Countries and Regions

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p. 2 of 4 BACK | NEXT I. Development Situation II. Implementation of the Country Strategy and Program III. Portfolio Management Issues IV. Country Performance and Lending Levels

Country Strategy and Program Update 2002-2004: Philippines

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II. Implementation of the Country Strategy and Program

A. Poverty Reduction

9. Progress in poverty reduction has been uneven across the regions, with stagnant or increasing poverty in parts of the Visayas and Mindanao. Slow economic growth combined with a still high population growth has kept the Philippines’ per capita income lagging behind that of its regional neighbors. The incomplete decentralization agenda has also hampered the progression of poverty reduction efforts. The importance of sustained growth in poverty reduction is underscored by the observation that the greater part of the decline in poverty incidence in 1985-1997 occurred during the early and later parts of the period, when the economy experienced positive growth. Recurring armed conflict in Mindanao has exacerbated disparity in development, caused pronounced poverty, and undermined growth. In the aftermath of the Asian financial crisis and the El Niño phenomenon in 1997-1998, previous gains in poverty reduction have been eroded.

10. The Philippine Government and ADB agreed that reducing poverty in the Philippines calls for measures that will promote sustained economic growth, reduce inequalities in income and wealth, improve the delivery of basic social services, and reform the system of governance. This is articulated in the poverty partnership agreement between the Government and ADB, that will be signed in October 2001. The ADB strategy is based on socially inclusive development that should result from (i) pro-poor, sustainable economic growth; (ii) social development, under which specific, targeted programs for the poor are envisioned; and (iii) good governance.

B. Thematic Priorities

1. Economic Growth

11. Promoting equitable growth will require (i) increased attention to rural development; (ii) more balanced regional development, with special emphasis on the southern Philippines; and (iii) policies and programs to promote a stable macroeconomic environment, improve the competitiveness of Philippine industries and labor force, improve the country’s infrastructure (especially rural roads and electrification), and emphasize greater private sector participation. ADB’s support to strengthen financial markets and economic and corporate governance will help boost productivity by improving resource allocation and strengthening the monitoring of resource usage. Improving the environment for small- and medium-sized enterprises (SMEs), particularly through strengthening their ability to access finance and export markets, will allow SMEs to contribute more efficiently to economic growth. Regional cooperation will stimulate private sector participation and local employment opportunities in the southern Philippines, which is a part of the Brunei Darussalam-Indonesia-Malaysia-Philippines East ASEAN Growth Area (BIMP-EAGA) Region.

2. Human Development

12. While key development indicators (Appendix 2) have improved over the past 10 years, life expectancy and health indicators could improve further. Rapid population growth contributed to the strain on the already limited budgetary resources, impeding the expanded provision and delivery of quality basic social services. This led to the declining quality of basic education and reduced access to health care services, primarily for primary health care, family planning, immunization, and feeding programs.

13. ADB will continue to support initiatives to improve the quality of basic social services and expand their coverage, especially in Mindanao. It will help strengthen the Government’s capacity to support and implement health services programs, social protection programs, and other safety nets for vulnerable sectors in rural and urban areas. To upgrade skills and raise productivity for global competition, ADB will support programs to increase access to and quality of basic education, enhance teacher development, improve resource allocation across the sector, and rationalize and strengthen higher education.

3. Gender and Development

14. According to the 2001 Human Development Report, the Philippines ranked 62nd out of 146 countries in the gender-related development index (GDI).³ The Philippines ranked 46th of 64 countries in the gender empowerment measure (GEM).⁴ Woman’s participation in the labor force is high, compared to other Asian countries.

15. Although overall gender equity is high, regional disparities exist, particularly in the southern Philippines where ADB operations aim to help close gender gaps in key areas such as access to basic social services including education, health, and water as well as to productive means, financing, and opportunities. The proposed Mindanao basic education development project and the education sector development program will try to narrow gender gaps in education. The proposed Mindanao community-based forest resources management project will address women's needs as providers and caretakers of the environment. The proposed upland communities development and rural microfinance projects will assist in the income generation for poor women, who are expected to participate prominently in the activities supported by these projects. By extending basic municipal services to households, the proposed development of poor urban communities project will greatly ease the domestic burden of women. Women’s health issues are being addressed through ADB’s ongoing Women’s Health and Safe Motherhood Project and will be addressed through a targeted component on reproductive health under the health sector development program.

