The%20Philippines%20and%20Aid%20Conditionality

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The Philippines and Aid Conditionality

• Regional Workshop on CSOs and Aid Effectiveness
• Hanoi, Vietnam
• October 9-12, 2007

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Outline

• Brief overview of conditionalities
• The Philippine experience Accumulating
  conditionalities, deepening underdevelopment
• ODA profile
• Macroeconomic conditionalities trade and
  investment (WB, IMF, ADB, Japan)
• Sectoral conditionalities Health sector (WB,
  ADB, IMF)
• The (implicit) debt service conditionality
• Some key points
• Suggested areas for CSO action

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What are conditionalities?

• The application of specific, predetermined
  requirements that directly or indirectly enter
  into donor decisions to approve or continue to
  finance a loan or grant.
• Donors using financial pressure to leverage
  actions they believe would not otherwise have
  been taken
• By purpose policy conditionalities, outcome
  conditionalities, process conditionalities and
  fiduciary conditionalities

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Aid not always helpful

• Donors exploit recipient country weaknesses
• Scarce capital and foreign exchange in backward
  countries (hence importance of ODA)
• Lucrative opportunities for corrupt domestic
  government officials
• ODAs most severe and far-reaching effects stem
  from conditionalities, especially policy
  conditionalities
• ODA important part donor of foreign policy tools
  donors wield in their self-interest
• Conditionalities a particularly direct way of
  leveraging desired outcomes in recipient countries

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The Philippines and ODA

• Total ODA commitments US13.2 billion (2001) ?
  US9.5 billion (2006)
• Equivalent to 8 of GDP, 45 of gross
  international reserves
• 2006 Japan (US4.7 billion or 49 of the total),
  ADB (US1.8 billion or 19), WB (US1.5 billion
  or 16)
• 2001-2006 Infrastructure (67) vs. social reform
  development (7)
• Source of basic data NEDA 15TH ODA Portfolio
  Review (July 2007)
• Outstanding ODA loans US21.6 billion or 40 of
  foreign debt stock (2005)
• US1.2 billion in external debt service to JBIC
  (US495 M), WB (US360 M), ADB (US295 M) (2008)
  
• out of total US3.9 billion in central
  government external debt service

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Macroeconomic policy conditionalities

• The Philippines has a long history of ODA
  conditionalities (in 1980 was only months away
  from being the World Banks (WB) first structural
  adjustment loan (SAL) recipient)
• which are an accumulation of free market
  policies of globalization, and have caused
  severe damage to the economy, lives and
  livelihoods.

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• The WBs and the ADBs biggest loans have had
  free market policy conditionalities attached to
  them since at least the 1980s.
• These have required changes in overall
  macroeconomic and sectoral policy frameworks, as
  well as gone into very specific implementation
  details.
• The WB has a Country Assistance Strategy (CAS)
  and in 2006 gave a US250 million Development
  Policy Loan (DPL) that was acknowledgement of
  past government successes and incentive for
  maintained good performance fiscal austerity,
  new taxes, power privatization

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The IMFs last loan to the Philippines had 110
conditionalities which it called structural
reform measures (a US1.4 billion stand-by
arrangement from 1998-2000)
Philippines is now among Southeast Asias most
open economies with the lowest tariffs and
least restrictions on foreign investment, next
only to Singapore Since the 1980s, share in GDP
of trade has doubled and of foreign investment
quadrupled
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Macroeconomic policy conditionalities

• Yet the Philippines is more backward than ever
• De-industrialization and underdevelopment
  shrinking share of manufacturing in economy
  (lower than in 1960s), and more and more
  foreign-dominated
• Backward agriculture at historically low levels,
  rising agricultural trade deficits since
  mid-1990s, and record dependence on imported food

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• Record joblessness for over six years
• Average 11 unemployment
• 12 million jobless or underemployed Filipinos
• 9-10 million economic refugees (i.e., overseas
  Filipino workers)
• Severe poverty at lowest income levels, disguised
  by sharpening inequality
• 69 million Filipinos (80 of population) struggle
  to survive on P96 (US2) or less a day
• 46 million Filipinos hungry everyday (by dietary
  needs)
• Note Japan ODA being used as leverage to seal a
  Japan-Philippines free trade agreement?

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Health sector privatization

• WB and ADB funding for health sector programs,
  resulting in or otherwise supporting
  privatization through
• Health Sector Reform Agenda (HSRA), 1999
• FourMula One for Health (F1), 2005

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Neglect of public health
1990-910.74
19970.58
20080.31
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Deteriorating public health services

• Rising proportion of Filipinos dying without
  medical attention
• 74 attended by trained health professional
  (1975) ? 67 (2002)
• Declining coverage of fully-immunized children
• 69.4 coverage (1993) ? 59.9 (2003)
• Budget cuts in programs for poorest
• Subsidies to indigent patients, public hospitals

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The debt service conditionality

• Rising foreign debt payments
• Debt stock 17 billion (1980)
• 130 billion paid in debt service since 1980
• Debt stock 60 billion (2006)

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Some key points from Philippine experience

