Risks, Shocks, Building Resilience: Philippines

Gilberto M. Llanto

www.pids.gov.ph

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Philippine Institute for Development StudiesSurian sa mga Pag-aaral Pangkaunlaran ng Pilipinas

POLICY RESEARCH FORUM on Human Capital: Health, Education, and Building ResilienceUP Baguio, Baguio City

April 6, 2016

The bamboo that bends,

is stronger than the oak that resists.

-Japanese proverb

Outline of the Presentation

I. Risk landscape and interconnection of risks

II. Few Philippine studies on risks, disasters, and resilience

III. Building Resilient Systems• Response: systems-wide programs on climate change, but

inadequate

• Resilience thinking and a framework for building resilience

IV. Conclusion and recommendations

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Risk Landscape and Interconnection of Risks

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Risk landscape and interconnection of risks

Risks, Shocks and Resilience• Risks are interconnected and are constantly evolving.

• Globally, the rise of new and unexpected risks and shocks have impacted stable and poor societies alike, and some, especially the latter, have become increasingly dysfunctional.

• The Philippines is peculiarly challenged to build economic resilience as indicated by its high risk exposure and vulnerability.

• Building resilient systems is a very timely issue in view of experiences in the immediate past showing the vulnerabilities of both developed and developing countries to various risks and shocks when those risks occur

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Ex. 1: Food price crisis

GM LLANTO: PHILIPPINE ECONOMIC PROSPECTS 2016 AND BEYOND 7

Demand side Supply side

Long run

Growth, rising incomes in developing

countries, leading to increased

demand for meat, dairy products and

indirect demand for grains

Inadequate investments in research

and development, infrastructure,

extension services to increase

productivity

Effect of long-run trends: Demand

growth exceeding supply growth

= Declining stocks

Short run, emerging

Biofuels demand Rising energy, other costs

Short run, cyclical

Financial speculation? Adverse weather

Bad policies, including export

restrictions, hoarding and pre-

emptive buying, price controls,

untargeted subsidiesSource: Table 5.1 in Eliot, K. A. (2009), “US Biofuels Policy and the Global Food Price Crisis,” in Clapp and Cohen (2009)

Ex. 2: Pandemics and spread of infectious diseases• The spread of infectious diseases and profound social instability are consequences of water and food crises spread on a wide scale.

• Various threats of pandemic are always present:Three influenza pandemics (1918, 1957, and 1968)

Severe acute respiratory syndrome (2003)

H1N1 subtype of the influenza A virus (2009)

sporadic outbreaks of H5N1 influenza subtype

• Recent study led by the University of Cambridge identified 20 known infectious diseases, including dengue, chikungunya, typhoid, West Nile, artemisinin-resistant malaria, the plague, H1N1 Swine Flu, MERS-Cov and Ebola fever that have either re-emerged or spread geographically.

GM LLANTO: PHILIPPINE ECONOMIC PROSPECTS 2016 AND BEYOND 8

Ex. 3: Global warming and other interrelated crises

• Global warming concentrates harmful gases in the atmosphere

• Carbon dioxide causes ocean acidification, which makes it harder for small shellfish to form the calcium carbonite shells they need to grow –with implications rising up the food chain, threatening the availability of food from the seas, as well.

• Water crises impact least developed countries most significantly as about 70% of the world’s current freshwater withdrawals are used for agriculture, rising to over 90% in most of the world’s least-developed countries.

GM LLANTO: PHILIPPINE ECONOMIC PROSPECTS 2016 AND BEYOND 9

Ex. 4: Economic slowdown in China• Has sent ripple and knock-on effects on the global economy through linked commodities, imports, and real investment channels

• The fall in Chinese demand for commodities significantly impacts the growth prospects of commodity-exporting countries, and global growth. The ASEAN, a major trading partner of China is likewise negatively affected.

• As a defensive move, policymakers have looked at internal drivers of growth but limited domestic markets, expertise and capital could put a natural limit to domestically-driven growth.

GM LLANTO: PHILIPPINE ECONOMIC PROSPECTS 2016 AND BEYOND 10

Ex. 5: Falling oil prices across oil-exporting and remittance-dependent economies

• With declining oil revenues, oil-exporting economies draw down foreign reserves and are scrambling to borrow funds in order to continue with subsidies to a lifestyle that their respective citizens have viewed as an entitlement.

• Meanwhile, remittance-dependent economies are bracing themselves on the imminent return of skilled and semi-skilled laborers who would be looking for jobs, which are in short supply.

