Press Releases Archived (May 2015)

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Looking at the lessons from the European Unions (EU) financial woes seems timely as member-states of the Association of Southeast Asian Nations (ASEAN) anticipate deeper regional economic integration with the ASEAN Economy Community. As EU and Greek leaders struggle with negotiations over finalizing Greek reforms, a seminar was organized by state think tank Philippine Institute for Development Studies (PIDS) on April 23, featuring Prof. Lino Briguglio of the University of Malta. Briguglio discussed the impact of the EU debt crisis and the Greek conundrum on the ASEAN regional and individual economies.

Briguglio believes, for the most part, that the EU crisis does not have grave implications for ASEAN economies. The region and its member-states, according to an Asian Development Bank paper he cited, "have the capacity to remain stable in the event that the prolonged crisis in the Eurozone should evolve into another global economic meltdown."

In particular, Briguglio is confident that the problem of slow growth, currently obstructing recovery in Greece and in the rest of Eurozone, will not prompt a recession in the ASEAN. Developing countries in the eastern part of the globe have shown a flexibility in the capacity to implement measures to boost growth. This flexibility is demonstrated by the debt-to-GDP ratio of ASEAN nations, which is not as high as their EU counterparts. In case of a severe downturn in EU trade and foreign direct investment, ASEAN nations will have the capacity to spend for stimulus programs, says Briguglio.

But as banking and finance industry experts in attendance shared their insights and questions in the open forum that followed, it became clear that understanding the way the Eurozone countries handled their finances prior to the crisis was just as important as predicting the crisis direct impact.

PIDS President Gilberto Llanto remarked that the situation seemed like an issue about governance" rooted in the problems of cooperation among member-countries and implementation of agreed rules on managing finances and ensuring Eurozone stability at the national levels. Other participants pointed out the element of varying economic structure among Eurozone nations, underscored by the decision in 2012 to strengthen the European Central Bank`s regulatory powers to oversee national budgeting, so as not to repeat the oversight over Greeces mishandling of their national finances. But, as noted by both Briguglio and Llanto, the solution comes down not to the ability, but to the willingness to follow and enforce the new rules.

Overall, these lessons prompt Philippine and ASEAN regional leaders to consider the limitations of an intricately economically integrated entity like the EU.

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Following the conclusion of the 3rd United Nations World Conference on Disaster Risk Reduction, hosted by Japan last March, the Philippine Institute for Development Studies (PIDS) offers relevant input on how the country`s decisionmakers can improve the Philippines` disaster risk reduction and response framework.

Drs. Marife M. Ballesteros and Sonny N. Domingo, research fellows at PIDS, argue that despite the fact that the Philippines has an elaborate framework for disaster risk reduction management (DRRM), there is a critical `gap in policy execution`. This gap leaves sectors like micro, small, and medium enterprises (MSMEs) to suffer crippling economic loses when disasters strike. The authors believe that the problem lies in a number of things, which can be summed up as the ineffective translation of the national framework into localized and sectoral plans.

Their discussion paper, titled Building Philippine MSMEs Resilience to Natural Disasters, reviewed the current policy environment and the best international practices, then offers strategies for localizing the DRRM framework and embedding its principles in the business sector.

The Philippines is the third most disaster-prone country in the world. According to a 2013 UNDP report cited by the authors, local businesses are crippled by disasters beyond recovery. MSMEs lose out the most, which is alarming because their continuity and resilience are vital to national development.

There are current laws and national development plans that appear relevant and conducive to encouraging MSMEs to create measures for business continuity and resilience. But the authors insist, `there is a need to review and translate national frameworks and development plans into workable subnational and sectoral plans.`

Localized strategies must specifically target business resiliency and cover context-specific vulnerabilities.
As it stands, MSMEs are less likely to avail of risk management tools provided by the government, primarily because they are often informal and noncompliant with industry norms and regulation. In post-disaster scenarios, MSMEs have little access to the available resources for recovery, forcing them to rely on informal loans, family loans, remittances, or to simply stop operating altogether.

There are weaknesses that are external to MSME control, such as the government`s uneven focus on prioritizing response capabilities, at the expense of prevention measures. This particular shortcoming also augments the issue that the current DRRM framework is `traditional`, in that it remains far too focused on household and individual recovery, and has yet to be translated specifically for the benefit of building economic resilience among the MSMEs.

Adding to the review of the DRRM policy framework, the authors reviewed the best international practices that the Philippines can replicate to develop business continuity plans and resilience. Some of these involved managing risks and building organization resilience to disaster and postdisaster response, recovery and rehabilitation, and regional cooperation for ensuring business continuity and supply chain resilience.

