasing power and consumer confidence. Government consumption in real terms contracted byseven percent since the salaries of the civil servants ¢"- To page6

mainly from a slowdown in disbursement despite the government's announcement to front-load fiscal expenditures,

The Bangko Sentral responded to the depreciation of the peso by tightening domestic credit, which in turn, resulted in higher interest rates. Such depreciation was stemmed as inves-

had remained unchanged for the past four years and maintenance and operating expenditures had been declining.

In the area of monetary policy, tightness prevailed as total domestic liquidity grew by an average of 10 percent while narrow money expanded by 10.3 percent,

tors switched sets.

MONEY-TALK

The trade balance deteriorated sharply from a $4.7 billion deficit in 1992 to $-6.1 billion in 1993. One factor behindtlfiswasthecontinuedimportationofpowergeneratorsandelectrical machineries.

In effect, the currency depreciated rapidly at the end of the third quarter. The situation was exacerbated by higher outflow of direct foreign investment,

A Time...

(From page 5)

Despite the eight percent shortfall in revenue during the first seven months of 1993, the national government deficit was close to the target level of 1.8 percent. Overall consolidated public sector deficit (CPSD)wasestimatedat2.8percentof GDP for thewholeyear.This stemmed

to peso-denominated

The attempt to curb the depreciation of the peso had its downside risk: It hampered the recovery in investment spending.

Econometric studies show thatinvestmentissensitive to the cost of capital. That is, the higher the expected cost of capital (as was the case), the lesser businessmen would invest in the country. Moreover, an overvalued peso could have caused some export firms to shut down or reduce operations, as was the experi, ence in the second half of 1992.

_,t:._f/r!:_provement in major economic indicators has reAs far as the private sector's propensity to save' is _,'._Wedpeople's confidence in the government. For concerned, studies have shown that thisis largely dependent i_i._,:i "'. ..il¢igtance, shabilization policies have kept inflation at on the performance of the economy. The savings ratio, '.',....._ 'singie_!igitievel, fnterestratesatamoderatelevel, and the specifically that of households, is expected to rise parallel . amount.lof- IOreign exchange reserves at a comfortable . with the recovery in output growth.

position; Atthesame time, theattention given to poverty alleviation has redirected the delivery of social services toward thepoor.

Third, th ere are the issues rela ted to the trade liberalization •program.

The

Task

At

Hand

as-

The ton Tariff impact and of the Trade General (GATD, Agreemei, Asian Free Trade Area (AFTA) and the emerging growth triangles must be Nevertheless, for economic studied carefully to be able to adjust gl"owth to be sustainable, a number of issues still has to be the country's protection structure accordingly.

Policy resolved. First, despite the positive outlook of the National reversals such as the experience wi th corn in early 1993 must PoWerCorporation (NPC), itremains to be seen whether the be avoided. energy problem is over. its test will corn e during the m on th s when demand for electricity is at its peak.

On the overall, thecountry mustwork toward a dynamic export sector and a less impor t-dependen t production sector Second, thereis the question of how to mobilize domestic to eliminate the foreign exchange constrain ton the economy. resource. Debates nowadays revolve around new tax measures. However, somesectors---thelegislativebody, for Finally, the government needs to solicit a social, instance_believe that the government must concentrate consensus on thenation'slong-term developmentprograms instead on improvhzg tax administration. This can be achieved such as Philippines 2000. Such cor_sensuswill ensurepolitical byflo r, example, redudng tax evasion, stability, a Prerequisite as far as prospective investors are concerned. l_sing revenues will enable thegovemment to pursfie _ii_astrUcture programs---one area where the link in 'i;i_om!c development is w,e,,0K il_!;i: _!:; '_?!y_

/>" .............. _"_i _:/"_"_:_

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gr

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199i ........ . r::: .......... ...... :::health care :frn, gsyi ....allow 1) r _, i ......... _ . ....... : " : I cOverDou_poorandrlcl_;tl_eetnployeo ....... _t tl_e sani ¢ a ...... " _ ..... _ .... and the unemployed:has been; ulihl ee a boos_ tr:om ...............

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....

