Multisectoral coalition ditor’s otesthe Beaten Path and its Alternative” last April 3 at Romulo Hall of NEDA sa Makati Building. Paqueo, visiting research fellow at the Institute,

Philippine Institute for Development Studies

DEVELOPMENTRESEARCH NEWS

Editor’s Notes

April – June 2014 ISSN 0115-9097Vol. XXXII No. 2

Surian sa mga Pag-aaral Pangkaunlaran ng Pilipinas

Multisectoral coalitionto advocate for reforms

in services sector

THE PHILIPPINE Services Coalition has been revived in a bid to promote and develop the country’s services sector, which now accounts for more than half of economic output and employment. The coalition’s reactivation was announced at the culmination of the National Workshop on Services: “Advancing Philippine Services Sectors in the Asia-Pacific Region and the 21st Century Global Economy”, held June 2 to 4 at the AIM Conference Center in Makati.

The workshop brought together experts from local and multinational institutions, government agencies, the academe, and industry practitioners to discuss the latest international developments and opportunities in services trade and how the Philippines can maximize the sector’s potential in the global economy. The Institute co-organized the workshop with the Department of Foreign Affairs, with support from the United States Agency for International Development and the International Trade Center (ITC).

The workshop and the revival of the coalition are part of the Philippines’ preparations for its hosting next year of the Asia-Pacific Economic Cooperation summit, wherein the host country plays a huge role in crafting the agenda.

(Photo: Felipe Salvosa)

4 PIDS research team calls for reforms in labor policies

6 Health financing tackled

8 Competition policy in rice, transport needed

9 Attracting the right FDI

10 PASCN holds symposium

12 AEC opportunities cited

THE ROLE of the researcher is to investigate a relevant problem and find solutions using sound methodology. The results are rewarding if the recommendations of research are able to change policy for the good of many, if not all. Researchers, however, are the first to know that their findings and recommendations won’t please everyone, especially if significant adjustments are involved. Still, researchers pursue their work in the belief that better policies are the result of recommendations based on evidence.

This edition of Development Research News is again filled with the latest on the Institute’s research and outreach

c p. 16

What’s Inside

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Development Research News April – June 2014

Laura del Rosario, Foreign Affairs undersecretary for international economic relations, said the coalition would become a body with an organizational structure formalized through a memorandum of agreement or Executive issuance, from an informal, loosely knit grouping.

The original coalition, formed under a 2004 joint declaration, made a number of accomplishments, such as the incorporation of the Services Export Competitiveness Roadmap in the Philippine Export Development Program and the integration of the Services Export Competitiveness Roadmap in the action agenda of the Public-Private Sector Task Force on National Competitiveness (now the National Competitiveness Council), she noted.

Del Rosario, however, said the coalition should be reactivated and strengthened given the growing importance of services to the Philippine economy, the transformative role of services in international business, the emergence of China as a services exporter, and greater international competition. There is also a need for closer public-private collaboration, a coherent and unified services policy, and broader and closer interagency coordination, she said.

Del Rosario said the coalition will expand its membership and institute a formal process of membership, as well as upgrade its leadership by constituting a steering committee with greater private sector leadership and the Department of Trade and Industry-National Competitiveness Council as lead government agency.

The Institute’s expert on services, research consultant Dr. Ramonette Serafica, called for an articulated and comprehensive national strategy to maximize the services sector’s potentials as a growth engine for

the economy. Constitutional restrictions are not even the issue, she said, as other jurisdictions have more stringent equity restrictions yet attract more foreign direct investments.

Experts emphasized that liberalization of services should not be equated with deregulation. Liberalization should in fact be accompanied by stronger regulatory systems, said Hamid Mamdouh, director of the Trade in Services Division of the World Trade Organization. “Liberalization is not a purpose in itself. Liberalization is meant to provide a competitive environment that provides benefits,” he said.

Jane Drake-Brockman, ITC senior services adviser, said the drivers of services competitiveness include human capital, intangible assets, digital and other infrastructure, quality of institutions and efficiency of regulation, connectedness with international markets, services advocacy, and a national policy focus.

The Philippines is becoming competitive, as shown by the increase in the share of domestic services share in exports, she noted.

Serafica said the Philippines has the potential to become the hub of services trade in the Asia-Pacific region because of its large pool of skilled, semiskilled, and low-skilled workers. “The estimated 10.4 million Filipinos abroad are also a natural market for Philippine services,” she said.

The country can tap opportunities in maritime, outsourcing, franchising, medical, and educational services. “The Philippines can be a home to world-class brands with the internationalization of Philippine franchise brands,” she added.

There is a need, however, to boost government support such as in strengthening Philippine participation in international shows, trade missions, and business matching sessions. Alegria “Bing” Sibal-Limjoco, vice-chairman of the Philippine Franchise Association, lamented: “In last year’s Philippine participation in international franchise held in Singapore, the country had only a booth while other ASEAN countries had pavilions.”

For Doris Magsaysay-Ho, president and CEO of A. Magsaysay, Inc., the country’s high-quality talent pool is a competitive services proposition for the global maritime industry. “Knowledge of the maritime field using experienced people offers opportunity to develop business outsourcing services for shipping companies, insurance companies, and others,” she said.

The Philippine Information Technology-Business Processing Management (IT-BPM) industry, meanwhile, is not only competitive in voice services, said Ana Maria Bongato, executive director for talent

Jane Drake-Brockman, senior services adviser at the International Trade Center. (Photo: Phidel Vineles/PIDS)

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development at the IT Business Process Association of the Philippines. A wide range of services such as IT application, engineering, animation, data analytics, and other business process services are offered by the Philippines, she said.

The Philippine IT-BPM industry is ranked second as a global outsourcing destination and is the country’s largest private sector job creator with 900,000 jobs created last year, said Bongato.