Challenge: Finding jobs for low-skilled workers whose work contracts with oil-exporting countries have ended and could not be renewed.

GM LLANTO: PHILIPPINE ECONOMIC PROSPECTS 2016 AND BEYOND 11

Top 5 Global Risks in Terms of Likelihood

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Top 5 Global Risks in Terms of Impact

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Definition of Terms

• ‘Exposure’ is defined as entities (population, conditions ofbuilt-up areas, infrastructure component, environmentalarea) being exposed to the impacts of one or more naturalhazards (earthquakes, cyclones, droughts, floods and sealevel rise).

• ‘Risk’ is the interaction between exposure to naturalhazards including the adverse effects of climate change andthe vulnerability of societies (World Risk Report 2014)

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Top 15 Countries Most Exposed and at Risk Worldwide

Country Exposure (%) Risk (%)

Vanuatu 63.66 36.5

Tonga 55.27 28.23

Philippines 52.46 (Top 3) 28.25 (Top 2)Japan 45.91 4

Costa Rica 42.61 5

Brunei Darussalam 41.1 6

Mauritius 37.35 7

Guatemala 36.3 8

El Salvador 32.6 9

Bangladesh 31.7 10

Chile 30.95 11

Netherlands 30.57 12

Solomon Islands 29.98 13

Fiji 27.71 14

Cambodia 27.65 15

Source: 2014 World Risk Report published by UNU-EHS

Most familiar risks and shocks: extreme weather events,natural disasters

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For the Philippines, developing resilient systems assumes

critical importance because it is impossible to insulate the

economy from interconnected risks and shocks, and more

importantly because of its vulnerability to natural disasters

arising from its geographical location.

Some Philippine studies on risks, disasters, resilience

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Philippine studies on risks, disasters, resilience (1)• Ballesteros and Domingo (2015) noted that there are sufficient legislative provisions to support proactive response to disaster events (both for businesses and communities); however, gaps in policy execution exists.

• Hughes and Hsiang (2015) identified post-disaster losses within Filipino households found that the year after the typhoon exposure: • Only female infants are at risk, sibling competition elevates risk, and

infants conceived after typhoon are also at risk;

• Excess mortality results from household decisions made while coping with post-disaster conditions’

• Typhoons account for 13% of the overall infant mortality rate in the Philippines.

Philippine studies on risks, disasters, resilience (2)• Pasadilla (1999) found that economic crises, not just naturalcatastrophes, are associated with increasing poverty incidence. Duringthe Asian Financial Crisis, the middle to high-income groups sufferedthe most due to a reduction in property prices and food inflation; andthis was especially evident during the earlier stages of the crisis.

• Reyes, Sobreviñas and de Jesus (2011) looked into the effects of the2007-2008 global financial and economic crisis on poverty in thePhilippines. In general, the impact of the crisis has been minimal.However, the crisis has afflicted different income groups through therelevant key transmission channels for the Philippines, namely, overseasemployment, OFW remittances, and local employment.Growth rate of OFW cash remittances slowed down despite its continued

increase during the crisis.Great number of OFWs working in the affected areas abroad were either

terminated / suffered fewer working hours.Workers that were either displaced, temporarily laid off, or given a flexible

work arrangement.

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Philippine studies on risks, disasters, resilience (3)• In times of crisis social capital may take a very important role in enabling communities to cope. Usamah et al. (2014) found that strong social relationship is key to the strong perception and level of resilience of the communities. A significant finding in the study is that vulnerability and resilience may exist concurrently.

• Ballesteros and Domingo (2015) highlighted the need for harmonized and strong cooperation among the public sector (both local and national governments), the private sector and the local communities to enhance business continuity and resiliency. Resilience of small and medium enterprises (SMEs) may be enhanced

through the following channels: 1. organizational capacity build-up;

2. policy and institutional support tackling socioeconomic drivers of risks in pre-disaster stage

3. prompt and sustained economic restoration and support in the aftermath of disaster.

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Philippine studies on risks, disasters, resilience (4)• Hudner and Kurtz (2015) tested whether access to formal financial products and provision of cash assistance would increase household’s resilience to future shocks:• savings among households is positively associated with greater

recovery from Yolanda.

• Savings and loans are positively related to families’ perceived ability to manage future shocks.

• Informal assistance from neighbors and formal government aid are also positively linked to households’ recovery.

• Livelihood diversification is not to greater resilience or recovery; it often occurs due to economic necessity.