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o . zml:tlontogrowatnveperCentili: ,i.,., ,,_ ;, ,_. , _ : :pensafion for r_roduein_- alid de, :: : : ...... :/:Sy, temasweuiv-aneonasem_e>tucncs : .... : hvermg: . _- care, oThroue.h • e: t:,;ttwcyears, -.... medical i : I.t_rl, J. /K.:(.-II I.l/ _,...¢=1V, I.ll/dl/gl]/,'_ I'_eI-OFIYIS, the o: _, .... ...... .... ...... :_ ..... ....... ....... :prolectprcsentsamodelthatouthnes ...... fees . from cOnsl . _. mers,. J;)a Yment ....... ma ,...... from financing institutions and ...... :: ........ becauseOlltsnl ::: : lty, llTIDOrtS: r ::: :grow:

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i::::inStifutions-.a-gt_vernme:nt:,l_0useholds, subs_dmsfr°mg°vernment, healthl i , cm e P"_ovlde_ l_ealtncare ...... :'" "os a_e _....corn f)ensated - - .:- for : .... ............ . - __ ., . : _) .t ;:,.qnVolvedintl_esvgtee_of thmrhealthserwces;: .... : : "7 " " .... : ........ t_ t( :e tmancm_ and deliverv (sere ._ : : : ; .... .... ....

--ed) : _ financing _s:cOns_oerea as an : :........ ........: instrument for in fluencing the : ......

DEVELOPMENTRESEARCHNEWS

March-A)ri11994

notonlyidentified the factors that affect families' health-seeking behaviors. He also emphasized, the magnitude of health care costs most Filipinos face.

DerivingLessons,..

(From page 7)

instance, member care.

on whether in a hospital

to confine a sick or opt for home

Dr. Solon also identified factors

FINANCIAL BARRIERS First, improved

household

statusistheultimategoalof financing reforms,

health

healthcare

Second, theeffec_venessofhealth care services in enhancing one's health status largely depends on the household's"health-seekingbehavior."

Third,

households

are

also the

ultimate source of all resources spent on health for they are the ones who pay taxes, premium contributions chargesunderafee-for-servicesystem.

average

hospitalization

cost

"Financing problems are not the only reasonwhy families cannotaccess betterhealthcareservices,'saidProject Director Orville Solon during a forum presentationHealthof Research the DOH-Essential National (ENHR) on April 20.

providers (specially public ones); and (5) hold on to socio-cultural values and

the

impact

HOW FAMILIES REACT How sensitive

are households

changes in these three variables?

Specifically, how would priceincreases affecttheutilizationratesofhealthcare

equal to, on the average, of their income.

facilities

three percent

Furthermore,

59

percent

of

of

"financial barriers" on household's health-seeking behaviors.

These are: health careprices and insurance coverage.

of one

by different

to

households?

Dr. Solon and his simulations for uninsured

team's families

households generally dip into their savings for their health care expenses, in particular, hospital costs.

Thirtythree percent fund it from sales of their properties and loans. Other sources of financing include gifts and transfers (16%) and employers (4%).

show that a 100 percent increase in prices will have insignificant effects on_ their home care and clinic use patterns._ In contTast, families' health care use of both private and government hospitals will be adversely affected by such price hike.

It is interesting to note that only 21 percent of households turn to Medicare as a source of financing for their hospital services cost, and only

Among these families, most affected by the price hike are those earning less than P1,980 a month--incidentally, the poorest households among the four income

households the base needed (1) tolackmake

appropriate decisions on health care; (2) lack the knowl_ ge required to make home-based health care services more efficient and effective; (3) need accessible and affordable transport facilities to allow them better access to health care facilities; (4) find their work and social time schedules incompatible with the service hours of health care

reflect

memberis214percentoftheirmonthly income. Should these same families opt to consult a medical doctor, onevisitis

or

THE PRICE HOUSEHOLDS PAY

"Many information

To the ordinary family, the costs of health care services pose a heavy burden oll an already meager budget.