Former health secretary Dr. Jaime Galvez-Tan said the country would be a viable international and medical retirement zone. “The country can be retirement havens for Northeast Asians, OFWs, and expats,” Galvez-Tan said. “We can offer spa tourism, alternative, and Filipino traditional medicine to them,” he said.Also, trade in educational services should make an important contribution to the

upgrade Philippine higher education, through the harmonization of academic standards and new avenues for regional cooperation in higher education, said Prof. Tereso Tullao, Jr. of De La Salle University.

Tullao called for higher standards in educational services, noting the small number of accredited programs and lack of faculty qualifications of Philippine higher education institutions (HEIs). “Only 21.5 percent of the more than 2,200 HEIs have some form of accreditation and a miniscule 12.7 percent of around 130,000 faculty members have doctoral degrees,” he said.

To harness services trade, former PIDS president Dr. Josef Yap stressed the need to have an institutional framework to address cross-cutting issues such as smuggling, transportation and logistics, skills

mismatch, and power. “There is a need to create an institutional setting to coordinate policies required to develop the country’s services capacity through infrastructure development, skills upgrade, support policies and incentives,” he said.

Moreover, the national vision or strategy on promoting the service sector should be anchored on a higher-order objective, which is the pursuit of inclusive growth for the country, said NEDA Deputy Director-General Emmanuel Esguerra.

In relation to this, PIDS President Dr. Gilberto Llanto said there is a need for a deeper understanding of the services sector for effective policy measures considering that the sector contributes significantly to the economy. “Philippine growth is driven by an expanding services sector which accounts for 57 percent of total GDP,” he noted. SVS, FFS, PMGV

Resource persons address questions from the audience at the AIM Conference Center. From left: Hildegunn Nordas of the Organization for Economic Cooperation and Development, Alegria Sibal-Limjoco of the Philippine Franchising Association, David Katz of Visa Inc., and Prof. George Manzano of the University of Asia and the Pacific. (Photo: Gizelle Manuel/PIDS)

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IT IS TIME to leave the beaten path and take a long, hard look at labor policies, in particular the minimum wage, given “clear and preponderant” evidence that it had been detrimental overall to the welfare of ordinary workers and the disadvantaged.

Secure jobs and decent wages are laudable objectives but “new approaches” are needed, rather than relying on minimum wages and other current labor regulations as “weapons of choice”, researchers Vicente Paqueo, Aniceto Orbeta, and Leonardo Lanzona said during the Economic Policy Monitor Forum titled “The Jobs Challenge: Choosing between

PIDS research team calls for reformsin labor policies to increase workers’ welfare

the Beaten Path and its Alternative” last April 3 at Romulo Hall of NEDA sa Makati Building.

Paqueo, visiting research fellow at the Institute, unveiled a 12-point program dubbed “Jobs Expansion and Development Initiative” or JEDI that proposes alternatives such as education, increased labor-intensive manufacturing, and greater opportunities for training on the job.

The JEDI Program has two broad objectives: to expand gainful jobs through the acceleration of labor-intensive production, particularly, manufacturing of tradable commodities; and to improve

investments in education and other human capital development and sustain total productivity gains, Paqueo said. The proposed reforms are:

• simplifyingthelabordisputeresolution processes;

• makingtherulesonhiringandfiringdecisions more flexible;

• institutingmeasuresthatwouldminimize the imposition of labor regulations and practices detrimental to and discriminatory against the poor and other disadvantaged groups;

• allowingfirmstohirelowskilledand poor workers who want to

Antonio Asper (center), vice-president of the Federation of Free Workers, calls for a better social regulatory framework. Beside him are PIDS President Gilberto Llanto (left) and Ernie Cecilia (right) of the Employers’ Confederation of the Philippines.(Photo: Gizelle Manuel/PIDS)

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voluntarily opt out of the minimum wage norm;

• adaptingandexperimentingwithaSingaporean-style scheme providing income supplement to targeted ultra-poor workers;

• transformingtheconsultationprocessfrom a tripartite into a quadripartite system that will give the poor, unemployed, underemployed and self-employed direct representation;

• encouragingunionstofocuson raising competencies and productivity of workers as a means to achieving decent wage;

• lengtheningtotwoyearsfromsix months the compulsory regularization of young workers to expand their learning experience and build their skills;

• ensuringqualityimplementationof the K to 12 reform, undertaking institutional reform of technical-vocational training, and improving access to quality higher education;

• implementingtheextensionofdemand-side education assistance under the Pantawid Pamilyang Pilipino Program to high school students;

• promotingresearchanddevelopmentactivities for the jobs initiative; and

• facilitatingtheemergenceofawell-organized coalition of stakeholders devoted to finding and promoting approaches that effectively advance the interest of poor workers.

The study looked into the effectiveness of minimum wages and other labor protection regulations, general productivity increase, investment in human capital, and livelihood programs.

The minimum wage has been “generally, not only unhelpful but highly detrimental to the welfare of the common man and the disadvantaged,” Paqueo argued,

citing the results of impact studies on household income and poverty incidence, employment of enterprises, employment of individual workers from disadvantaged population groups, and hours of work.

In the end, smaller firms suffer from minimum wages, said Lanzona, director of the Ateneo Center for Economic Research and Development. Results indicated that large firms attracted workers due to the prospect of promotion, which forced small firms to hike wages.

“The minimum wage leads to distortions in the labor market and deadweight losses, based on impact analysis,” he said.

As a result, the minimum wage had a significant negative effect on employment in small enterprises, and a positive effect for large employers.

Orbeta, senior research fellow at the Institute, for his part, explained that a faster rise in minimum wage resulted in lower household income and a higher

probability of falling into poverty. The minimum wage led to a significant increase in the poverty incidence rate—by 1.7 to 3 percentage points, he added.Results and previous research also showed that labor productivity increase had no direct effect on real wages, consistent with economic models with excess supply of labor, while the effects of training programs were mixed. On the effectiveness of investments in human capital, the returns on education are relatively high and there is a rising wage premium for educated labor, Orbeta said. Improved nutrition also has a positive effect on wages of farm workers.