4. Good Governance

16. The current ADB strategy identifies four priorities: (i) improving transparency and accountability in public sector functioning, and tackling corruption; (ii) strengthening the decentralization and devolution process; (iii) enhancing participation of civil society and stakeholders in policy making, public investment decisions, and monitoring of the quality of public services; and (iv) improving peace and development, especially in the southern Philippines. During 2001, ADB will initiate a comprehensive governance assessment to review performance in governance reform and to identify, jointly with Government, priority areas for future support to improving governance. The assessment, expected to be completed in February 2002, will form an important component of the country strategy and program. ADB will collaborate with the Government and the World Bank in conducting a public expenditure review.

17. ADB will continue to support Government efforts to (i) reduce the incentives for corruption, (ii) reform the public expenditure management and procurement system, (iii) improve financial and corporate governance, (iv) increase the effectiveness of national and local government, and (v) complete policy reforms. Successful reform requires strong partnership between the Government, the private sector, civil society, external agencies, and ADB will play a key role in facilitating these partnerships. Attention is being focused on improving the functioning of the Commission on Audit, improving the independence of the judiciary, improving revenue generation of the Bureau of Internal Revenue, and the strengthening the monitoring of official development assistance (ODA) projects. ADB support for improving the performance of the public administration focuses on strengthening the capacity of regulatory agencies such as the Housing and Urban Development Coordinating Council, Commission on Higher Education, Securities and Exchanges Commission, Philippine Deposit Insurance Corporation, and Professional Regulations Commission.

5. Private Sector Development

18. Increasing private sector participation in the economy and in social and infrastructure development, is a key element of ADB strategy. Government privatization programs and sector policy reforms will create an environment enabling greater private sector involvement. ADB will conduct a private sector assessment in 2001 to identify areas that need to be strengthened, including policies, regulations, and public institutions, to promote greater private sector participation.

19. Basic prerequisites for the efficient functioning of the private sector are the development of the capital market and financial infrastructure; deregulation of industry, trade, and investment; and adoption of appropriate policies conducive to efficient market functioning. ADB has been focusing its assistance to (i) support the development of the SME sector; (ii) increase private sector participation in rural infrastructure, railroads, tollways, telecommunications in rural areas, power and renewable energy, water supply, and waste management; and (iii) support the restructuring of the Philippine National Railways and privatization of the National Power Corporation.

6. Environmental Protection

20. The Government has been increasingly concerned about deteriorating environmental conditions and the effects on the development of the country. In the 1998 COS, ADB identified its environmental concerns in the Philippines in five areas: (i) urban air quality, (ii) surface water quality, (iii) solid waste management, (iv) forest resources, and (v) coastal resources.

21. The effects of environmental degradation, whether in the countryside or the urban centers, are always felt more disproportionately by the poor, who do not have the means to mitigate the decline in their resources, living conditions, or health. ADB will support the Government to undertake specific measures to address environmental protection, sustainability, and rehabilitation.

7. Regional Cooperation

22. The scope for reviving and developing regional cooperation in the BIMP-EAGA has improved considerably in the recent past. This results from the receding Asian Crisis and the governments’ revived ownership of regional cooperation as a means to accelerate growth. However, investment flows in the region have not been significant due to inadequate infrastructure development and the dampening of economic activity by the weak economic recovery and unstable peace and order situation. Action to improve regional transport infrastructure linkages, particularly in air transport and shipping, is being implemented. ADB will ensure that the country program and the regional cooperation are fully complementary. Further, in the near term, direct regional support will be focused on strengthening the environment for SME activity, considering their capacity to contribute to poverty reduction through job creation and revenue enhancement. Other subregional economic cooperation initiatives involving the Philippines are being explored.

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