For instance, for households earning an average of less than P1,980 a month, the

that

two other

How

households

acruMly

_,._ FAMILY 5g% SAV,NCS _o_,s 3v/0 SALEOF _OPERTY _,_,_s, _6_o TRANSFERS EMP_o,_- ,_ _ER_ PRIVATE 2% _Rsu_cE MEDICARE

o'rHE,_

21%

1%

financed

the co_t of hospital

groups

service_

,_cR _EC_ON_ s5_ 74_ RE_,O_ 6OO/o _E_,o_o 6_o a_/0 _g% 34o/_ sw0 2__/o 4_

z_ 2_

6_,o _째/_

_v/o g_'o

2%

0%

4%

0%

12_%

Ig%

38%

3i%

a%

0_'.

2_ ""

beliefs that hinder fl_em from receiving appropriate and effective health care services, Dr. Solon added,

two percent utilize insurance coverage.

In the forum where he presented thefindingsofthestudiesonhouseholds and their healthcare attitudes, Dr. Solon

A family's income, thus, plays a vital role in its decisions on health---for

their

private

0_

'

studied

here.

A similar set of simulated runs was also done with insured households. Results show that the price increase will have smaller effects on the way they utilize home, clinic and hospital services.

These results are

understandable since insured households are confident that a portion of their expenses will anyway be 1 shouldered by their insurance agency/ financing institution.

DEVELOPMENTRESEARCHNEWS

March-AIril1994

Impact a 100 percent price increase ori health care utilization rates ofof insured households.

Quartile"1

Home Clinic -6_b695 -0.0097

Quartile2

-0_0092 -0.0094 -2.5489

Quartile'3' Quartile4

-0.0088 '-0.0073

15.Hotpital

C_121ospilel

-2.5672

-1.0998'"

-0.0091 "' -0.0076

'-2.5255 -2.4036

-1_0707 :1.0355 -0.8827

eight percent have eraployer-provided insurance programs.

Ameasly fl_ree percent' have private insurance contracts.

The same figure applies to those who have cornmunity-cooperativehealth schemes. It should be noted that household's

make home-based care efficient and effective; •

improve the transport system, which may be a better alternative todispersingthelocationofhealth care facilities in improving access to services;

•

make the timing ofservice delivery,

willingness to pay for insuranceisdeterminedby income, education, location and transfers from extended family members,

especiallyofpublichealthfacilities, compatible with the schedules work and social activities households;

QuarlIlel:<Pl,gOO;Q2:Pt,980-3,500;Q3:P3,500.6,980;Q4:>P6,980.

ASSURANCE FROM INSURANCE Insurance coverage does change the health care use patterns of families, It has its pros and cons.

more

The following table shows howaverage premium contributions of households respond to these factors,

•

for of

rationalize the way households finance health the social levelcareto expenditures reduce unmetat needs as well as other welfare losses

Dr. Solon identified some of the adverse health-seeking patterns that may arise once families are insured.

One of these is their tendency to seek "facility-based" care even for mild )conditions that can still be adequately treated at home. When left unresolved,

associated Households'

willingne,$ r_ pay for in,uran¢_

this tendency can (from financing institutions' point of view) lead to "excessive use of expensive health services."

_NCOME_00 PESO_,CREASE _NPERCAPITA HH _oopeso _nCREaSE _, PERCAP_TaTRANSFERS ELEMENTARY TO H,S, GRADUATE URBAN RESIDFNT

However, these

from

when the

point

of view

Of those insured, coveredby

....

ALL

MEDICARE

meanwhile,

..... 42%

Medicare

42

The above situations of Phil!ppine households have implications on the current health care financing system. Dr. Solon's recommendations aim to "fill the gaps." That is, the suggestionscenteronhowhouseholds'health-

NGR _,o,_ 37_ " '70_

while

_o,o,, s4_

_o.o,,o 4,_

52%

19%

3%

5%

2%

1%

2%

,,_,OE .... _" _ov,0_o E_'ahw,_ COOP

a_ _,o

9_ 2_

_ _

_ 2_/o

_ _%

"OTHEIqS

14%

1,1rJ_

3%

P_VATF.