In reaction, Patricia Hornilla, deputy executive director of the National Wages and Productivity Commission, said the “key to improving the employment situation in the country is to attract investments that create high value-adding jobs that yield new streams of wealth and revenue.”

Ernie Cecilia, representative of the Employers’ Confederation of the Philippines, agreed that minimum wages had led to the reduction in employment in small firms, and that the policy had tended to be disadvantageous to less educated, inexperienced, and young workers. He said: “Economic growth cannot take its full course when it is still jobless growth. It is not that no jobs are created. The failure here is that there are not enough jobs to absorb the growth of the economy.”

Antonio Asper, vice-president for external affairs of the Federation of Free Workers, a labor confederation, said the goal should be to establish a “better social regulatory framework that balances market regulation, state regulation, and voice regulation towards achieving a more democratic and stable political economy and society.” FFS

PIDS Visiting Research FellowVicente Paqueo.(Photo: Gizelle Manuel/PIDS)

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CATASTROPHIC FINANCING by key institutions could be the answer to the marginalized sector’s growing health woes. The marginalized sector bears the biggest brunt when family members get sick and need hospital care, as money they normally allot for basic needs like food and shelter go to hospital expenses; that is, if they ever go to the hospital. In a knowledge-sharing seminar organized by the Department of Health (DoH) and the Institute last April 28, research consultant Dr. Alvin Caballes of the University of the Philippines (UP) Manila defined catastrophic health expenditures as when a patient’s condition requires medical interventions that are life- or limb-saving and treatment is determined to be appropriate, but expenses incurred are beyond the means of the patient or the family at the time of need due to constraints in resources or timing.

Financial risk protection is a key objective of the Aquino Administration’s push for Kalusugan Pangkalahatan or universal health care. Protection lessens the burden of poor families by helping them get nonprimary care assistance immediately without worrying where to get money for out-of-pocket expenses. In a 2012 study covering the National Capital Region (NCR), UP Manila’s Dr. Hilton Lam and Dr. Noel Juban found that, on the average, patients shouldered as much as 49 percent of the bill, with a third of the amount coming from public assistance, which the patient would not have enjoyed if no member of the family

Experts explore issuesin catastrophic health financing

was available to handle documentary requirements. Free service averaged 36 percent of the total bill, while the Philippine Health Insurance (PhilHealth) Corp. accounted for 15 percent.

Caballes pointed out that big out-of-pocket expenses could drive a family into poverty or further into poverty as these would eat a big chunk of household income.

In his study, discussions on catastrophic health expenditures were conducted in 2013 through separate focus group discussions with stakeholders, healthcare providers, and government agencies. Results validation was done by DoH, PhilHealth, and the Department of

Social Welfare and Development. Catastrophic illnesses were grouped into three categories: 1) acute and maybe represented by trauma cases; 2) intensive care, an example of which is pediatric congenital heart disease; and 3) chronic cases such as breast cancer, diabetes, drug rehabilitation, end-stage renal disease, or those already on dialysis.

Patients go to the hospital when it is a matter of life and death, regardless of whether or not they have the funds. For providers, patients who do not have the ability to pay for care strain resources, requiring them to keep tabs on their bottom lines to be able to operate continuously. For government agencies, human rights emerge as

From left: UP Manila Research Consultants Dr. Alvin Caballes, Dr. Hilton Lam, and Joshua Young. (Photos: Gizelle Manuel/PIDS)

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the top issue as no person should be deprived of health services regardless of economic status. What puts patients in difficulty is that different agencies have their own operational definitions of Catastrophic Health Expenditure (CHE), so that what might be defined as CHE by PhilHealth (which is concerned with care rationalization) might not be defined as such by a major source of financial assistance, the Philippine Charity Sweepstakes Office (whose main concern is fund rationalization). The DoH, meanwhile, acts as both financier and provider, putting pressure on its limited resources as well.

Dr. Caballes’ recommendations centered on three points: (1) improving agency responsiveness, the bottom line of which is to ensure early provision of benefits; (2) integrating financing arrangements (including a facility to initially shoulder all expenses in case of emergency) so that the patient is not further burdened seeking for additional financing; and (3) establishing an organizational unit that would oversee the development of policies and procedures, coordinate the programs of public and private agencies, monitor outcomes, and ensure provider compliance.

PhilHealth, for its part, is formulating new programs to achieve Kalusugan Pangkalahatan. These include the PhilHealth “Z benefits” package for nine illnesses, namely: breast cancer, prostate cancer, cervical cancer, acute lymphocytic leukemia, kidney transplant, limb prosthesis, coronary artery bypass graft surgery, tetralogy of Fallot, and ventricular septal defect. In addition, supplemental funds from the private sector can be tapped by PhilHealth for catastrophic illness financing, according to the study “Feasibility of Supplemental Funds from the Private

A RECENT STUDY by the Institute and the Department of Health (DOH) found that the leading cause of high tuberculosis (TB) cases in urban poor communities is the patient’s delayed visit to the doctor.

Titled “Barriers of Early TB Diagnosis among the Poor in Highly Urbanized Areas in the Philippines”, the study noted that although there was a significant drop in TB prevalence over the last decade, TB remains the fourth leading cause of mortality among Filipinos. The 2007 Philippine National Tuberculosis Prevalence Survey revealed that there are approximately three TB cases in every 1,000 Filipinos. There is a prevalence of the multidrug-resistant TB in the country, a fatal form, the DOH said.

“Higher risk of tuberculosis can be attributed to delayed diagnosis,” said Krishna Reyes, study co-author and PIDS research consultant during a seminar at NEDA sa Makati Building last April 8.

“Early diagnosis is essential in the control and prevention of TB especially in the urban poor population that has a higher risk of acquiring both infectious and noncommunicable diseases,” Reyes said. “Urban poor communities have 1.5 times higher prevalence of disease than their nonpoor counterparts.”