The authors specify policy and program recommendations that the government can use to help MSMEs approach its wanting disaster resilience on three fronts: `organization capacity build-up, policy and institutional support tacking socioeconomic drivers of risks in pre-disaster stage, and prompt and sustained economic restoration and support efforts in the aftermath of disaster`.

They also propose practical strategic options for preparing the business environment for before and after scenarios.

In the predisaster stage, the authors propose that the government, private sector, and MSMEs focus on strengthening supply chains by making predisaster agreements with relevant stakeholders. They also suggest that the government inform entrepreneurs of the hazards of their business locations and safety measures they can undertake, and to create `a culture of adaptive capacity among management and employees`, whereby everyone, through enhanced business networks, training, better work relationships, and other such means, becomes resilient to the interruptive impact of disasters.

After disasters, it is important to have the measures to enable businesses to recover and normalize immediately, but also to make it easier for them to rehabilitate their operation for the long term. Some of the ideas the authors proposed include the quick address of damages to public services and key infrastructures, humanitarian assistance and recovery workshops for the local workforce, the application of special grants of incentives for businesses to participate in clean-ups and repairs, tax reprieves, and access to specially-restructured loans and capital for rehabilitation.

The authors underscored the importance of cooperation among the government, private sector, and MSMEs because the losses do not stop with MSMEs. A production network involves many participants, with supply chains becoming increasingly more global. A break in the supply line sets back all of them. There must be collaborative commitment from the private sector, government, and the MSMEs themselves, to make economic activities resilient through all phases of disaster.

You may download the full study from this link: http://dirp3.pids.gov.ph/webportal/CDN/PUBLICATIONS/pidsdps1520.pdf

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State think tank Philippine Institute for Development Studies has recently announced the appointment of Dr. Adoracion Navarro, as the new Officer-in-Charge (OIC) of the Office of the Vice President. She takes over from Dr. Rafaelita Aldaba who is on secondment to the Department of Trade and Industry as Assistant Secretary for Industry Development.

In 2013, Navarro was recognized as one of the 40 Under 40 Leaders in International Development by DevEx, the world`s largest international development, global health, and humanitarian aid community. Navarro was cited by DevEx for concept papers she wrote calling for a more logical allocation of grants and subsidies in the water supply and sanitation sector and the use of prioritization criteria based on poverty, incidence of water-borne diseases and water service coverage. In addition, a paper she wrote in 2011 defined the tourism-logistics-transportation convergence areas. She argued for the use of these defined areas in harmonizing national and secondary road transport investments.

Navarro is a seasoned policy researcher in the analysis of infrastructure policies and projects with more than 17 years of research work focused on the water, energy, transportation and communications sectors. Dr. Navarro is concurrently a senior research fellow at PIDS conducting macroeconomic and infrastructure policy studies. Her expertise is sought after by other institutions in the country by chairing various committees namely: the Review, Evaluation and Dissemination Committee of the Philippine APEC Study Center Network, a network of Philippine research institutes focused on APEC studies and the Task Force to Study Ways to Reduce the Price of Electricity, a multi-sectoral task force set up by the Department of Energy.

Navarro obtained her Ph.D. in Economics from the University of the Philippines-Diliman through scholarship grants from the Philippine Center for Economic Development and the UP Graduate Trust Fund and her Master of Public Administration (Economic Policy Management) from Columbia University-New York through a World Bank scholarship.

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The Philippines can expect a lot of positive growth for the next 24 months. State think tank Philippine Institute for Development Studies (PIDS) OIC-Vice President Dr. Adoracion Navarro and Philippine Stock Exchange (PSE) President and Chief Executive Officer Hans Sicat came to this optimistic conclusion at the PIDS Philippine Business and Economic Outlook seminar held on May 19 in Makati City. Both agreed, however, that the risk of overlooking important opportunities remain if both the government and the private sector fail to address the challenges and issues hindering a truly inclusive growth.

Sicat said the PSE is anticipating a `robust` 24 months ahead, in terms of infrastructure build, consumer spending, and in particular, the financial sector.

In the same positive vein, Navarro posited a 6.8-percent growth for the national economy for 2015.

Performance

Sicat painted an image of accomplishments and ripe growth opportunities ahead for the Philippine financial sector.

`Were trading around 11 billion pesos on any given day. It means that the market is growing faster.`

Upon measuring the behavior of publicly listed firms and their ability to generate revenues and net income for the past three years, figures reveal that publicly listed firms have grown faster than the economy since 2011. This means, assuming the belief that stock markets significantly represent the growth of the economy, the financial market has outperformed the growth numbers of the real economy.

