Press Releases Archived (July 2015)

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A paper released by state think tank Philippine Institute for Development Studies (PIDS) was delivered this week at the second ministerial meeting of the Asia Pacific Economic Community (APEC).

Written by Dr. George Manzano and Ms. Shanti Aubren Prado, PIDS consultants, Evaluation of the APEC Environmental Goods Initiative: A Dominant Supplier Approach assesses the list of 54 environmental goods and services that the APEC promised in 2012 to liberalize by the end of this year. It presents evidence to guide APEC countries in implementing its initiative by identifying specific goods from the list that can be considered for sectoral liberalization, ranked by the measure of their supply predominance and comparative advantage in the APEC.

Environmental goods and services (EGS) are a public good subcategory, referred to by the European Commission as products, services and technologies that contribute to green growth, environmental protection, climate action and sustainable development. In 2012, the APEC member-states agreed to reduce tariffs to at least five percent. The hope is that by bringing down the barriers within the APEC, there will be a subsequent increase in trade for EGs, more green jobs will be generated, and a more environmentally sustainable growth will be pursued.

Reducing trade barriers in environmental goods and services (EGS) would make it cost-effective for industries to adopt environmental technologies, the authors explain. The reduction will make intra-APEC business and trade of EGS more productive and profitable, and will make it easier to help APEC members address climate change challenges.

But Manzano and Prado of the University of Asia and the Pacific underline that it is important that the APEC undertake a more nuanced approach. Liberalizing all of the 54 identified EGSs may not yield uniform benefits. Furthermore, member-countries may be less encouraged to participate if there is unchecked spillover benefits to nonmember countries who maintain trade barriers for EGS

To prevent free-riders, Manzano and Prado recommend that APEC members focus on reducing tariffs for EGS where APEC members have considerable comparative advantage. The authors used the predominant supplier approach in their study to identify which EGS to consider for APEC-wide liberalization.

The results show that APEC has a dominant supplier role in renewable energy and clean technology production. These are followed by waste water management and potable water treatment, management of solid and hazardous waste and recycling systems, and natural risk management.

"The policy objective is to determine the cutoff level. There is no clear-cut answer to determining the optimal APEC predominance supply benchmark and it will most likely be determined through a political process. The authors do recommend that policymakers in APEC consider that, it is rational to set the ceiling of the trade negotiations at the level where APEC principally supplies 60 per cent of exports.

The paper concludes that a nuanced implementation of liberalizing the trade of EGS will be good for the earth, good for business, and good for the economic growth of APEC member-states.

If you wish to read the study, you may access it here.

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The Philippines' financial sector has a lot of catching to do to improve its competitiveness and be at par with the frontrunners of the Association of Southeast Asian Nations (ASEAN). Improved financial education and financial literacy, and reform policies to strengthen financial inclusion of small and medium enterprises (SMEs) should be at the heart of policy reforms to achieve the critical improvements necessary to gear up for the ASEAN Economic Community.

These were expressed by former PIDS president, Dr. Mario B. Lamberte, and his research associate, Ms. Ammielou Q. Gaduena, in their report on the country's financial system titled "Enhancing Access to Financial Services through a More Competitive Financial System", a component study of the Advancing Philippine Competitiveness (COMPETE) project funded by the United States Agency for International Development. The authors presented the study in a PIDS Pulong Saliksikan held on June 17 in Makati City.

Their research examined the role and contribution of banking, insurance and capital markets to the economy. It also gauged the competitiveness of the country's financial system compared with that of its neighboring ASEAN countries. In many of the indicators they used, the Philippines performance proved mediocre, if not dismal.

Lagging Behind

The authors forewarned that if the country is unable to render its financial sector with the proper reforms and policies to become more competitive, the Philippines will be disadvantaged when it becomes financially integrated with the rest of the ASEAN.

Foreign equity or the participation of foreign players in the financial sector is part of the country's commitments to the ASEAN Financial Agreement on Services. Although the Philippine`s foreign equity cap is not yet reflected in the commitments compliance report, Lamberte and Gaduena nonetheless noted that the banks of other ASEAN member-states (AMS) have a lot of room to "expand their presence in the Philippines in the near term, while it remains a big challenge for Philippine banks to penetrate the banking markets in other AMS."

In the capital markets, the Philippines has the most restrictive commitments in terms of foreign equity cap for investment houses, requiring that the board of directors must be fifty-one percent Filipino nationals. Philippine banks also show a consistency in coming second to the last when it comes to cost and profit efficiency.