Philippine studies on risks, disasters, resilience (5)• Vital and Laquindanum (2005) examined the implications ofasset price bubbles on approaches to monetary policy andfinancial stability. The authors emphasized that the bestprecautionary measure against price reversal is an environmentconducive to growth, which includes price stability and financialstability.

• Tuaño-Amador (2009) on how the Philippine economy remainedresilient during the Asian financial crisis, explained that thechallenges faced during the “external debt cum financial crisis”in the mid-1980s imparted very important lessons on both riskmanagement and crisis management to the policy makers andthe Bangko Sentral ng Pilipinas.

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Cost of natural disasters: agriculture

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Source: NCCAP 2011-2018, Climate Change Commission

Estimated agricultural damages from typhoons, July-December

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Source: NCCAP 2011-2018, Climate Change Commission

Damages in agriculture sector caused by tropical cyclones, 2005-2014

YearTotal Area

Affected (Ha)

Production Loss Cost of Damages to Properties

(PhP Million)Volume

(MT)Total

(PhP Million)2014 592,786 534,592 36,823 35,7212013 987,465 928,412 38,726 30,4852012 332,107 2,267,697 32,765 34,5222011 1,010,971 1,440,401 24,029 18,5112010 337,424 422,750 7,855 11,7602009 764,754 1,576,942 32,284 29,5912008 373,311 374,302 13,997 12,5502007 150,935 96,317 1,691 1,6672006 1,274,906 394,569 10,185 10,8542005 78,707 107,653 367 2,099

Source: OCD-NDRRMC

Number of tropical cyclones by category in the Philippine area of responsibility, 1998-2014

Year

Category

Tropical

Depression Tropical Storm Typhoon

Super

Typhoon Total

2000 5 5 8 18

2001 6 7 4 17

2002 5 2 6 13

2003 8 8 9 25

2004 5 7 13 25

2005 11 1 5 17

2006 3 6 11 20

2007 0 3 10 13

2008 4 6 11 21

2009 7 8 7 22

2010 1 5 5 11

2011 6 7 6 19

2012 1 9 7 17

2013 13 3 8 1 25

2014 6 2 7 15Notes: Tropical Depression - 45 to 61 kph, Tropical Storm - 62 to 117 kph, Typhoon - 118 to 239 kph, Super Typhoon - 240 kphSource: PAGASA , , http://www.typhoon2000.ph; and http://visitpinas.com/typhoon-watch-

Philippine most destructive tropical cyclones, 2009-2013

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Date Destructive

Tropical Cyclones

Casualties Affected Families

Affected Persons

Cost of Damages (In PHP Billion)

Affected Areas Regions

Agriculture

Sep-09 Ondoy 1,030 993,227 4,901,234 6.67NCR, CAR, I, II , III, IVA, IVB, V, VI, IX, XIII, ARMM

Sep-09 Pepeng 719 954,087 4,478,284 20.4NCR, CAR, I, III, V, VI

Oct-10 Juan 77 427,962 2,008,984 11.76NCR, CAR, I, II, III, IVA, IVB

Sep-11 Pedring 196 651,889 3,030,755 13.4NCR, CAR, I, II, III, IVA, IVB, V, VI

Dec-11 Sendong 7,520 131,618 698,882 18.51VI, VII, IX, X, XI, XIII, ARMM

Dec-12 Pablo 4,550 711,682 6,243,998 33.5IVB, VI, VII,VIII, IX, X, XI,XII, XIII, ARMM

Aug-13 Labuyo 21 87,579 395,723 1 I, II, III, V, CAR

Philippine most destructive tropical cyclones, 2013-2014

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Date Destructive

Tropical Cyclones

Casualties Affected Families

Affected Persons

Cost of Damages (In PHP Billion)

Affected Areas Regions

Agriculture

Aug-13 Maring 62 267,557 1,256,508 0.78NCR, I, III, IVA, and IVB

Oct-13 Santi 52 179,899 871,601 3.2IVA, IVB, V, VI, VII, VIII, X, XI, XIII

Nov-13 Yolanda 36,612 3,424,59316,078,18

125.3

IVA, IVB, V, VI, VII, VIII, X, XI, XIII

Jul-14 Glenda 1,361 1,024,251 4,653,716 33.8NCR, I, III, IVA, IVB,V, VI, VIII,

Sep-14Luis & Mario

43 553,457 2,483,226 3.62NCR, CAR, I, II, III, IVA, IVB,V, VI, VIII

Notes: Casualties consist of dead, injured and missing

Source: NDRRMC

Average Annual & Probable Maximum Losses for Natural Hazards in ASEAN Member States

