Asia's Choice

Social Costs of the Asian Crisis

H.E. Gloria Macapagal-Arroyo

Asia's Choice: Open Markets or Government Control?

Asia Society's 10th Annual Corporate Conference
Shangri-La Hotel, Makati City
February 24-26, 1999

It is indeed an honor to be here today to join Asia Society's conference on Asia's choice between open markets and government control. Given my experience and current responsibility, as Secretary of Social Welfare and Development concurrent with my position as Vice President of the Philippines, I shall be speaking on the social costs of the Asian crisis in the Philippine context.

Before I do so, however, let me commend the Asia Society for coming to Manila. For nearly half a century, no other institution has worked harder than the Asia Society to foster greater understanding among the peoples of the Asia-Pacific region and America. I have had the chance to speak before the Society in New York and to attend other meetings in other cities, but your permanent presence in Manila is certainly a welcome development. I wish to congratulate Ambassador Nicolas Platt, an expert on Asian affairs and a friend of the Philippines, for this initiative.

Institutions like the Asia Society have shown us how small our world has become and how interconnected we all are. Asia's current economic downturn points to the reality of complex interdependence. Although the crisis has not hit the Philippines as badly as some of our Asian neighbors, we have experienced its reverberations. Thus it is imperative for all of us to assess this crisis and its broad social implications.

Asian crisis or no Asian crisis, the long-term challenge for the Philippines is the eradication of poverty. Towards this end, in the years immediately prior to the crisis, the Philippine economy had been succeeding in improving health, education and nutrition. Poverty incidence had likewise been declining in the country as a whole and in 13 out of 15 regions, especially in Region 1 or the Ilocos region. The human development index for the Philippines had also been improving.

Nonetheless, even prior to the crisis, the general decline in poverty incidence was not matched by a similar improvement in the distribution of income. The top 20 percent of the population continued to control more than fifty percent of total income, and some 4.6 million households were estimated to be below the poverty line as of 1997. This represented an increase in the absolute number of poor families despite the drop in rural poverty incidence during the immediate pre-crisis period.

The socio-economic challenge of eradicating poverty was further compounded by the Asian currency crisis and by the incidences of drought and floods caused by the El Nino and La Nina phenomena which have affected several agricultural areas outside the National Capital region. The growth of the Philippine economy significantly slowed down due to the combined assault of these financial and meteorological crises.

The current slowdown led to dislocations in various sectors, resulting in unemployment, lower wages and lesser real incomes, less food on the table, less funds for education and health care and more limited access to the basic necessities of life. The number of establishments and workers affected by closures and retrenchments increased and the financial crisis resulted in a constrained fiscal environment leading to substantial budget reductions for social services.

Of the establishments that resorted to closure due to the Asian crisis, the service sector was dealt the heaviest blow. It accounted for 55 percent of the closures, followed by the manufacturing sector which accounted for 35 percent. A majority of these firms were small enterprises employing less than 20 workers.

The international labor market is also down, affecting the number of deployed overseas Filipino workers, which declined by 23.4 percent during the first year of the crisis.

For the government, the Asian slump has meant less resources, less revenues and a reduced capacity to deliver vital social services. In response to the crisis, growth targets were scaled down and belt-tightening measures were adapted. The Asian crisis is expected to continue to influence the social expenditure program, first, through the inflationary pressures and peso devaluation, tending to lower the purchasing power of social sector budgets and increase the costs of social services; and second, through budget cuts. The cuts in government expenditures and the delays in their releases have affected the social service sector.

In the years preceding the Asian crisis, there had been a steady increase in the resources allocated for the social sector. In 1997 social services enjoyed a one-third share in the national expenditure program, up from less than one-fourth in 1993. Government expenditures for human development priorities also increased, from P46 billion in 1995 to P66 billion in 1997. Budget data for 1993 and 1994 show a dramatic increase in the social service expenditures in nominal terms at the level of local governments, although much of this increase was augmentation from the national government agencies, namely the Department of Health and the Department of Social Welfare and Development, to the local government units.

But despite the increasing share of social services, the resource flow is still a distance away from the proposed international norms. For instance, the social allocation ration in 1997 was only 23 percent, just a little over half of the UNDP norm of 40 percent. The share of priority human development concerns in the total budget falls short of meeting the 20:20 initiative of the World Summit for Social Development. The 20:20 initiative calls on interested and developing countries to allocate at least 20 percent of the national budget and 20 percent of official development assistance to human development priorities.

In early 1998, in order to avert contagion from the Asian crisis, government imposed a 25 percent mandatory saving on agency budgets as one of the measures to control the fiscal deficit. By mid-1998, a partial lifting of the mandatory savings was allowed in the social service sector. However, the cash flow resulting from these changes has been very slow such that the implementation of critical programs and projects has been much delayed. These delays continue to threaten the quantitative and qualitative gains made in social development in a number of ways.

