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Philippines
>> Regional Overview >> Philippines Overview ACTIVITY DATA SHEET
PROGRAM: Philippines
TITLE AND NUMBER: Investment Climate Less Constrained by Corruption and Poor Governance,* 492-002
STATUS: Continuing
PLANNED FY 2001 OBLIGATION AND FUNDING SOURCES: $6,405,000 DA; $3,986,000 ESF
PROPOSED FY 2002 OBLIGATION AND FUNDING SOURCES: $5,892,000 DA; $8,000,000 ESF
INITIAL OBLIGATION: FY 1995 ESTIMATED COMPLETION DATE: FY 2004Summary: USAID's goal for this activity is to create jobs and reduce poverty in the Philippines by reducing the constraints on investment caused by corruption and poor governance, including the barriers to competition that inhibit domestic and international investment. The activity will increase transparency and accountability in the Philippine economy, provide incentives for expansion of critical infrastructure services, and increase the country's competitiveness in international trade. Armed conflict on Mindanao is also a factor in constraining the Philippines investment climate. This activity will continue USAID's support for the economic development of Mindanao as a complement to USAID's objective 492-010 aimed at promoting peace on Mindanao.
USAID is helping to increase transparency and accountability in the Philippines by means of an anticorruption program in high priority areas such as tax collection; customs valuation; reform of government budgeting and procurement; strengthening oversight of the banking sector; capital markets and microfinance institutions; and promoting institutional development in the securities markets. To provide incentives for expansion of infrastructure services, USAID is helping to break up monopolies and promote reforms in infrastructure contracting and implementation. To increase Philippine competitiveness in international trade, USAID is promoting reduction of tariffs and other barriers to trade such as WTO non-compliance, as well as increased competition in domestic industries such as transportation and communications. In support of these aims, USAID, in partnership with local governments and civil society, is implementing activities in policy advocacy, reform, and implementation oversight and monitoring. The overall program contributes directly to the Agency's economic growth objectives, and to the following FY 2001-2003 U.S. Mission Performance Plan goals: (a) maintaining Philippine support for expanding its trade and investment regime; (b) increasing U.S. exports and investments; (c) promoting economic development that fosters equitable growth and increased economic opportunity; (d) strengthening constitutional democracy and enhancing the Philippines' role as the region's hub for the promotion of democracy and human rights; and (e) fostering ties to the Philippine government and civil society that provide access to information and can exert influence to promote U.S. interests.
Key Results: Two new indicators were adopted in March 2000. The domestic tax revenue indicator replaced the total tax revenue indicator. The new indicator reflects a specific focus on the problem of income tax collection, given that revenues from trade taxes have declined due to tariff reforms. The employment indicator replaced the trade openness indicator, as the latter duplicated the effective protection rate indicator. The employment indicator will measure the economic and social impact of effective policy reform on the creation of productive jobs.
As demonstrated by these indicators, performance in 2000 continued the pattern of the previous year. While trade protection continued to shrink as projected, inadequate implementation of reforms and existing policies, along with a major political crisis, adversely affected all other economic indicators. Gross capital formation slowed from 21.1% to 20.4% of GDP due to a decline in construction, especially public construction, as the government battled an increasing budget deficit. The slow recovery of the economy and continued deterioration in tax administration had a significant impact on corporate tax revenues, resulting in a reduction in the domestic tax effort from 11.6% to 10.7% of GDP. The bleak economic outlook severely affected the industrial sector and employment growth, which turned negative for both sexes. Males were hit harder, with a 1.2% reduction in formal-sector jobs, while females suffered a reduction of 0.8%.
Performance and Prospects: Despite the weak economic results, the breadth and depth of USAID-supported policy reforms in the year 2000 were impressive, especially considering that such exceptional events as the impeachment trial of then-President Estrada interrupted the Philippine legislature's work on reform bills.
In the early 1990s, the Philippines achieved political and economic stability and entered a sustained period of economic reform emphasizing trade liberalization and increased domestic competition. Although Philippine economic growth continued to lag behind that of its neighbors, the incidence of poverty fell by approximately 1% of the population per year between 1991 and 1997. The Asian financial crisis and the El Niņo phenomenon in 1997-99 brought a pause in Philippine growth that was extended by the country's heightened governance problems in 1999 and 2000. Charges of corruption and poor governance focused especially on financial markets, government procurement, and tax administration. As a result of widespread dissatisfaction, a new GOP Administration under President Macapagal-Arroyo came to office in January 2001. The new Administration offers improved prospects for combating corruption, attracting investment, and reducing the incidence of poverty.
USAID's 2000 program increasingly emphasized economic governance, including enforcement of regulatory policies. With USAID support, a new securities regulation code was signed into law in 2000 to better regulate the abuse-plagued stock exchange. USAID expanded its assistance for banking supervision and helped the GOP formulate a supervisory framework to make deposit-taking cooperatives more sustainable, thus increasing microenterprise access to the formal financial sector. As responsibility for managing bankruptcy cases was transferred to the courts in 2000, USAID assisted in drafting judicial guidelines pending congressional action on a new Corporate Recovery Act (also drafted with USAID assistance). In support of policy reform, USAID has encouraged civil society organizations to advocate for transparency and accountability in government and for overseeing performance of government procurement and service provision.