“Delay in the diagnosis is a contributing factor of higher reproductive rate of TB epidemic at the community level,” Reyes said. Transmission usually takes place between the period of occurrence of cough and initiation of treatment.

Reyes noted other factors contributing to delayed TB diagnosis at the patient level such as lack of knowledge about tuberculosis, financial constraints,

inaccessibility of health care services and facilities, and stigma-related factors.

From focus group discussions at Southern Philippines Medical Center in Davao, Mandaue City Health Office in Cebu, and German Doctors in Metro Manila, Reyes and her colleagues found that some patients did not immediately relate their symptoms to TB. Instead, they thought of them as pre-existing conditions like asthma or may be related to pneumonia, which led them to forego or skip health care and rely on self-medication.

Lack of money for transportation also hinders patients to seek immediate medical attention. The choice of health facility is also a factor. “Some patients delayed going to a health facility because they were waiting for money so they can go to a private health facility for checkup or diagnosis instead of going to a public health facility. This reflects their low regard for the health care provided by government”, Reyes said.

The stigma associated with TB remains a critical issue. According to Reyes, tuberculosis is often associated with other diseases as well as malnutrition and low social stature (poverty). For this reason, people delay being diagnosed, thus lowering their chances of recovery.

Reyes called for strategies to improve TB detection, diagnosis, and delivery of health care service among the urban poor. It is important to improve the country’s public health service as poor people tend to perceive the public health system as unreliable and of poor quality.

“Access to health services has a significant impact on the timeliness of TB diagnosis,” she said. PMGV

Study: High TB casesdue to delayed diagnosis

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sector for Catastrophic Illness Financing,” by research consultants Dr. Benito R. Reverente, Jr. and Dr. Noel R. Juban.

Key findings of the study showed that the private sector was already supplementing catastrophic illness financing through (1) premiums collected by PhilHealth based on salaries, which are the subsidies from the employed sector to the sponsored sector, (2) health and maintenance organizations (HMOs), and (3) self-insured companies. Still, private hospitals should provide Z benefit packages, the study recommended. There should be appropriate regulations for HMOs. The study also called for actuarial studies to provide accurate costing and incidence data for catastrophic illnesses.

A separate study indicated the need to better articulate public-private partnerships in health. Presenting the study titled “Assessing the feasibility of Public-Private Partnerships (PPP) in Health in the Philippines”, research consultant Joshua Young said the PPP framework, if correctly implemented, could result in significant developments in terms of access to health. But there are a number of concerns. For one, PPPs are perceived as privatization in disguise. Patients see the need to address gatekeeping and referral as this slows down the actual delivery of services. The concentration of hospitals in Metro Manila, the targets for PPP, could further increase the disparity in health services delivery. Also, there is lack of mutual trust between patient and stakeholders because of failed projects in the past.

Based on the team’s study, the Philippines’ bed-to-population ratio is at 1.04:1,000, which is just half of the World Health Organization’s recommendation. It would take PHP 350 billion to meet this standard. CSM

Competition policy neededin rice, transport sectors

A COMPETITION POLICY for the rice and passenger transport sectors is needed to encourage innovation and prevent cartels. This was stressed in a national reference group meeting organized by the Institute with the Consumer Unity and Trust Society (CUTS) International based in Jaipur, India, and the Action for Economic Reforms (AER) and attended by stakeholders.

Dr. Roehlano Briones, PIDS senior research fellow and Competition Reforms in Key Markets for Enhancing Social and Economic Welfare in Developing Countries (CREW) project director, stressed that a more flexible policy toward rice imports should be adopted. There is a competitive market structure for domestic rice production and marketing, but the rice import quota which is decided solely by the National Food Authority through the National Food Authority Council could facilitate a cartel-like behavior, the economist said.

Briones cited a study by Beulah de la Peña that a few big players are allowed to import a minimum of 2,000 metric tons and a maximum of 5,000 metric tons of rice under the current importation quota distribution. Small players should be allowed to import 10- or 20-ton container loads of rice to prevent rice supply monopoly by a few big players, he said. Moreover, quantitative restrictions on imports to support the country’s rice self-sufficiency objective must be repealed, Briones said.

“If quantitative restrictions were eliminated and rice imports were allowed to freely come in the country, total rice imports would have reached 3.68 million metric tons,” Briones said. “Such high level of imports would have brought down the retail price of rice to PHP 21.43 per kilogram and PHP 19.39 per kilogram at the wholesale level,” he added.

c p. 13

PIDS Senior Research Fellow Dr. Roehlano Briones says import restrictions jacked up retail prices of rice last year. (Photo: Phidel Vineles/PIDS)

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Guidelines for the Philippines to boost, sustaingrowth-facilitating foreign direct investment

Dan Steinbock*

FOREIGN DIRECT investment (FDI) has facilitated growth in several “growth miracles” in Asia. How could the Philippines benefit from similar facilitation?

In 2013, net FDI to the Philippines rose to USD 3.86 billion, 20 percent more than the amount in the previous year. In mid-May 2014, Trade Secretary Gregory L. Domingo noted that FDI into the Philippines was anticipated to reach USD 4.6 billion this year. In the past few years, the country was one of the fastest-growing economies in Asia. But it has not been the region’s FDI engine. The question is: Why? And what could be done about it?

Subdued global FDI flows Before the global financial crisis, FDI inflows worldwide peaked at more than USD 2 trillion in 2007. After a drastic plunge and subsequent fluctuations, global FDI inflows stood at USD 1.4 trillion in 2012. Observers have anticipated a gradual rebound to almost USD 1.8 trillion around 2012-2015. These forecasts presume a return to “business as usual”. In view of realities—lingering growth in the United States, stagnation in Europe, and fiscal consolidation in Japan— that seems optimistic. By

2012, the FDI inflows into developing economies surpassed, for the first time, those of the developed economies. In Asia, FDI stocks grew slowly until the 1990s but have soared since the early 2000s, after China’s membership in the World Trade Organization. However, there is great variation within Asia between countries.