00.44 (P0.Gt)

33_

_

14%

"32%

21%

These recommendations •

are:

improve the information base of households, especia]]y that needed to

•

carefully design the health insurance benefits to avoid ex. cessive use of expensive services.

P17

Explore schemes such as pre-payment as an alternative to the traditional instru-

D33

ments

of

seekingbehaviorcanbeimproved and, subsequently, how they can have better financing options for quality "_e cowrage of pdvat_voluntary In*uranceand Madlear_ t_ndl to be low. health services,

o,,_so,_o" 40_

by income,

one looks at all

households, an insurance program can help alleviate their financing problems on health care. Still, almost half of households (46%) remain uninsured,

percentare

is determined

ed.¢,¢ioo,Iocad ..... dtr_n,fer_ fromextendedf, mily members, Th..... ,epr.m,...... ib_t, .... rh.... ho_d.r.po._ _oi....... duration, transf .... dIoeatl ....... cIInlIly;

with self-financing;

(e.g.,

payment

and

insurance

rates);

co-

co-

•

undertake extensive and intensive social marketing campaigns to attract the poor and rural households;

•

explore new financing approaches that work, rather than compete, with extended family and community networks to extend coverage to the poor households;

•

exploit various income groups' differences in their willingness to pay for insurance to maximize possible cross-subsidies among them.

In 1991, a team of economists began to look into what consequences macroeconomic adjustment policies implemented by the government have on,the poor.

It also aimed to identify alterna-

Maligalig (sampling

strategy)

existing CGEmodels fromwherethe MIMAP model might be based on.

There is the APEX, the biggest CGE model of the Philippine economy.

provide

tiveadjustmentpoliciesthatwilllessen the negative effects on such vulnerable groups,

options on how to implement the system that will monitor policies' effects on the conditions of poor households around the country---the project's sec-

The project was called tile Micro Impact of Macroeconomic Adjustment Policies (MIMAP). Now, it is on its third phase. Its new research team has

ond component..

begun to gather data on the household and firm levels and study how to develop the quantitative models that will be used to test its previously drawn up

presen ted by Ms. Jennifer Liguton of the Research Information Staff of the PIDS.

THE FIRSTGATHERING OF MINDS February

17 and

18, tile

MIMAP team conducted a technical workshop wherein they presented the first setofreviewpapers

nomic models applied in environment and natural resources) are related to the first of Phase III two components,

formulation model,

Meanwhile, the project's posed policy advocacy program

prowas

Water

on the impact

The Computable General Equilibrium (CGE) model and/or tile macroeconometric model may be used to validate the effects of stabilization

On the other hand, the papers of Dr. Celia Reyes (on the proposed monitaring system) and Dr. Dalisay

,_:, - ,,, i

,,,

_lth_m_a_ to,at

Propo_tlontacllltle'of hou,oholcls wltha¢cemlo _fe wote¢ _upply :. . ....._ ,: . " Security[ • Incomotat>ave thetolol poverly threshold

:

°

savings

::

,,i'

'

' '" "

,',',',,

'

:.: • Propodlon ofhouseholds Inmakeshltt housing

'

Order '

• Employmonl o¢ '1 • Amount ofhousehold un°mpl°]ment, :'

'

"

_i/-!.',

°C¢lmelncldence

]

,(,{,:•l_dd_¢°oto,m-,a '''':_ encount_s

,,,'

"Ba_c Educ.

LOOKING FOR THE RIGHT MODELS

th,.,,o., , _, :,_,

_- ,' _

J°proOocltrnofhoU_aoids

and, Sanitation,:

Peaceand

l ]

•Complotlon rate

and Uteracy

• _a,J_Ute,ocyO,d tune.on,* i_' .... , 'Participation • M,..b,_alp atea-ba_,ed_ atI_a__e community °rganlzallon • Participation In formal ,a.=_o,al °x_,cbo, .

policies.

/

. f_ t_ _:FP. Another Enters

model

s,,,, another for MIMAP

developed Thus, the MIMAP II][ Project initially looked at the possibility of using a CGE model, interphased with a macroeconometric model, to analyze resource allocation effects of adjustment policies. It found a number of

is the PhilCGE model,

which is non-linear andassumes a number of elasticities.