Access to Credit

Access to credit in the country is much more restricted compared with that of its neighbors. Out of nine countries, the Philippines is only ahead of Myanmar, currently at the bottom of the list. Meanwhile, Malaysia, Thailand, Vietnam and Singapore consecutively sit at the top of at the nine ASEAN nations` ranking. Basically, this means the Philippine banks are not turning the money deposited by their customers into actual loans. The authors hypothesize that Philippine banks are discouraged from looking for qualified borrowers, especially among SMEs, because of high intermediation tax and high reserve requirements on deposits.

Established in 2012, the COMPETE project was created to help the Philippines improve its level of competitiveness by providing relevant sectors with technical assistance. The project covers strengthening public-private partnership programs in the infrastructure sector and supporting reforms that would promote the ease of doing business. In the aspect of financial services, COMPETEs priorities are in helping SMEs access credit by improving the credit information system and strengthening the entrepreneurs' borrowing capacity.

Lamberte explained that SMEs are disadvantaged from acquiring or accessing credit because of many restrictive laws that hinder both SMEs and the banks or lending institutions. COMPETE helps small businesses overcome these hurdles. But Lamberte underscored that the key goal is to use the newly established credit information system to that end. A comprehensive and centralized credit information system will benefit SMEs by providing them with concrete know-how to access credit. At the same time, it will provide banks with profiles of viable business investments in SMEs across the country.

Recommendations

The authors believe that reducing intermediate taxes or reserve ratios will incentivize and enable the banking system to perform its financial intermediation function much better. Implementing policy reforms to encourage opening up to foreign players especially in the insurance and capital markets would facilitate further liberalization. Supporting a stronger merger and consolidation policy would also help.

But at the heart of it, support for increasing the competitiveness of SMEs should be duly realized. SMEs make up 90 percent of the countrys business sector. It is difficult for them to gain capital in general and they often rely on informal sources.

A handful of experts and professionals from the sector who were in attendance agreed that a stronger financial support for guarantee institutions would incentivize banks to get more involved in broadening credit access to SMEs.

Lamberte advised that this must coincide with the complete removal of special deposit accounts (SDAs). He said that most banks are not aware that there are many viable enterprises around, but they have no incentive to find out. If the Banko Sentral shuts down the SDAs, this might cure the general complacency of banks and encourage them to reach out to SMEs more.

Ambassador Jesus Tambunting, chair of the Small Business Guarantee and Finance Corporation, underscored the need to increase support for government-owned financial institutions that issue guarantees to enable them to do what they can for SMEs.

It is important to address the limitations of the financial sector. The government and the financial sector must work together to bridge services to reach those who will benefit the most. The financial sector, not only the SMEs, stands to gain from the circulation of money by granting access to those who need it the most.

Financial services should reflect this agenda. The system should be able to reach people who are traditionally unserved and underserved. These are things that the country should aspire for so that growth will become truly inclusive.

You may access the report and the full study at this link http://www.pids.gov.ph/index3.php?pr=270

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Social enterprises can help enhance the role of small and medium enterprises (SME) in sustainable economic development, claims a recent study released by the Philippine Institute for Development Studies. Written by PIDS consultant Leonardo A. Lanzona, Jr. of the Ateneo de Manila University, "Enterprises and Employment: Mainstreaming SMEs and Employment Creation" explores the theory and recommends policies to empower both areas of enterprise.

While there is strong belief on the ability of SMEs to sustain economic growth, Lanzona demonstrates the problem in focusing the breadth of policymaking on the three main arguments for SME empowerment: that they enhance competition and entrepreneurship; that their productivity is potentially bigger than large firms but is often held back by financial markets and institutional failures; and that their ability to increase employment and alleviate poverty is greater than that of larger firms.

Lanzona questions the wisdom of simplifying the arguments around firm size. Creating policies that are based on overstating the cause of SMEs and tailoring policymaking to decrease the costs of doing business solely for the sake of SMEs may `result in inefficiency`.

Lanzona argues that large exporting firms are `typically the primary mechanism` that brings in the technology and innovation that contribute to enhancing competition and entrepreneurship. Likewise, SME employment cannot outright compare to the quality and longevity of employment of larger firms, despite the aggregate employment numbers that SMEs contribute. Furthermore, market and institutional failures affect all businesses, and they must be corrected for a better business environment for all, not just SMEs.

If anything must be addressed, it is fundamental problems like poverty, and therein social enterprises can play a huge role.

`Poverty itself constrains these SMEs from achieving their full potential in terms of their access to better technology and quality of inputs,` Lanzona indicates in his paper. `Hence, direct interventions of poverty reduction in the form of public goods are expected to support SMEs and to raise growth.`

Social enterprises are inherently advantageous because they are able to generate employment, through nongovernment organizations and community institutions, for people in the most vulnerable positions. Social enterprises are organizations that employ commercial strategies to achieve ends of developing and improving human life and environmental well-being.