‘Asianization’ of FDI Recently, the momentum of global FDI has increasingly been emanating from Asia. It has been a game of three groups of countries—whether the focus is on FDI stocks, which illustrate historical trends, or FDI flows, which describe current realities.

Sino tigers and China. In 2012, Hong Kong, China, and Singapore accounted for more than 70 percent of FDI stocks in East and Southeast Asia. However, FDI flows

to China amounted to USD 121 billion, whereas those in Hong Kong plunged by almost USD 20 billion, to USD 75 billion, as against Singapore’s USD 57 billion. While Hong Kong’s relative importance to China is on the decline, China’s first- and second-tier megacities are attracting increasing services FDI, whereas manufacturing FDI is moving toward inland and the West.

South Korea and ASEAN tigers. Another group comprises Korea and the Association of Southeast Asian Nations (ASEAN) tigers, particularly Indonesia, Thailand, and Malaysia. In particular, FDI stocks in Indonesia have accelerated dramatically since the global recession and the country has surpassed FDI into both Thailand and Korea, respectively.

Emerging ASEAN. The third group includes Viet Nam, Taiwan, Philippines, Macau, Brunei, Myanmar, Cambodia, and Lao PDR. FDI in Myanmar has soared, thanks to the new reform initiatives. Among the remaining nations, FDI in Viet Nam has surpassed that in Taiwan, while FDI in the Philippines has a potential to grow a lot more in the future.

Challenging FDI legacy In the mid-1990s, amid the Fidel Ramos years, FDI as a percentage of gross domestic product (GDP) was still 8.2 percent in the Philippines—not much behind that of Indonesia or Thailand, but

* In addition to his advisory activities, Dr. Dan Steinbock is the research director of international business at the India, China and America Institute based in the United States and a visiting fellow at the Shanghai Institutes for International Studies (China) and EU Centre (Singapore). For more, see http://www.differencegroup.net. c p. 14

Steinbock

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PASCN holds symposium and general assembly,joins China meeting of APEC study centers

A “technology-explicit” development agenda is needed to increase productivity and foster inclusive growth, according to one of the country’s top scientists.

Dr. William Padolina, president of the National Academy of Science and Technology and member of the Institute’s board of trustees, made the call in his keynote address during the annual Symposium and General Assembly of the Philippine APEC Study Center Network (PASCN), the local research network focused on the Asia-Pacific Economic Cooperation (APEC) agenda. The Institute serves as the PASCN secretariat.

Central Luzon State University (CLSU) hosted the symposium and general assembly, the 18th since PASCN’s establishment in 1995, last June 5 at its campus in the Science City of Muñoz, Nueva Ecija.

Padolina said science and technology (S&T) would be able to provide tools and methods to make the country productive, adding that “The experience of many countries shows that economic development is not achieved by increased infusion of labor and capital but by improving economic efficiency or productivity.”

He said S&T should be able to address seven areas: economic efficiency, trade facilitation, investment incentives, food security, human resource development, environmental protection, and disaster and hazard risk management.

“Science and technology competence provides the real base for innovation. It is scientific competence that is vital to keeping diseases out, in containing and eradicating incursions of diseases and in providing a sound basis for product standards development. As in any risk assessment, science and technology obviously have a key role in making sure that standards are appropriate, in making sure they are sound in theory and robust in practice,” Padolina said.

“It is therefore quite important that decisions are based on the most rigorous

scientific analysis and risk assessment. We need to develop a society that views science as a way of thinking that develops skills in objective thinking. That is, questioning, observing, formulating and testing explanations—rather than emotively reacting to new and different ideas and developments. Thus, in a highly competitive, globalizing economy, the scientist’s work is more important than ever,” he added.

The symposium featured three research studies by PASCN member-institutions as well as studies by CLSU researchers.

PIDS Senior Research Fellow Dr. Erlinda Medalla, PASCN director, opens the symposium at the Central Luzon State University in in the Science City of Muñoz, Nueva Ecija. In the general assembly that followed, PASCN members discussed plans for next year, when the country hosts the APEC meetings. (Photo: Necita Aquino/PIDS)

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Talking about the contribution of the knowledge economy to human development, Dr. Leonardo Lanzona, Jr., director of the Ateneo Center for Economic Research and Development, said there was a need to identify the role of educational institutions in effectively utilizing knowledge creation.

The impact of the knowledge economy manifests through a shift in the production function and an increase in the competitiveness of inputs, he said.

Dr. Jose Ramon Albert, PIDS senior research fellow, discussed the results of the 2009 Pilot Survey of Innovation Activities and said the determinants of innovation included knowledge management, firm size, and firm location. The survey results indicated a need to strengthen the policy framework for innovation, he said.

Gayline Manalang, assistant professor at the Department of Environment and Occupational Health at the University of the Philippines-Manila, presented the PhilSHIFT Project as an example of the use of science for inclusive growth and development.

PhilSHIFT studies the role of the circadian or biological clock on Filipinos’ physiology, behavior, and mental and physical performance. With 3,500 Filipino profiles so far, PhilSHIFT has noted a difference between the sleep characteristics of Metro Manila and nonurban cities, given the growth of contact centers and business process management.

CLSU professors and researchers Dr. Edgar Orden and Dr. Matilde Melicent Recto presented the state university’s latest research findings on goat-raising

and innovation in the community-based carabao dairy industry.

Qingdao meeting

PASCN is part of the APEC Study Centers Consortium (ASCC), a network of universities and research institutes in the 21 member-economies of the Asia-Pacific Economic Cooperation(APEC).

Each year, the consortium holds a meeting called the ASCC Conference (ASCCC) that provides an opportunity for academics and scholars to present their research and to identify areas for regional collaboration.