ItsThirdPhase

of

macroeconomic adjustment policies on the households,

_',

...'

Tomas

MJMAP

ofaquantitative

k

"' ,',

Shelter' .:

CoordinationBoardSecretary-General Romulo Virola.

] • Prevalence of micronutrient

a_tdendo, "' , ,,, ,': I] • Income above the food

Marian delos Angeles of PIDS, National Statistics Office Administrator Statistical

and,.v.,e _,_at • Pr.v_.n¢°,aocato and ] c_'onlc molnu_ltlon

'

,,,,

Africa and National

:'

, ,, ',

'

the

The quantitative model willbeused tot°st the project's hypotheses

" ,','

for the project.

The review papers presented by Dr. Caesar Cororaton (on computable general equilibrium [CGE] models), Dr. JosefYap(macroeconometricmodels), Dr. AnicetoOrbeta (quantitative householdmodels)andDr. DaniloIsrael(eco-

project's

', ,'

' ,,:'

evalua ted by a number of experts such TileRamon above Clarete review papers as Dr. of UPSE, were Dr.

hypotheses.

On

: .........._. _,h',_,,,_., .... ,-,,,--,,,. ' ,, ' ' ''i'":

by

possible is the one

Dr.

Carlos

Bautista, which, when compared to the two preceding models, is easier to handle.

The CGE models are relevant in capturing micro effects of policies.

DEVELOPMENTRESEARCHNEWS

However,

there are certain macro

11

is-

sues whose impact cannot be adequately addressed by the model.The presentors and critics identified a number during the workshop,

March-April1994

The team has identified

19 indica-

tors to be monitored. These are in the areas of health, nutrition, water and sanitation, income, shelter, peace and order, basic education, and political participation,

ARE STABILIZATION POLICIES OKAY? Similarly, there are macroeconometricmodels, which are algebraic expressions of the economy, thatcantestthe effects of monetary, fiscal and exchange rate policies. these are the PIDSAmong macroecono-metric model and the model Lira.

developed

by

J.

The project's sampling design has two main objectives: (1) to identify areas for the MIMAP monitoring sysexisting tem; and (2) to draw up a sampling strategy for the special studies survey. The design will be for the provincial, municipal, and MIMAP intends barangaylevels, to provide policymakers For the primary with the "tools" stage stratification, the to analyze or team intends to use a anticipate the modified version of the Minimum Basic Needs repercussions of their decisions.

(MBN) index introduced

Further discussions _on the project's framework during and after the Februaryworkshopfinallyledtheteam toconsider a tack different from what was originally planned.

Today, the revised methodology will be to use a macro model in analyzing short-run policy effects and a CGE model in studying long-run policy responses, Since the project's ultimate aim is to find out how macro adjustment policies affect households and firms, the team further considered how the CGE and macroeconometric can be interphased with "household models."

models existing

PUTTING UP THE MONITORING

by

Dr.

Emmanuel

The next step is to divide the Philippine provinces into either "poor" or "rich" areas. Once this is done, the sample will then be stratified according to island groupings, i.e., Luzon, Visayas and Mindanao, to highliglat the discrepancies of the disproportionate poor among these three island groups.

SYSTEM Data or inputs for the models are those about poor households and disadvantaged groups. Thus, the team ill set up a monitoring system on, hen possible, the lowland landless agricultural workers, lowland small farm owners and cultivators, upland farmers, artisanal fisherfolk and urban poor.

(from page4)

under the direct supervision rice of the President.

of the Of-

It is in the area of infrastructure development that the four countries share a common concern.

Rapid economic growth has created infrastructurebottlenecksinIndonesia, Malaysia and Thailand, while deficiencies in energy supply and transportationandtelecommunication facilities have choked off output expansion in the Philippines.

Infrastructure

development,

thus, has

received priority in government expenditureprograms.ThePhilippines andTlaailandlaunchedBuild-OperateTransfer (BOT) schemes to involve private

investors

in this area.

de

Dios.