Some of these public goods include `social protection, business opportunities, education, electricity, health, sanitation, and water`. The common assumption is that these are the governments responsibility to provide.

But, done right, Lanzona argues that allowing the privatization and use of market mechanisms could help improve these services. He claims that `Social enterprises operate in markets in order to address social needs and reduce inequality, recognizing that this has value.`

Although there are many policies at both national government and APEC levels promoting SMEs and enhancing assistance to improve SME performance, Lanzona says that laws on recognizing the role of public goods in reducing poverty and freeing SMEs from its limitations are largely absent.

APEC must encourage and work to promote social enterprises by forming global value chains across its member economies. NGOs can also play a role by helping link social enterprises into these chains. The idea is to support social enterprises, move them out of poverty, and encourage them to provide public goods in the economic community, and thereby truly enhance SME performance.

You may read the full study at http://dirp4.pids.gov.ph/webportal/CDN/PUBLICATIONS/pidspn1510.pdf

Thumbnail borrowed from shutterstock http://women2.com/wp-content/uploads/2014/12/shutterstock_169291730.jpg

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State think tank Philippine Institute for Development Studies (PIDS) hosted a policy dialogue for the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP) last May 18. The resource speaker was UNESCAP Economic Affairs Officer Steve Loris Gui-Diby who expounded on the role of measuring growth inclusiveness to determine the best policies for achieving sustainable development.

UNESCAP had recently developed a new inclusiveness index. The index ranks a country's level of inclusive growth over a long period of time, and incorporates the social, environmental, and economic components of a country's performance into its criteria.

Led by PIDs President Gilberto Llanto, a panel of fellows and senior management officers discussed with Gui-Diby potential policy areas to address challenges and obstacles to inclusive growth. The dialogue included a discussion about job creation, financial inclusion and financial literacy, and the overall state of the countrys business environment.

According to UNESCAP`s Economic and Social Survey of Asia and the Pacific 2015, the Philippines ranks 10 out of 16 countries in the inclusiveness of growth index for the period 2002-2012. The report shows various components of growth and development and discusses the country's performance in comparison to other Asia-Pacific countries. These components include an index for social opportunities in select countries, where the Philippines ranks 14 out of 23 countries in the same period, down from 10 in the 1990-1999 period; access to electricity, where the index shows stark difference between rural and urban electrification. One data index shows the Philippines having one of the highest rates of unemployment in a certain set of countries that includes many of its Southeast neighbors, including Indonesia, Malaysia, Thailand, Viet Nam, Cambodia, and Lao, all of which rank lower.

The PIDS panel commented that the Philippines has made many attempts to foster job creation but the efforts have yielded few satisfactory results.

Gui-Diby suggested that the Philippines can start by reflecting, investigating, and understanding the dynamics affecting their young people's career mindset. Llanto said that despite the recent spate of entrepreneurial courses burgeoning across the country's top universities, the sense of entrepreneurship remains at a `non-poor level`. The upper income group is more likely to start a business because they can afford to and they are willing to take the risk. But there is no support system for those in the poorer bracket to comparably afford the same risks.

Mr. Gui-Diby recommended that the country focus on enabling a good business environment and improving the elements of infrastructure, investor protection, financial development, and competitiveness. He also pointed the importance of improving the rural sector's access to basic services. It has been proven that the level of productivity in the rural areas is parallel to the level of access. Policies should help and encourage small and medium enterprises to foster creation of quality employment to mitigate poverty and truly accomplish more inclusive development.

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The East Asian Development Network (EADN) held its annual forum on May 28 and 29, giving the podium to its young research grantees to elaborate on the progress of their individual work. Since 1998, the network has sought to develop the research capacity of participating institutions and individuals by providing the resources to carry out development-focused and policy-relevant research. The Philippines, on its fifth year as EADN Secretariat, welcomed research grantees and mentors from all over Asia, including Indonesia, Thailand, China, and Malaysia.

The focus of the research studies at the EADN forum this year spanned diverse development issues, among them agriculture, migration, human capital formation, and finance. This diversity, according to the welcome remarks of Philippine Institute for Development Studies (PIDS) President and EADN Chairman and Regional Coordinator Gilberto Llanto, proves that there is still much to be explored in the field of development.