Sicat considered the level of participation of the market plays relative to the size of the economy as an indicator differentiating developed and developing markets. All the numbers considered, the country is considerably no longer in the underdeveloped market bracket.

Out of all the sectors, mining and oil posted dismal numbers. The governments choice to focus solely on the green side of things, overlooking the business and employment generation of the sector, contributed to its laggard growth, he said. Sicat claimed that if the country can pull itself together, take advantage of the low oil prices, and help optimize mining operations, the sector could contribute one percent to the country`s GDP.

In other matters, Sicat soothed fears about bubbles in the burgeoning property sector. The Banko Sentral ng Pilipinas had put macro policy measures in place, and none of the banking institutions have so far hit any of the warning indicators.

Navarro attested to the same views about the countrys recent performance. `The Philippines is generally in sync with the vibrant expansion of our neighbors,` she noted.

On the demand side, the primary growth drivers were household consumption and net exports. Net exports included miscellaneous services, which constituted 79 percent of total export services. On the supply side, the services sector contributed the most. Meanwhile, manufacturing contributed the most to overall growth, a trend that has consistently progressed following the revival of the sector in 2013.

The country`s total revenues have stayed high, buoyed by expanding of economic activities and broadening of tax base.

Opportunities

PSE is looking forward to major improvements in the financial sector`s penetration rate. In the Philippines, only 31 percent of the population have some kind of banking account. The huge untapped potential demand for banking and corporate expansion adds to Sicats optimistic view for the sector`s growth.

Currently, actors in the financial sector are trying to enable the environment for a more diverse, easier, and more lucrative trading and securities exchange. The PSE is encouraging more mergers and the consolidation of bank payment systems. It is also reaching out to the top universities to promote market education, on top of running online courses. The launching of new ASEAN indices, PSE hopes, will help improve trading standards.

In addition, Sicat outlined the opportunities for other sectors. He predicted that manufacturing firms and the energy sector will do well. The services and tourism sectors will likewise prosper. The gaming and casino industry`s integrated resort and malls are massive operation. `One thing they`ve done that the government hasn`t is spend 3 billion US dollars building infrastructure. This is actually one of the bright spots and has been a great employment-generating activity,` said Sicat.

Navarro reminded everyone that apart from generating revenue, the country must mobilize long-term capital and optimize investments in infrastructure, research and development, and innovation. The government and the private sector should work together to narrow down the savings-investment gap, she said.

The public-private partnership (PPP) projects have proven dynamic and successful. But Navarro stressed that PPPs have to be replicated in other economic activities. There must also be `a dynamic pipeline for the public sector and a dynamic potential investment portfolio for banks and infrastructure` for project development activities to evolve. There should be massive and continuous market research and project development activities in infrastructure and agribusiness, she added.

Challenges

The road blocks to achieving these potentials, however, are plenty.

`We used to worry about political change, but its low on our list now as were more worried about cybersecurity,` mentioned Sicat, demonstrating that challenges evolve with the times. But he also pointed out old issues like fickle tax policies that undermine the countrys credibility and reputation of good governance.

Navarro criticized the slow development of national infrastructure. She also stressed the impact of lacking quality and certification measures in manufacturing, and underscored the importance of prioritizing investor protection.

The issue of rising underemployment was also discussed at the seminars open forum. PIDS President Gilberto Llanto rued the fact that the public sector often gave the private sector a pass in playing their role in creating quality jobs. Llanto warned that underemployment may not be a question of capital, but a question of talent.

`I want to relate underemployment to the inability of educated Filipinos to do product development, to conceptualize business activities.` Llanto warned, `If we dont strive to quickly adjust to market changes, then we will have to stare at underemployment for a long time.`

All of these challenges and issues will affect not only the future performance of the Philippine economy, but how it will size up in the ASEAN economic integration. In terms of competitiveness, the country is far from generating the enabling infrastructure to be at least a major player in the ASEAN. Furthermore, the policymaking environment and the implementing agencies are inconsistent, thus disabling an otherwise healthy business environment.

Conclusion

`2015, its looking good. Beyond 2015, it`s looking good. That`s the good news,` concluded Llanto. But to realize the growth potential and make it all the more inclusive, both the government and private sector have to work together.

The country must invest in its human capital. At the same time, it must strengthen its institutions, make its policies more coherent and cohesive, and optimize its social capital to enable a good business environment.

Coordination and cooperation between the government and the private sector, and between individuals and firms, are necessary to empower a thriving business environment. In an era of disruption, the Philippines must figure out how everyone can collaborate to achieve inclusive growth.