For instance, the delays in releases led to a reduction of new classrooms by 2,500 units affecting 143,000 elementary and secondary public school students. New desks were reduced by almost 60,000 units affecting more than 100,000 students, and more than 1,000 pre-elementary school classes lost access to instruction materials.

In the 1999 budget there are no provisions for new teacher items while provisions for textbooks have been reduced. Textbook costs have tripled such that the textbook-to-pupil ratio has deteriorated to 1:8 in the secondary level.

In the health sector, the reduction in the coverage of programs and services is estimated to translate to an additional 1.8 million people getting infected with tuberculosis and 100,000 more cases of schistosomiasis. An additional 436,000 children may not receive the recommended allowances of Vitamin A. Among the women, an additional 700,000 are receiving insufficient doses of iodine while an additional 160,000 pregnant women lack the requirements for iron.

The social welfare sector likewise suffers as programs for foster care, skills training and rehabilitation are reduced. In the Family First project which delivers foster care to children with special needs, 430 families will be deprived of basic services. The project will also have 1,000 less volunteers. More than 3,000 women will be deprived of skills training opportunities and income-generating projects. About 30,000 persons with disabilities and older persons will be deprived of assistance. The poverty mapping projects will cover 42 less barangays. Also, social workers will have reduced access to much-needed skills-enhancement training.

Pro-poor and Pro-market Platform

Given the high social costs ensuing from the Asian crisis, the Estrada administration has been emphatic in its pursuit of a pro-poor market-friendly platform.

This pro-poor market-friendly policy choice made by the Philippines carries with it several major challenges that need to be addressed especially during the continuing period of the Asian crisis.

The present gains need to be preserved and built on. This means strengthening policies that address the complexities of social development, in a policy environment that must be further strengthened and made more conducive to sustainable human development. It means pursuing pending legislation that will support and advance social development and keeping resources for human development at sufficient levels. A broader mix of development partners will also have to be enjoined, particularly civil society and the private sector.

The government must continue to target and provide the vulnerable and disadvantaged groups with preferential access to services and opportunities. This preferential access comprises what we call the social safety nets.

The most important safety net is keeping rice within the affordable reach of the masses. This requires a massive food security program which represents the most important economic goal of the Estrada administration. This entails not only agricultural productivity but also massive improvements in transportation and distribution.

Evaluators of the Philippine social development program cite that its most effective safety net has been the program called the Comprehensive and Integrated Delivery of Social Services, a target-specific safety net which seeks to supplement the efforts of the poorest communities in meeting their minimum basic needs. In the 1,200 barangays where this program exists there has been a 40 percent reduction in poverty. The challenge is to expand this program to all the fifth and sixth class municipalities of the country as well as the urban poor communities.

The social sector must be up to the task of keeping in step with the trends and dynamics of local and international developments.

Finally, the government is now compelled to rationalize its resource allocation. Options include scaling down of the operations of some government owned and controlled corporations over time, minimizing losses arising from regressive subsidies by implementing full-cost pricing, expansion of community- and home-based delivery systems particularly in health and education to reduce the cost of public hospitals and schools, and using low-cost alternatives in basic social service delivery like tapping the large network of volunteers to fill in the served gap left by line agencies.

In this last option, the role of corporations and international organizations in addressing burgeoning social needs is crucial. The private sector is an effective ally and partner of government in the delivery of social services especially to the most vulnerable and disadvantaged sectors. It performs this important role either by assisting social welfare agencies financially or by direct service delivery to the poor and the needy through their own social welfare projects and relief activities. For instance, the Corporate Disaster Network relieves much of the burden of the government disaster management agencies. The Ayala Foundation and the Consuelo Zobel Alger Foundation support centers and institutions that take care of children and persons with disabilities. The ABS-CBN Foundation is at the forefront of child protection. The Philippine Long Distance Telephone Company generously supports projects for the homeless. International organizations, too, are increasing their social expenditure portfolios. The World Bank social expenditure program is a case in point, as well as its $59 million Early Childhood Development Program in partnership with the Asian Development Bank and UNICEF. There is also the new Australian Aid program for vulnerable groups. I must also take note of international non-government organizations like the Community and Family Services International in which Mrs. Sheila Platt, the wife of the President of the Asia Society, is a most devoted hands-on leader whose latest assistance to the social welfare community in our country is the human resource development component of the work against child abuse and exploitation.

Conclusion

Our efforts to eradicate poverty have begun anew. What has become increasingly clear is that those of us in the government sector must join hands with the private sector to ensure social progress. In the event of an economic downturn, we must be prepared to cushion the blow that is felt by the poorer sectors of our society. In the long-term we must consolidate various government programs to eradicate poverty and strive to improve the targeting of such programs. There must also be a rationalization of resource allocation even as we reaffirm that all this will be done in the context of an open-market policy. Though there is still a long and winding road to trek, we are indeed forging ahead. And so, Asian crisis or no Asian crisis, we must all strive for the improvements of the quality of life for all our citizens. We must do this not only in the name of progress but also in the name of humanity.

Thank you and good day to all.