At the threshold of regional economic integration, what cuts across these development issues is the opportunity for regional cooperation. Llanto added that EADN plays a "crucial role" in enabling the creation of well-informed policymaking. PIDS board member Atty. Raphael Perpetuo Lotilla delivered a timely keynote address to demonstrate the value of research in various development areas.

In particular, Lotilla highlighted the need to cooperate for the sustainable development of the seas of East Asia, with opportunities ranging from management, exploration, and exploitation of resources; preservation of the environment, and coordination regarding science and research. Majority of the public discourse focuses on the political aspects and territorial disputes, specifically when it comes to the South China Sea. But it is undeniable that everyone benefits from addressing its challenges, whether they may be environmental, social, or economic.

He said that the level of trust within the reason must be raised. To answer the sustainable needs of the people in the region, policymakers, aided by policy research institutes and networks like PIDS and EADN, must help identify areas of concern and opportunities for cooperation.

Fisheries and trade is one ideal area for cooperation. Depletion due to overfishing, destruction of habitat, and pollution threatens to damage the industry and contribute to the long-term breakdown of the ecosystem. A potential security issue could as well arise in the event that a plunge in fish and revenues for traditional fishermen pushes them to enter piracy or human trafficking chains. Coastal governments on an individual level, Lotilla warned, may not be able to address this alone. Everyone has a stake in protecting and promoting sustainable development of marine resources in the region.

The profile of research studies presented at the forum evoked the theme of Lotillas speech, with each one looking into development policy areas critical to the respective countries of the researchers. Each researcher was assigned a discussant to mentor them and provide guidance to mold their approach, improve their methodologies, and whittle the scope.

The EADN country coordinators included Dr. Sun Xuegong, Dr. Carunia Firdausy, and Dr. Siew Yean Tham. Dr. Mohamed Ariff , EADN representative to the Global Development Board of Directors, was also in attendance.

The cross-national discussion and exchange of expertise and insight ensured that each study received recommendations that encouraged the author to meet international standards and incorporate regional perspectives.

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The Philippines took 95th place on the World Bank rankings for Ease of Doing Business, gaining the second highest leap in the charts for the 2015 report. But it's still not enough to beat neighbors Thailand (26th), Viet Nam (78th), and Malaysia (18th). A new policy note released by state think tank Philippine Institute for Development (PIDS) reviews the elements of a good business environment, and what an increase in ease of doing business (EoDB) can bring to the table for APEC and its member-states.

Commissioned by the Philippine APEC Study Center Network in anticipation of the Asia-Pacific Economic Cooperation Summit 2015, the policy note, written by PIDS consultants Ronald Mendoza, Tristan Canare, and Alvin Ang, provides a comprehensive review of literature on EoDB and an evaluation of the performance of APEC economies in creating a good business environment as individual member-states and as a region.

The goal of the APEC`s Ease of Doing Business Initiative is to make the regional business environment `cheaper, faster and easier` through regulatory reform. The priority areas identified when the framework was launched in Singapore in 2009 include starting a business, getting credit, enforcing contracts, trading across borders, and dealing with permits.

So far, progress has been uneven. The authors have learned that dealing with construction permits and getting credit are slower than starting a business.

Many of the challenges encountered were political cycles, leadership commitment, communication with constituencies and stakeholders, inter-institutional coordination, and commitment to reforms, among many others.

The authors looked at the structure of each priority area in each member-state to see how each one is handled, and also to understand how each one plays an interrelated role in helping generate the kind of environment that allows private sectors and business to thrive.
The authors cited Avinash Dixit to enumerate the `three essential well-functioning institutions of an efficient market`, which are secure property rights, enforcement of contracts, and collective actions.

Secure property rights send a strong message to investors, that an economy has capable institutions that can take care of their investments. Investor protection mechanisms enable a good business environment, thereby encouraging more investments.
Another vital institution crucial to doing business is infrastructure. One study points that infrastructure and regulatory reforms are the main improvements that developing countries can focus on. Others go as far to say that building strong infrastructure and regulatory institutions is more important for developing countries than focusing too much on tariffs.

Lastly, the authors underline that when it comes to tax rates and systems, the administration of tax is `equally, if not more, important`, particularly when it comes to making it easier and simplified for people to comply with tax laws.

In its new report, the World Bank introduced Distance to Frontier (DTF) to measure performance and determine ranking in EoDB. DTF measures the distance between an economys current standing on a particular criteria and the best performance for that criteria. Examined by these measurements, the Philippines once again is second to Russia in terms of improved ranking, while performance for the rest of the APEC nations overall remains mixed.

The authors underscored three most commonly implemented and effective practices for improved performance of shaping a good business environment: streamlining and simplification of procedures, creation of an electronic platform to make trade easier, and implementation of a single interface for transactions. These practices are already endorsed by the APEC.

