Development and Poverty in the Philippines

Table of Contents

1 Introduction

2 Development Record of the Philippines
2.1 The macro-economic development record of the Philippines
2.2 Comparative Analysis of Human Development

3 Poverty in the Philippines
3.1 Nationally determined income-based measure of poverty
3.1.1 Source and Methodology
3.1.2 National Level
3.1.3 Sectoral and Regional Disparities
3.2 Comparative Analysis of Poverty and Inequality

4 Key Issues to Poverty Reduction
4.1 Fostering Economic Development
4.2 Making growth work for the poor and investing in human capital
4.3 Tackling rapid population growth

5 Conclusion and Recommendations

Acronyms

illustration not visible in this excerpt

1 Introduction

An “anti-development state”, that is how Walden Bello, professor at the University of the Philippines, describes the Philippines in his latest book (Bello 2006). This paper seeks to examine if this harsh statement is reflected in the available data on economic development and poverty reduction. The first part explores the Philippines’ record of economic and human development. It uses a comparative approach by benchmarking with the neighbor countries Indonesia and Thailand. The second part takes a look at the Philippines’ achievements in poverty reduction and once again compares them with those of its neighbors. Finally, a number of key factors in poverty reduction are identified and recommendations are given for an improved pro-poor growth.

The goal of this paper is to provide comprehensive background information on the frame conditions for poverty-oriented development cooperation with the Philippines. It also seeks to evaluate to what extend the current administration of President Gloria Macapagal-Arroyo was able to accomplish its self-set goals of inclusive growth and poverty reduction. The underlying Philippine government’s Medium-Term Development Plan (MTDP) is prepared every six years to coincide with the term of the president. It sets out the administration’s development and poverty reduction goals. The MDTP 2004-2010 sets the goal to fight poverty by building prosperity for the greatest number of Filipino people. The specific target is to reduce poverty incidence of families to 17.9% in 2010.

Furthermore, the collected data should serve as a basis for further research that could be facilitated in other papers or a Magister thesis.

2 Development Record of the Philippines

2.1 The macro-economic development record of the Philippines

According to the International Monetary Fund, gross domestic product (GDP) is the most commonly used single measure of a country's overall economic activity. It represents the total value at constant prices of final goods and services produced within a country during a specified time period, such as one year. Purchasing Power Parity (PPP) is a theory, which relates changes in the nominal exchange rate between two countries’ currencies to changes in the countries' price levels.

After the end of the Marcos administration in 1986, which was fueled by the prior recession from 1983 to 1985, the Philippines’ nominal GDP rose from 30 (1986) to 144 billion US dollars in 2007. That is an increase of almost 500% in 20 years. The GDP based on PPP almost quadrupled from 77 to 300 billion US dollar within the same period. The real GDP growth rate got back on track at 3.4% after the two years of crises in 1986. Despite two exceptions in 1991 and 1998, growth rates stayed above zero ever since. Peaks of 6 to 7% were achieved in 1988, 1996, 2000, 2004 and 2007 (IMF 2008).

In the context of economic development, it is furthermore remarkable that remittances from Filipino workers abroad contribute in a large scale to the economy of the country. The number of Overseas Filipino Workers (OFWs) is estimated to be 8 million. Their remittances account for just under 10% of the GDP in 2007 (EIU 2007: 25).

In order to benchmark economic development, the Philippines is compared to a peer group of its Southeast Asian neighbor countries, specifically Thailand and Indonesia. It becomes clear how Thailand and the Philippines were on a comparable level in terms of GDP based on PPP in the beginning of the 1980s. But while the Philippines was only able to achieve some economic growth since the end of the Marcos administration, it was left behind by its neighbors’ impressive growth rates especially in the late 1980s and early to mid 1990s. It was this boom that gave the neighboring countries a development boost, which was hindered but not devastated by the Asian crisis in the late 1990s. The Philippines was far less negatively affected by the Asian crisis in the late 1990s especially because they did not benefit from the prior boom. The recovery in Southeast Asia was quick in the new millennium and the respective economies of Indonesia and Thailand are once again growing faster than that of the Philippines.

Figure 1: GDP based on PPP (Billions of current international dollars)

illustration not visible in this excerpt

Source of data: World Economic Outlook (October 2008)

Figure 2: GDP based on PPP per capita (Current international dollars per capita)

illustration not visible in this excerpt

Source of data: World Economic Outlook (October 2008)

2.2 Comparative Analysis of Human Development

To compare the Philippines’ development record to its neighboring countries a broader concept is applied. The Human Development approach arose in part as a result of growing criticism to the leading development approach of the 1980s, which presumed a close link between national economic growth and the expansion of individual human choices. As of 1990, the human development concept was applied to a systematic study of global themes, as published in the yearly global Human Development Reports by the UNDP^[1]. The Human Development Index (HDI) is the measure for Human Development that combines indicators of life expectancy, educational attainment and income. It is a single statistic which serves as a frame of reference for both social and economic development. The HDI sets a minimum and a maximum for each dimension, called goalposts, and then shows where each country stands in relation to these goalposts, expressed as a value between 0 and 1^[2].

Figure 3: Human Development Index (1980­2005)

illustration not visible in this excerpt

Source of Data: UNDP, Human Development Report 2007/2008

The HDI provides a composite measure of three dimensions of human development: living a long and healthy life (measured by life expectancy), being educated (measured by adult literacy and enrolment at the primary, secondary and tertiary level) and having a decent standard of living (measured by income at PPP). The index is not in any sense a comprehensive measure of human development. It does not, for example, include important indicators such as gender or income inequality and more difficult to measure indicators like respect for human rights and political freedom. What it does provide is a broadened prism for viewing human progress and the complex relationship between income and well-being^[3].

The Philippines currently holds the 102nd position in a ranking of 179 countries and its HDI as of 2006 is 0.745. In the long-term period from 1980 to 2006, it was able to improve by 0.095. Medium-term gains from 1990 to 2006 were 0.051 and short-term (2000-2006) 0.020. To have an appropriate benchmark, the same peer group as above will be used. Comparing the trends in the Philippines, Thailand and Indonesia, it becomes obvious that the disappointing record of the Philippines in terms of economic development also applies if one uses the broader concept of human development. Thailand (HDI rank 81) was at the same development level as the Philippines at 1980. But in the 1990’s it could leave them behind by quickly raising its populations’ income. Most impressive is the human development record of Indonesia. While at a much lower level in 1980 it almost reached the standard of the Philippines in 2005 and currently holds the 109th rank.

[...]

^[1] http://hdr.undp.org/en/humandev/origins/ [Dec 16, 2008]

^[2] http://hdr.undp.org/en/humandev/hdi/ [Dec 16, 2008]

^[3] http://hdrstats.undp.org/2008/countries/country_fact_sheets/cty_fs_PHL.html