Annual average direct

economic lossesLosses from 20-year events

Losses from 100-year

events

$ million % GDP

% annual

government

expenditure

$ million % GDP

% annual

government

expenditure

$ million % GDP

% annual

government

expenditure

Brunei

Darussalam0.4 0 0 - - - - - -

Cambodia 74.2 0.7 3.3 405.5 3.6 18.3 825.0 7.3 37.2

Indonesia 1,303.5 0.2 1 4,722.7 0.7 3.7 9,865.9 1.4 7.6

Lao PDR 52.3 0.7 3 342.6 4.6 19.3 875.3 11.7 49.4

Malaysia 174.6 0.1 0.2 953.8 0.4 1.3 2,332.7 1 3.2

Myanmar 184.8 0.9 8.2 - - - 9,078.7 45.2 405.1

Philippines 1,603 0.8 4.8 4,571 2.3 13.6 9,407 4.7 27.9Singapore 2.2 0 0 - 0 0 3.6 0 0

Thailand 255.6 0.1 0.3 1,000.0 0.3 1.3 2,222.6 0.7 3

Viet Nam 786.4 0.8 2.4 2,448.5 2.4 7.4 3,718.2 3.6 11.3

Source: World Bank and Global Facility for Disaster Reduction and Recovery. 2012a. Advancing disaster risk financing and insurance in ASEAN member states: Framework and options for implementation. Volume 1: Main report. Washington, DC.

Some Coping Mechanisms

• Coping with exogenous shocks takes many formsdepending on the nature of the shock, and on theinformation and knowledge of how best to cope with them.For example:1997 Asian Financial Crisis (i) regional economic cooperation

initiatives with a regional financing arrangement; (ii) the Philippines introduced prudential regulations along international standards and measures and increase transparency in financial market transaction; (iii) economic restructuring and financial reforms undertaken by ASEAN countries

Typhoon Yolanda in 2013 the Philippine government mobilized local and international resources to meet the difficult task of rehabilitation and recontruction; prepared a reconstruction plan dubbed Reconstruction Assistance on Yolanda (RAY)

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Building Resilient Systems

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Resilience and Vulnerability of Selected Asian Economies

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Economy Resilience Index Vulnerability Index

Singapore

Hong Kong, China

Japan

Malaysia

Thailand

Philippines

Sri Lanka

India

Nepal

Indonesia

Bangladesh

Pakistan

0.974

0.877

0.674

0.624

0.467

0.353

0.328

0.301

0.208

0.161

0.136

0.069

0.971

0.713

0.106

0.587

0.363

0.485

0.415

0.201

0.327

0.174

0.313

0.349Source: Briguglio, Cordina, Farrugia and Vella (2008)

Philippine response: systems-wide programs on climate change Mainstreaming Climate Change Adaptation and Mitigation Initiatives in Agriculture (AMIA)

Climate Information System (CIS)

Philippine Adaptation & Mitigation in Agriculture Knowledge Toolbox

Climate-Smart Agriculture Infrastructure

Financing and Risk Transfer Instruments on Climate Change

Climate-Smart Agriculture & Fisheries Regulation

Climate-Smart Agriculture Extension System

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Source: http://www.da.gov.ph/index.php/reports/climate-change/policy-and-implementation-program February 17, 2016

Need for resilience thinkingBut not just about natural disasters, extreme weather events

Need good understanding of risk landscape to build resilience

Resilience thinking

Need to understand what works, what doesn’t

Hence, this year’s DPRM theme

Framework for building resilience

Risks, Vulnerability, Resilience

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Source: Author’s modification of Figure 2 in Briguglio et al. (2008)

Conclusion and Recommendations

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Conclusions and Recommendations (1)•Policymakers should adopt resilence thinking in policy formulation.

•They need to understand the global risk landscape and what risks will likely impact the country and develop appropriate interventions.

•This is to say that such policies should be underpinned by policy analysis and research on resilience systems.

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•There is a need for a shared vision in the communities and in the larger polity about how to manage risks and shocks.

•Building economic resilience requires finding effective instruments, that is, policies and interventions to deal with different risks, shocks, for example, natural disasters, pandemics, financial crisis, and the traumatic effects of those shocks

• There is a need for more empirical studies on macroeconomic and microeconomic vulnerability and how systems resilience can be boosted and strengthened.

•The budget department should give a premium to evidence-based policy research.