The 2014 annual meeting, which had the theme “Sharing New Opportunities for Asia-Pacific Partnership”, was held in

c p. 15

Former Science and Technology secretary William Padolina (center)

receives copies of new PIDS-PASCN publications from PIDS President Gilberto Llanto (right) at the RET

Amphitheater of Central Luzon State University. Looking on is CLSU

President Dr. Ruben C. Sevilleja (left). In his keynote speech, Padolina called for a technology-explicit development

agenda, saying S&T should be able to address seven areas: economic

efficiency, trade facilitation, investment incentives, food security, human

resource development, environmental protection, and disaster and hazard risk management. Padolina is the president

of the National Academy of Science and Technology and is a member of the

board of trustees of PIDS.(Photo: Necita Aquino/PIDS)

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‘AEC opportunities must be seized, not feared’

ASEAN ECONOMIC Integration (AEC) offers immense business opportunities that both the government and the private sector must exploit to fully benefit from its advantages.

This was underscored in a regional forum on the ASEAN Economic Community organized by the National Economic and Development Authority (NEDA) Regional Office 9 last May 27 with the participation of the Institute and the Department of Trade and Industry (DTI) regional office in Zamboanga City.

PIDS Senior Research Fellow Erlinda Medalla stressed the need to do more to take advantage of the opportunities from AEC. The AEC does not only reduce tariffs but also promote trade facilitation. It commits the country to implement reforms on customs modernization and the establishment of a national single window and an ASEAN Single Window, she said.

“The national single window is a single submission and accelerated processing of applications of licenses, permits, and other authorizations required prior to undertaking a trade transaction, while the ASEAN Single Window is a regional initiative that integrates the national single windows of ASEAN countries,” Medalla explained.

Medalla has been pushing for the implementation of a national single window to speed up data processing and cargo clearance procedures. “This would have positive impact on the cost of doing business, not just for large industries, but more importantly for micro, small, and medium enterprises,” she said.

The international trade expert added that the country should step up in educating and informing the public about the benefits of the coming integration.

“There is a need for greater information and education campaign to help small and medium enterprises get linked to the supply chain and receive support from all sectors. An agro-industry roadmap would also be a great help,” she said.

DTI Assistant Secretary for Industry Development and Trade Policy Ceferino Rodolfo said that in 2010, duties for 98.63 percent of Philippine products were brought down to zero. All duties have been eliminated for agricultural and industrial products except for live swine, live chicken, meat of swine, meat of chicken, cassava, sweet potatoes, maize, rice, and sugar, he said.

Senen Perlada, director of the Export Marketing Bureau of DTI, said vast trading opportunities would come with ASEAN economic integration. “We should not limit our markets only to 100 million Filipinos considering that ASEAN has a combined gross domestic product (GDP) of USD 2.4 trillion as of 2013. About 67 million households in the ASEAN are now part of the consuming class,” Perlada said.

Perlada cited as an example a firm in General Santos City that had shifted from exporting tuna to frozen smoked salmon. The firm imports zero-tariff salmon from New Zealand and then processes it for export to free trade agreement (FTA) partners.

Another example is Universal Robina Corporation’s C2 Green Tea. C2 is now

one of the largest in the Vietnamese bottled green tea market, Perlada said. “We should also take advantage of the Halal market,” he added.

The Philippines has an advantage in food, logistics, and banking services, Perlada also said. “The Philippines has to engage in free trade agreements to maintain its competitiveness and promote cross-border complementation,” the DTI official said.

Improving the quality of infrastructure in the Philippines was also a key topic in the regional forum. PIDS Senior Research Fellow Adoracion Navarro pointed out that the Philippines ranked the third lowest in overall quality of infrastructure in the ASEAN region based on the World Economic Forum’s Global Competitiveness Report 2013-2014.

Critical investments in airport infrastructure facilities and air navigation system are needed to address congestion in airport terminals, Navarro said. “NAIA 1 served 7.5 million passengers in 2012, but its capacity is only 5.5 million passengers,” she said.

Navarro emphasized the need to hike the country’s infrastructure spending to five percent of the GDP by 2016 to boost economic activity.

The AEC is envisioned in the 2007 AEC Blueprint as having four characteristics: (a) a single market and production base, (b) a highly competitive economic region, (c) a region of equitable economic development, and (d) a region fully integrated into the global economy. PMGV

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PIDS at Work

International Conference on Impact Evaluation

“Making Impact Evaluation Matter: Better Evidence for Effective Policies and Programmes”, an international conference being organized by the Asian Development Bank (ADB), International Initiative for Impact Evaluation (3ie), and Philippine Institute for Development Studies (PIDS), will take place on 3-5 September. It will be preceded by 2.5 days of preconference workshops on 1-3 September. All activities will be held in ADB. There will be five to six streams of preconference workshops and up to eight streams of parallel sessions, allowing for over 150 presentations. Speakers for the plenary sessions will include distinguished international figures from the field of impact evaluation.

Presentation and workshop proposals are invited on all aspects of impact evaluation, including findings, methods, and translation of evidence into policy.

• To download the Call for Papers, go to: http://impactevaluation2014.org/wp-content/uploads/2014/05/Call-for-Papers1.pdf

• The deadline for submission of proposals is 3 July 2014. Submissions should be made in MS Word format via email to [email protected].

It is mandatory to register online to take part in the conference—whether you are presenting or not. To register, go to http://impactevaluation2014.org/registration/. There is no registration fee for nationals of low- and middle-income countries who are currently employed by a government or local nongovernment agency (not an international agency) in a low- or middle-income country.

Bursaries (courtesy of USAID) are available for participants from low- and middle-income countries. A bursary will cover return economy airfare and hotel accommodation. All other expenses (ground transport, visa, meals outside the event) must be paid by the participant or their employer. Preference will be given to bursary applicants who have a paper or workshop accepted for the conference. For those in the Philippines, a limited number of bursaries are available for participants outside of Metro Manila.

More details about this event are available at http://impactevaluation2014.org/.

Competition. . . from p. 8

Last year, the retail price of rice shot up to PHP 36.28 in December from PHP 32.37 in June, he said. “It is equivalent to a 12-percent increase in just six months,” Briones noted.