To increase fiscal transparency, USAID continued to lead a multi-donor effort encouraging the GOP to restructure the problem-plagued Bureau of Internal Revenue. USAID also assisted in computerization of value-added tax returns and creation of income-tax databases to improve tax policy analysis and to better target improvements in tax administration.
To address policy enforcement problems, USAID initiated support to the judicial sector in reviewing legal doctrines affecting commercial law and economic regulation. In addition, USAID supported the use of alternative dispute resolution systems to reduce the backlog of cases hampering the judiciary's efficiency.
To encourage provision of critical infrastructure services, USAID assisted in reforms to break up infrastructure monopolies, particularly in civil aviation and ports. Results included helping preserve Philippine-Taiwan air services agreements and progress in adopting airline competition rules. An Executive Order that would have contracted out management of the country's largest port on a non-competitive basis was stopped, and a commitment to transparent, open bidding was elicited. Finally, a road user charge and road maintenance fund was designed with USAID's support, and was passed by the Congress in 2000. This laid the groundwork for competitive private participation in road maintenance.
The dynamic information and communications technology (ICT) sector holds tremendous promise in the Philippines. USAID was instrumental in the adoption of an electronic commerce law in 2000, which for the first time recognizes the legality of electronic transactions and criminalizes computer hacking. To ensure openness and competition in the ICT sector, USAID assisted the National Telecommunications Commission in issuing revised rules on interconnection between carriers, and in conducting an in-depth technical analysis of inter-firm pricing.
In a signal success for competition, USAID played a major role in passage of a law in 2000 that opened retail trade to foreign investment for the first time in almost 50 years. Also to increase openness and competition, USAID continued to support compliance with WTO commitments. With USAID support, the Bureau of Customs successfully implemented the customs import valuation system, and advocated related legislative changes, which passed Congress in February 2001. USAID supported the revision of the GOP's tariff schedule in 2000; use of the harmonized system in the generation of and dissemination of foreign trade statistics; implementation of intellectual property rights legislation; and analysis and advocacy for global competitiveness.
Anticorruption and Improved Governance: In FY 2001 USAID will devote $3.986 million ESF and $3.65 million DA to this activity, which is a special focus of FY 2001 ESF resources. Beginning in 2001, at both the national and local levels, this activity will focus on transparency, accountability, and anticorruption initiatives, particularly on expenditure management, transparent budgeting, procurement reform, revenue generation, tax and customs management, accounting and audit reform, regulatory strengthening, and commercial law. Special activities will include efforts to build constituencies for reform in civil society for purposes of advocacy, monitoring, and oversight of reforms. To ensure that reforms are adequately enforced, USAID will target assistance to the judicial sector, including training in commercial law and reforms that unclog court dockets. This emphasis also encompasses the competition and regulatory barriers to development of the major infrastructure required to attract investment, as well as WTO issues that hinder international trade.
The program also continues USAID's support for economic development in Mindanao, in conjunction with USAID's objective 492-010 of strengthening the prospects for peace between the GOP and Muslim rebels on that island. Activities include strengthening the policy advocacy capabilities of business support organizations in Mindanao and improving production and marketing of tradable crops. About $2.75 million in FY 2001 DA resources will be used to support these Mindanao-specific activities under this objective. Mindanao's transparency and accountability issues will be addressed by activities under the component described above.
Possible Adjustments to Plans: During the past year, USAID closed out a number of activities in order to concentrate its limited resources on policy and regulatory design and legislative drafting and advocacy. The recent change of government in the Philippines promises a more positive environment for addressing corruption and governance issues that impede economic growth, as the programs described above indicate.
Other Donor Programs: USAID plays a unique role in supporting the structural adjustment framework of the GOP and multilateral donors. In response to the Asian financial crisis, the Government of Japan, the International Monetary Fund (IMF), the World Bank and the Asian Development Bank (ADB) have provided large packages of support for the Philippines. USAID is the principal source of technical assistance for advocacy and implementation of the economic policy reforms targeted by this assistance. For example, USAID-supported resident advisors assist the Central Bank and the Department of Finance in managing World Bank funds for technical assistance on bank supervision and retirement pensions. USAID works with the IMF and the Bureau of Internal Revenue to improve tax administration, and is helping the ADB design and implement grain markets reform. USAID is also actively coordinating with both multilateral and bilateral donors on anti-corruption and governance efforts in areas such as procurement reform, judicial reform, and local government finance. USAID also supports private business and trade groups' contributions to the reform effort.
Principal Contractors, Grantees, or Agencies: USAID activities are implemented through contracts with Development Alternatives, Inc.; PricewaterhouseCoopers; the Inter-American Management Consultancy Corporation; the Barents Group; Chemonics; and Louis Berger International; through grants to The Asia Foundation and local non-governmental organizations; and through PASAs with the U.S. Customs Service and the U.S. Bureau of Census.