They suggested adding more indicators to the priority list of APEC member-states and emphasized indicators that produce the most beneficial impact, like investor protection and a strong tax system. Incorporating the DTF measure may also be used to measure a countrys progress.

It is important, they added, that APEC member-states cooperate, understand, and take the opportunity to help each other through the sharing of best practices. Improving performance for all APEC nations will benefit the business environment not only of individual economies but that of the entire region.

For reference, you may access the full Policy Note here http://dirp3.pids.gov.ph/webportal/CDN/PUBLICATIONS/pidspn1509_rev2.pdf

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`Out-of-school children prevalence has declined in almost all regions of the country,` claims a joint study of state think tank Philippine Institute for Development Studies (PIDS) and the United Nations Children's Fund (UNICEF). The numbers are indicative of achievements and further challenges for basic education as a whole.

PIDS Senior Fellow Jose Ramon Albert and Assistant Professor Clarissa David of the University of the Philippines-Diliman College of Mass Communication delivered their collaborative report at the PIDS-UNICEF joint seminar last May 26. The results of the country report are summarized in a policy note released recently by PIDS titled `How Has Basic Education in the Philippines Fared and What Else Needs to Be Done?`

According to the report, the number of children who reach the final grade of primary school has increased since 2008. This serves as an important indicator of the decline of out-of-school children (OOSC) incidence.

The rate of OOSC to the total number of children in the 5- to 15-year-old bracket has declined by half between 2008 and 2012, from 11.7 percent to 5.2 percent. The rate of preprimary students rose from 35 percent to 48 percent between 2008 and 2011. On a closer inspection, the sharpest increase belongs to households headed by poorly educated individuals. This affirms that policies like mandatory and universal kindergarten have benefited the poor the most.

The difference in the rates of children going to preschool between the upper middle-income and the poorest have shrunk from 34.9 to 5 percent. Greater access to free kindergarten and other early childhood care and development programs (EECD), according to Albert and David, have acted as an `equalizing` force, helping reduce wealth and social class inequalities. In particular, they identified three interrelated factors: the mandatory kindergarten, the rise in the Department of Educations (DepEd) budget with the implementation of the K-12, and the expansion of the conditional cash transfer program (the Patawid Pamilyang Pilipino Program or 4Ps).

Still, they emphasize the need to understand the nuances underneath. They recommend that further research must be taken to generate more comprehensive policies and program, particularly where secondary schools and gender disparity are concerned.

Current measures are in place, but there has only been modest improvements at the secondary level where maintaining school participation is more challenging. There are plenty of factors at play, with gender adding a complicated layer.

Boys have higher dropout rates, especially in high schools that have high student-teacher ratios. The explanation for this phenomena is rooted in prevailing cultural and socioeconomic mindsets.

According to David, for the poorest families who can only support the education of one child, they often prioritize the girls. The emphasis on the girls could be linked to the fact that many of the jobs that people think will get them out of poverty, such as nursing which is in-demand overseas, are dominated by women. Girls than boys are thus perceived to be more likely to send more money home than their male counterparts in the same industries. Another possible reason, also reflecting a strong female bias, is that educators and parents alike believe that young girls are much easier to educate, more likely to finish, more likely to excel, and less likely to get distracted.

The disparity in the tertiary level is even worse. David notes, `It`s an issue that is so multifactorial that we really need to carefully study the problem.`

Albert and David segregated the 42 recommendations stated in the OOSC Country Report into five area categories, namely: getting more children in the three- to five-year-old bracket enrolled in preschool, improving the quality of teaching and curricula, addressing the gender disparity in performance, bringing education to older OOSC, and supporting management efficiencies and effectiveness.

`Now that shortages are no longer the main story in basic education, the DepEd can get out of its cycle of just trying to keep up with the growing demand,` say Albert and David.

The authors hope that the country can now focus on improving quality in a strategic manner and achieve the goals set in the K-12 law.

They also underscore the importance of strengthening data systems, commending the institutionalization of the Learner Information System. More initiatives to do research to generate evidence-based policies are needed, on top of performance-based budgeting, school-based management, and systematic evaluation of special programs"things that are not for the DepEd alone to accomplish.

`It`s a common dream for all of us: aim for a nation where there is no out-of-school youth. We`re almost there. We just need one big push,` remarks DepEdDeed Secretary Armin Luistro at the seminar`s forum, emphasizing that basic education needs above all, `community effort`.

For access to the studies and presentations, visit http://www.pids.gov.ph/index3.php?pr=268