Meanwhile, PIDS research consultant Debbie Gundaya discussed market inefficiency in the bus transport sector.“Market inefficiency manifests in too many operators and buses resulting in traffic congestion,” she said. There are 1,122 bus operators and 12,595 buses in Manila routes, she said.

The sector operates under a highly complicated regime where regulation and enforcement is shared by various agencies, resulting in implementation failures and regulatory capture, she said. “Colorum” or illegal buses ply the routes. “The ‘kabit’ system where a bus operator enters the market through an arrangement with an operator with an established franchise is also present,” she said.

In reaction to the recommendation to consolidate bus operations in Metro Manila, Senior Research Fellow Dr. Adoracion Navarro recommended that competitively tendered service contracts or concessions for defined routes be explored. Transport expert Rene Santiago said contracted trips made on predefined routes and headways should be the basis to pool revenues and pay bus operators.

The meeting is part of the three-year CREW project of PIDS, CUTS, and AER. It aims to assess the level of competition in the rice and transport sectors to generate broad-based support, especially from policymakers, for competition reforms. PMGV

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Investments. . . from p. 9

significantly below the Southeast Asian average (21.3%).

In the following decade and a half, while FDI in the Philippines rose slowly, it more than doubled in Indonesia and almost quadrupled in Thailand until it plunged globally during the financial crisis. By 2010-2012, the share of FDI as a percentage of GDP declined in the Philippines to 12.4 percent, which was half of that in Indonesia, barely a fourth of its counterpart in Thailand, and just a fifth of the regional average.

In the Aquino era, however, renewed growth has boosted FDI as well. Now, investors use a broad variety of indicators to review FDI opportunities, focusing on business environment, corruption, and competitiveness, among other things. In the most recent Global Competitiveness Index released by the World Economic Forum, the Philippines is ranked 59th. It has advanced almost 30 places since its lowest mark in 2009, and the trends are positive across most dimensions of the index, as evidenced by significant gains in institutions and corruption subindices. However, these improvements are coming from a very low base.

12 guidelines to boost and sustain foreign direct investment How should the Philippines seek to attract FDI?

1. President Aquino has rightly emphasized that “good governance is good economics.” That’s the first step.

2. The progress in the antigraft struggle has been encouraging, but not adequate. In the Corruption Perception Index released by Transparency International,

the Philippines is ranked 94th, far behind Malaysia (53rd), China (80th), even Sri Lanka (91st), and India (94th).

3. Infrastructure development needs sustained public/private partnerships to overcome the dire state of transport infrastructure, airports, and seaport facilities—as well as prevailing market rigidities, including the labor market.

4. The Philippines is ranked only 108th in the Doing Business indicators of the World Bank. Despite significant improvement in some areas (e.g., insolvency, credit), it has gotten worse in others (e.g., starting a business, construction permits). The country needs thriving small and medium enterprises and family enterprises, to increase job opportunities and reduce un- and under-employment.

5. It is vital to reinforce competitive efficiencies, which require renewed efforts to foster infrastructure, health equity, and primary education, as well as efficiencies in labor and goods markets.

6. But it is also critical to begin to pave the way for innovation-driven growth, which requires a major push in business sophistication and innovation, starting with the information and communication technology sector and manufacturing.

7. The administration hopes it can increase its FDI without changing the rules on foreign ownership stipulated in the 1987 Constitution. In an era of increasing global and regional integration, however, substantial increases in FDI do require significant revisions to the “60-40 rule”.

Attracting FDI the right way

FDI must be attracted in the right way and from the right countries. 8. In 2012, FDI flows to developed

economies declined by 32 percent (of which Europe alone accounted for two thirds). Since the bulk of FDI in the Philippines comes from a few maturing sources—the United Kingdom, Singapore, Hong Kong, and the United States—it is vital to consider alternative sources that have longer-term growth potential, including China.

Not all FDI is beneficial, but FDI that strengthens competitiveness in the future certainly is.

9. As a result, the objective should be to attract foreign investors with higher productivity. 10. The goal should be to improve the quality of the location in ways that benefit many companies and industries, not just one or two. Specific tariff exemptions, for instance, generate market distortions, whereas improved customs procedures enhance national competitiveness.

11. The point should be to develop “sticky” incentives that are tied to the location rather than to the investor. After all, broad improvements in the business environment contribute to increasing country attractiveness.

12. Finally, the focus should be on sustained investment rather than on transient one-time deals. If incentives are tied to the total size of the investment, including follow-on investments, they will be more beneficial to the country.

In the near future, the rivalry for FDI is about to become a lot tougher. Due to the impending integration of the Association of Southeast Asian Nations, complacency is not an option. It is time to tackle inconvenient FDI realities in the Philippines—for the sake of inclusive growth and prosperity.

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Research DigestsDiscussion Paper 2014-26Purchase or Lease of All-Purpose Vehicles for Government Officesby the Department of Budget and ManagementThis article compares the costs and benefits for the government of leasing vis-à-vis outright purchase of motor vehicles. It presents two methods through which public managers can estimate and assess the value of procuring motor vehicles either under lease payment or direct purchase. Using data from selected government agencies, the net present values generated suggest that outright purchase of low-end vehicles is preferable to leasing. For high-end models, leasing offers a more practical option.

Discussion Paper 2014-27Quick Response Funds and DRRM Resources in the Department of National Defense and Various Departmentsby Sonny N. Domingo

The study assesses the process of quick response fund allocation, administration, and implementation under various departments with cognizance of national disaster risk reduction management (DRRM) imperatives. It further touches on the inventory of the line agencies’ assets for disaster response and rehabilitation. It also looks into administration details that make up the processes of program planning, fund availment, and control within the departments of National Defense, Social Welfare, Public Works, Education, and Agriculture as well as how DRRM resources have complemented each other.