• Affirms adverse effect of conditionalities aid
  has contributed to poverty, inequality
  underdevelopment
• Severe and accumulating damage to economy and to
  peoples lives and livelihoods
• worst for the most vulnerable sectors (peasants,
  labor, informal workers, women, children,
  migrants)
• on top of the problems with tied aid
• Also strengthens or creates specific interest
  groups, and weakens others. After 2 ½ decades of
  globalization
• Created a domestic corps of neoliberal
  technocrats, consolidation and strengthening of
  domestic business elites aligned with foreign
  capital, diminished national industrial
  capitalists

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Some key points from Philippine experience

• Conditionalities increasingly internalized by
  the government
• Recipient governments sharing donor priorities
  and concerns
• Resulting policy framework appealing to donors
  and foreign investors national development
  strategies virtually indistinguishable from what
  donors want
• Conditionalities look less externally imposed
• While prior compliance, performance benchmarks,
  etc. persist
• Donor pressure is also applied on the basis of
  the sum of all ODA and not just case-to-case

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Some key points from Philippine experience

• Long-standing engagement of CSOs on
  conditionality issue
• Maximizing strength and reach at grassroots and
  among wider public
• Solid constituency built
• ODA to the Philippines has been unmindful of the
  (un)democratic or human rights record of
  recipient governments
• Wittingly or unwittingly, supports even those
  which have worked to co-opt or suppress CSOs

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Some suggested areas for CSO action on
conditionality

• Reforms in delivery and management are important,
  but removing the undue direct and indirect donor
  influence on national policies through ODA is
  crucial
• Central demand Remove all explicit and
  especially free market conditionalities in ODA
• Single biggest barrier to aid effectiveness ODA
  not just developmentally ineffective but actively
  counter-productive
• Without meaningful reductions, danger of Paris
  Declaration becoming merely diversionary
• Removal may not automatically result in
  development but will at least remove a key
  adverse influence on domestic policies
• Oppose donor-proposed mechanisms that further
  increase their individual and collective leverage
  over recipient country policies esp. WB-,
  IMF-centered
• ex. Poverty Reduction Strategy Papers (PRSP),
  Country Assistance Strategies (CAS),
  Highly-Indebted Poor Countries (HIPC) initiative

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Some suggested areas for CSO action on
conditionality

• Demand debt cancellation
• Where continued debt servicing is the most
  pervasive, albeit merely implicit, conditionality
• Increased allocations for social services (e.g.,
  health, education, water sanitation) for
  countries with greater absolute poverty
• Not just increase CSO voice but also build
  capacity and strengthen role
• Making governments more transparent and
  accountable
• Creating domestic policy and political conditions
  to overcome backwardness

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Some suggested areas for CSO action on
conditionality

• However link of ODA to self-interested donor
  foreign policy is basic constraint in current aid
  system ? Need to de-link ODA from donor foreign
  policy
• How to remove or minimize undue donor discretion
  in where ODA goes?
• How to ensure not just increasing recipient
  government discretion but also CSO participation?
• ? Towards claiming the development process and
  building societies that genuinely serve the
  peoples interests and welfare

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Maraming salamat!
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Reality Long-term decline
Decliningmanufacturing
Decliningagriculture
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Agricultural neglect

• Food insecurity and dependence on foreign sources
  of food
• Domestic food production has fallen 27
• 1,509 kg/person/year (1979-1981) ? 1,100 kg
  (2000-02)
• i.e., cereals, fruits, vegetables, root crops,
  sugar, spices, dairy products, meat, fish and
  other aquatic products
• Comparing the period 1991-1995 with 2001-2003,
  increase in annual import volumes of
• Rice by ten-fold (increased by 916)
• Corn five-fold (427)
• Vegetables tripled (215)
• Root crops quintupled (305)
• Sugar and other sweeteners doubled (100)
• Pork thirty-four-fold (3,300)
• Poultry twenty-fold (1,900)
• Beef almost tripled (169)
• Fish by more than 49

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Reality Long-term decline
Declininginvestment
Decliningsavings
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Reality Long-term decline
Rising unemployment

• Historic unemployment
• 2001-2006 worst ever 6-year period of
  unemployment (11.3) and underemployment (18.7)
• 11.6 M looking for work (4.1 M jobless, 7.5 M
  underemployed)
• Majority of jobs recently created are low-quality
  low-earning
• e.g., unpaid family work, household help,
  wholesale/retail trade
• Unprecedented economic refugees
• 9-10 M overseas Filipinos in 192 countries
• 3,400 leave the country everyday

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A weakening economy

• Govt neglects national industry agriculture,
  and instead
• focuses on sectors profitable for a few but of
  low development impact
• Low employment generation, low capital
  accumulation, technological non-development,
  disconnected from the domestic economy
• Narrow or otherwise unsustainable sources of
  growth
• Overseas worker remittances
• Wholesale/retail trade, real estate
• Export enclaves (manufacturing, BPOs)
• Mineral resource plunder
• In 2007 Elections

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Shrinking govt budget
199020.7
199720.3
200816.8
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Govt neglect of health

• Out of 192 countries worldwide, the Philippines
  ranks among the worst
• 174th 3.4 Total expenditure on health as of
  GDP
• 153rd 39.8 General government expenditure
  on health as of total expenditure on health
• 156th 6.3 General government expenditure on
  health as of total government expenditure
• Note using definition allowing for cross-country
  comparisons
• 39th 60.2 Private expenditure on health as
  of total expenditure on health