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Conclusions and Recommendations (2)

References (1)• Ballesteros, M. and S. Domingo (2015) “Building Philippine SMEs resilience to natural disasters”,

Philippine Institute for Development Studies (PIDS) Discussion Paper Series No. 2015-20 (revised). Quezon City, Philippines: PIDS.

• Briguglio, L., G. Cordina, S. Bugeja and N. Farrugia (2006) “Conceptualizing and Measuring Economic Resilience,” Economics Department, University of Malata, January. Available from: https://www.researchgate.net/publication/229039198. Accessed 20 March 2016.

• Clapp, J. and M. Cohen (2009), “The Food Crisis and Global Governance,” in Clapp, J. and M. Cohen (editors), The Global Food Crisis: Governance Challenges and Opportunities. Ontario: The Centre for International Governance Innovation (CIGI)Wilfrid Laurier University Press.

• Hsu, S. (2015) “The Knock-On Effects of China’s Slowdown” http://thediplomat.com/2015/11/the-knock-on-effects-of-chinas-slowdown/ (accessed 23 February 2016).

• Hughes, J. and S. Hsiang (2013). “Destruction, disinvestment and death: economic and human losses following environmental disaster”, Available at Social Science Research Network: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2220501. Accessed 21 March 2016.

• Hudner, D. and Kurtz, J. (2015). “Do financial services build disaster resilience? Examining the determinants of recovery from typhoon Yolanda in the Philippines”, Mercy Corps Working Paper. Available from: http://www.mercycorps.org/sites/default/files/Philippines%20Resilience%20ToC%20Testing%20Report_Final_03.06.15.cm_.pdf. Accessed 4 April 2016.

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References (2)• Jannsen, N., Potjagailo, G. and M. Wolters (2016). “Monetary policy during financial crises: is the

transmission mechanism impaired?”, Centre for Economic Policy Research. Available from: http://www.cepr.org/sites/default/files/1856_WOLTERS%20-%20Monetary%20Policy%20during%20Financial%20Crises.pdf. Accessed 28 March 2016.

• Medalla, F. and K. Jandoc (2009). “Philippine GDP growth after the Asian financial crisis: resilient economy or weak statistical system?” In the E. Esguerra (ed.) UPSE and the PES, The Philippine Review of Economics. Volume XLVI No. 1. June 2009. Pp. 1-34.

• Meltzer, M., N. J. Cox, and K. Fukuda (1999) “The Economic Impact of Pandemic Influenza in the United States: Priorities for Intervention,” Emerging Infectious Diseases Vol. 5, No. 5, September October

• Ott, L. (2008) “The Economic Impact of an Influenza Pandemic on the United States,” Economic Information Newsletter, Federal Reserve Bank of St. Louis. https://research.stlouisfed.org/pageone-economics/uploads/newsletter/2008/200802.pdf (accessed 7 March 2016).

• Pasadilla, G. (1999). “Social impact of the Asian crisis in the Philippines: preliminary survey” Philippine APEC Study Center Network (PASCN) Discussion Paper No. 99-10. Makati City, Philippines: Philippine Institute for Development Studies.

• Reyes, C., Sobreviñas, A. and J. de Jesus (2011). “The impact of the global financial crisis on poverty in the Philippines” in Reyes, C. and M. Baris, Jr. (eds.), Monitoring the Impacts of the Global Crisis at the Community Level, Community-Based Monitoring System International Network. Manila, Philippines: De La Salle University.

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References (3)

• Tuaño-Amador, M. (2009). “Asian financial crisis of 1997-1998 and the Philippine economy: causes, consequences, and challenges”, in V., Valdepenas, Jr. (ed.) Central Banking in Challenging Times: the Philippine Experience. Manila City, Philippines: Bangko Sentral ng Pilipinas.

• Usamah, et al. (2014) “Can the vulnerable be resilient? Co-existence of vulnerability and disaster resilience: informal settlements in the Philippines” International Journal of Disaster Risk Reduction 10(2014), PP. 178-189. Accessed 21 March 2016. Available from http://dx.doi.org/10.1016/j.ijdrr.2014.08.007.

• Vital, O. and L. Laquindanum (2005). “Asset price bubbles: implications on, and approaches to, monetary policy and financial stability” The Philippine Review of Economics, Volume XLII, No. 1

• World Economic Forum (2016). “The global risks report - 11th edition”, WEF. Available from: http://www3.weforum.org/docs/GRR/WEF_GRR16.pdf. 3 April 2016.

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Philippine Institute for Development StudiesSuriansa mga Pag-aaralPangkaunlaranng Pilipinas

Service through policy research

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Thank You!