Discussion Paper 2014-28Study of Government Interventions for Employment Generation in the Private Sectorby Danilo C. Israel and Marife M. Ballesteros

The government has implemented Active Labor Market Programs or ALMPs as one of the strategies to improve the chances of getting jobs of those in disadvantaged sectors. The programs specifically targeted skilled, semi-skilled, and low-skilled workers in the community through infrastructure and non-infrastructure projects. Overall, ALMPs have been primarily adopted as stop-gap measures to address adverse effects of economic crises on employment.

Discussion Paper 2014-29Review and Assessment of Programs Offered by State Universities and Collegesby Rosario G. Manasan and Danileen Kristel Parel

State universities and colleges (SUCs) have always faced issues such as the quality of education, management and financial systems, and access, despite considerable funding support provided by the government. This study, which is an extension of a previous work to include all SUCs in the Philippines, aims to (i) review and assess the programs being offered by SUCs vis-à-vis their mandates, the courses being offered by other SUCs in the region, and the quality of graduates produced; and (ii) recommend courses of action to improve the relevance and quality of course offerings of the SUCs.

Qingdao, China, on May 11-12, as part of the Second Senior Officials Meeting (SOM2) and Related Meetings.

The conference was hosted by the APEC Study Center of Nankai University of China and was attended by more than 70 scholars from 18 APEC member-economies, including Papua New Guinea that sent delegates to the ASCCC for the first time, and representatives of the APEC and Pacific Economic Cooperation Council Secretariat.

The PASCN delegation in the ASCC conference consisted of PASCN Director and PIDS Senior Research Fellow Dr. Erlinda Medalla, who served as a session moderator; Dr. Tereso Tullao, Jr. professor at the Angelo King Institute for Business and Economics of De La Salle University in Manila; Dr. Sheila Siar, PIDS director for research information; and Ms. Melalyn Mantaring, supervising research specialist at the PASCN.

Dr. Tullao presented his paper on “Is labor signaling enough to address manpower mismatch?” while Dr. Siar discussed the “Prospects and challenges of brain gain under ASEAN integration” in her presentation.

In line with the Philippines’ hosting of the APEC meetings in 2015, the PASCN will be the host study center of the ASCC Conference 2015. During the business meeting that followed the annual conference, Dr. Medalla related to the APEC consortium that the conference will most probably take place in Boracay, Aklan, Philippines, where the SOM 2 and related meetings will also be held. The news generated a great deal of enthusiasm from the conference participants. FFS, SVS

PASCN. . . from p. 11

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DEVELOPMENT RESEARCH NEWS is a quarterly publication of the PHILIPPINE INSTITUTE FOR DEVELOPMENT STUDIES (PIDS). It highlights the findings and recommendations of PIDS research projects and important policy issues discussed during PIDS seminars. PIDS is a nonstock, nonprofit government research institution

engaged in long-term, policy-oriented research. This publication is part of the Institute's program to disseminate information to promote the use of research findings. The views and opinions expressed here are those of the authors and do not necessarily reflect those of the Institute. Inquiries regarding any of the studies contained in this publication, or any of the PIDS papers, as well as suggestions or comments are welcome. Please address all correspondence and inquiries to:

Research Information Staff Philippine Institute for Development Studies

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activities in the second quarter. Our banner story features the revival of the Philippine Services Coalition during the National Services Workshop held June 2 to 4. The coalition will study and advocate for reforms in the services sector, parts of which are said to have restrictive policies on investment. As experts pointed out during the workshop, liberalization is not tantamount to deregulation. At any rate, the revival of the services coalition should ensure that the crafting of a new strategy to maximize the potential of services—which account for more than half of the economy and jobs—would be in the country’s best interest.

We also feature the results of an impact evaluation of labor policies, in particular the minimum wage. The findings are

controversial and the recommendations call for minimum wage reforms given evidence of “deleterious” effects on the welfare of ordinary workers and small businesses. The recommendations of the team of researchers led by Dr. Vicente Paqueo include a 12-point program presenting alternatives to the decades-old menu of labor policies.

Another story tackles the need for reforms in rice and transport, as stressed during the national reference group meeting organized by the Institute and Consumer Unity and Trust Society or CUTS International, the India-based consumer advocacy and research organization.

This edition of the DRN also features the series of seminars under the Health Systems Research Program aimed at improving the

DEVELOPMENTRESEARCH NEWS

Vol. XXXII No. 2

April - June 2014

ISSN 0115-9097

Editorial Board: Dr. Gilberto M. Llanto, President; Renee Ann Jolina C. Ajayi, Officer-in-Charge for Project Ser vices and Development; Dr. Sheila V. Siar, Director for Research Information; Ms. Andrea S. Agcaoili, Director for Operations and Finance; Atty. Roque A. Sorioso, Legal Consultant.

Staff: Sheila V. Siar, Editor-in-Chief; Felipe F. Salvosa II, Issue Editor; Claudette S. Malana, Phidel Marion G. Vineles, Writers; Felipe F. Salvosa II, Layout; Romero F. Lopez, Ma. Gizelle G. Manuel, Jane C. Alcantara, Jose Ignacio O. Tenorio, Contributors; Rossana P. Cleofas, Exchange; Delia S. Romero, Gerald Jay S. Libiran, Necita Z. Aquino, and Michael A. Caturan, Circulation and Subscription.

Staff Box

Editor’s. . . from p. 1

capacity of the Department of Health and the Philippine Health Insurance Corp. to formulate, implement, and monitor health policies supportive of the government’s universal health care program. Another major story is this year’s symposium and general assembly of the Philippine APEC Study Center Network, which focused on attaining inclusive growth through science and technology.

Finally, we have a contribution from an eminent economist, Dr. Dan Steinbock, outlining the imperatives for the Philippines to boost investments.

We hope this edition of our widest-circulating publication contributes to the ongoing conversation on the best way forward for the economy and society.

Documents

Multisectoral coalition ditor’s otesthe Beaten Path and its Alternative” last April 3 at Romulo Hall of NEDA sa Makati Building. Paqueo, visiting research fellow at the Institute,