The original MBN indicators from where MIMAP will base its own set of indicatorswerepreviouslyidentified for a PresidentialCommissiontoFightPoverty project (see page 10). In brief, the MBNtheoryassumesthatpovertyisthe level below that point where households meet their minimum basic needs,

ADVOCACY

ASEAN...

TOWAI_D CHANGE

When policymakers implement macro adjustment policies for the noble intention of correcting macroeconomic imbalances without being aware of their negative effects on some sectors of the society,itismainlyduetoalackofa tool that will enable them to analyze or an-

The economic outlook over the next two years depends on the success of policymakers in resolving the shortcomings in the abovementioned areas. Past actions attest to this.l_)

ticipate sions. help.

the repercussions This is where

Thus,

of their decithe project

its advocacy

program

can

is

aimed to provide policymakersaccess to a good information base on the possible effects of macro adjustment policies on households and firms.

The information

will serve as ba-

sis for (1) anticipating the nature and extent of social adjustment costs on certain sectors; (2)adoptingadjustment policies that will have the least negativeimpacton the vu lnerable groups of tbesociety;and(3)designir, gthesafety nets needed by the poor.

DEVELOPMENTRESEARCHNEWS

March-A_ri11994

106 Amorsolo Street, Legaspi Village 1229 Makati, Metro Manila, Philippines NEDAPhilippinesa MakatilnstituteBuilding for Development

STAMP

Studies

_

1

VoI.XII No,2

March.April 1994 EditorialBoard

Dr.Ponciane S.Intal,Jt. President

PhilippineS,

"

Dr.MarieB,Lambette Vlce.Pre_dent

, 893-5705 Institute'a 'Telefax Number (632)8161091 t0,disseminate inf0rmaflon to",, ,prOmQ_t_t_h ¢,use of research findings, Re-enteredasseconddasa mail at the ,,t':'i: /' :MakaU Central Post Office on April 27, views and opinions published, i987. ,amnual subscription rates are:" _ors and do nat .P9O.OOfor private firms and individuals; ,' reflecti_Oae of the institute, PSO.oo for students, libraries, academic Inquirie s regarding any of the Studies and research institutions; and US$16.00 contained in this publlcaUon, or any of for foreign subscribers. ,_dl rates are the PIDS papers, as well as suggestions inclusive of mailing and handling costs. or comments on the publication are Pric_;s may chang e without prior notice.

Ms.Jennifer P,T, Llguton D/rector forResearch Information Mr.Marie C.Feranil Director forResearch Ms.Andrea S.Agca0ili mlreclor forOperations andFinance AttyRoqueA.Sori0so LegalCounsel

staff Jennifer P,T. Liguton Editor-in.Chief

A Time... (from page 7)

pull inflation to a double-digit rate. The in terest rate will hover between 15 to 17 percent on average for the next two years.

Producers, a bill pending at Congress that seeks to give the export sector the neededsupportbygrantingincentives, facilitating automatic access to financing, intensifying export promotion and development, and institutionalizing the Export Development Council.

The currentaccount deficit, however, will be slightly Over four percent of GDP by 1995, which is considered a critical level. In this regard, there are two instances where the constraint in foreign exchange can be eliminated: when economic reforms in the trade sector are implemented for such purpose and when foreign investment rise

Inflation will most likely be containedtoasingle-digitlevelin1994, However, if the hike in fuel prices and electricity rates will push through, the inflationratemaybearound 10percent.

Stronger demand in1995 will definitely

above historical levels to beefup ging foreign exchangereserves.

SuzyTaparan

ssueeditor

Corazon Odelte Salcedo, AnneP.Desuasido, D.Llamoso,Jane Alcantara andLezylB.Ponce

Contributing Editors valenlina v.Tolenll_ andAnne P.Cleofas Exch_,nge NecifaZ. Aquino, OeliaS.Romero, Galican_A. GodosandFederk:eD. Ulzame Circulation andSubsalpl_on S.Taparan

Lay.outandDesign

flag-

Asto thelastscenario, theSubic Bay area will likely play a substantial role in attracting foreign investment.

,,a As a magnet, it can make regiona_ economic cooperative ventures another potential source of foreign capital._lP