* Previously notified as A More Stable and Competitive Economy.
FY 2002 Performance Table
Philippines: 492-002
Performance Measures:
Indicator FY97 (Actual) FY98 (Actual) FY99 (Actual) FY00 (Actual) FY00 (Plan) FY01 (Plan) FY02 (Plan) Indicator 1: Private, formal-sector employment by gender: male 6.5 -0.1 3.7 -1.4 5.0 5.0 5.0 Indicator 2: Domestic tax effort 13.1 12.8 11.6 10.7 13.5 14.0 14.0 Indicator 3: Gross capital formation 26.3 22.2 21.1 20.4 28.0 30.0 30.0 Indicator 4: Private, formal-sector employment by gender: female 7.1 0 7.4 -0.8 5.0 5.0 5.0 Indicator 5: Level of trade protection 22.3 19.0 16.8 14.8 15.0 14.0 13.0 Indicator Information:
Indicator Level (S) or (IR) Unit of Measure Source Indicator Description Indicator 1: IR Growth in number of employees (%): male Integrated Survey of Households of the National Statistics Office; Department of Labor and Employment Annual percentage growth in private, formal employment. Each year's employment level is the average of the four calendar quarters of that year. Private, formal-sector employees correspond to the category of wage and salary workers in private households and establishments, excluding family-operated activities. "Establishments" employ about 90% of this total. Indicator 2: IR Ratio of domestic tax revenues to gross domestic product (%) Department of Finance; National Income Accounts from National Statistics Coordination Board Domestic tax revenues as a percent of GDP. Domestic tax revenues is equal to total tax revenues less import duties, import taxes and export taxes. Gross domestic product (GDP) is the market value of the final goods and services produced by factors of production located in the domestic economy. Indicator 3: IR Ratio of gross domestic capital formation to gross domestic product (%) National Income Accounts from National Statistics Coordination Board GDCF is investment in new capital stock consisting of gross additions to fixed assets and changes in stocks. Fixed capital formation consists of construction, durable equipment, and breeding stock and orchard development by enterprises, households, private non-profit institutions, and general government. Changes in stocks refer to the value of physical changes in raw materials, work in progress and finished goods held by enterprises and in government stockpiles. GDP is the market value of the final goods and services produced by factors of production located in the domestic economy. Indicator 4: IR Growth in number of employees (%): female Integrated Survey of Households of the National Statistics Office; Department of Labor and Employment Annual percentage growth in private, formal employment. Each year's employment level is the average of the four calendar quarters of that year. Private, formal-sector employees correspond to the category of wage and salary workers in private households and establishments, excluding family-operated activities. "Establishments" employ about 90% of this total. Indicator 5: IR Effective protection rate (EPR) Philippine Tariff Commission or USAID-commissioned study EPR is the increment in value-added made possible by the tariff structure as a proportion of free trade value-added (percent). It is a measure of the distortion in investment and production incentives caused by trade policies. U.S. Financing
(In thousands of dollars)
Obligations Expenditures Unliquidated Through September 30, 1999 11,996 DA 4,430 DA 7,566 DA 0 CSD 0 CSD 0 CSD 0 ESF 0 ESF 0 ESF 0 SEED 0 SEED 0 SEED 0 FSA 0 FSA 0 FSA 0 DFA 0 DFA 0 DFA 60,244 MAI 51,292 MAI 8,952 MAI 1,001 DCA 0 DCA 1,001 DCA Fiscal Year 2000 200 DA 610 DA 0 CSD 0 CSD 0 ESF 0 ESF 0 SEED 0 SEED 0 FSA 0 FSA 0 DFA 0 DFA 0 MAI 8,952 MAI 0 DCA 0 DCA Through September 30, 2000 12,196 DA 5,040 DA 7,156 DA 0 CSD 0 CSD 0 CSD 0 ESF 0 ESF 0 ESF 0 SEED 0 SEED 0 SEED 0 FSA 0 FSA 0 FSA 0 DFA 0 DFA 0 DFA 60,244 MAI 60,244 MAI 0 MAI 1,001 DCA 0 DCA 1,001 DCA Prior Year Unobligated Funds 0 DA 0 CSD 0 ESF 0 SEED 0 FSA 0 DFA 0 MAI 0 DCA Planned Fiscal Year 2001 NOA 6,405 DA 0 CSD 3,986 ESF 0 SEED 0 FSA 0 DFA 0 MAI 0 DCA Total Planned Fiscal Year 2001 6,405 DA 0 CSD 3,986 ESF 0 SEED 0 FSA 0 DFA 0 MAI 0 DCA Future Obligations Est. Total Cost Proposed Fiscal Year 2002 NOA 5,892 DA DA 32,493 DA 0 CSD 0 CSD 0 CSD 8,000 ESF 5,000 ESF 16,986 ESF 0 SEED 0 SEED 0 SEED 0 FSA 0 FSA 0 FSA 0 DFA 0 DFA 0 DFA 0 MAI 0 MAI 60,244 MAI 0 DCA 0 DCA 1,001 DCA
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Last Updated on: May 29, 2002 |
