Sunday, January 15, 2006

World Bank is “cautiously optimistic” about the Philippines’ prospects in 2006

“Cautious optimism.” That’s how Joachim von Amsberg—country director of the World Bank in the Philippines—describes the Philippines’ prospects in 2006 when I interviewed him last week. “Cautious” because of the ever raging political noise yet “optimistic” because of what he sees as significant strides that the country has made in improving the country’s public finances. A plus factor, he said, is the fact that the Philippines possesses “great natural resources, with wonderful entrepreneurial people, English-speaking and based in the most dynamic region” close to the booming economies of China and India. Excerpts from the interview:

Q: What’s the World Bank doing here in the Philippines?

A: We put our program under the theme “supporting islands of good governance in the Philippines.” What that means practically is we really try to help the Philippines live up to its incredible potentials for more rapid social and economic development. We have been grappling with the paradox that the Philippines is a country with obviously incredible potentials for social and economic development, with great natural resources, with wonderful entrepreneurial people, English speaking, and based in the most dynamic region with India and China booming in the neighborhood. The Philippines has so far not really lived up to its full potentials. And when we say we “support islands of good governance” we mean supporting leaders and institutions that has been successful, upscaling these successful experiences where Filipinos and their institutions have shown they can overcome the obstacles to development.

I understand you have this Country Assistance Strategy. What is this all about, what are its components, and how do you exactly operationalize it?

The CAS is a document that summarizes the agreement between the Philippine government and the World Bank (WB) on our contribution to the Philippines in the next three years. The recent version of the CAS lays out a program of support that focuses on helping build public institutions that work for the common good, public institutions that are free of corruption, free of capture by specific interests. One of the instruments by which the WB supports that objective is lending, which means loans of the WB to the government of the Philippines at cost that are substantially below the rates that the Philippine government pays when it borrows from the international market. The second instrument is non-lending, a program of technical assistance, analytical work or studies attempting to support the same objective: socio-economic development and supporting institutions, improving governance.

Some NGOs seem to think that WB influences local economic policy. How do you usually respond to this kind of criticism?

I’m not sure if that’s a criticism. What we are trying to do is to contribute to economic and social development of the Philippines and to make accessible to Philippine government and institutions and leaders low cost financing as well as experience and knowledge from international development. Now if that contribution needs improvements in policies and programs then I think that’s one of the benefits and I’m happy that we can make that contribution.

The World Bank seems to have adopted the language of NGOs. What prompted that kind of approach?

The government is essential but not the only important actor in development. Civil society organizations—from community organizations to lobby groups as well as other groups like media, the private sector—play equally critical part in development. And that means two things—one is more active dialogue on development issues and second is partnership in the implementation of programs.

Could you cite some examples of projects being implemented by the World Bank in the Philippines?

I can just cite a few. We are implementing loans, 23 loans right now, and I believe some 89 or 90 grants in the Philippines. I’ll just cite a few that might be of interest to you. Example: Kalahi-CIDSS [Kapitbisig Laban Sa Kahirapan-Comprehensive Integrated Delivery of Social Services] is a program that is being implemented by the DSWD and which is being financed by the WB. It channels government money coming from the World Bank, directly to local communities where their priority investments have shown to have very remarkable impacts in terms of (a) lower cost infrastructure and cost of services, and (b) strengthening community social capital or their ability to promote social change and improved better governance at the local level.

Second example is the series of programs to support investments at the local government level. These are programs, either with the national government or with the government financial institutions like the Land Bank and DBP to lend to local governments for their priority investments.

Third example is infrastructure investments, like water and sanitation in Manila. Here we are working with and providing a loan to Manila Water through Land Bank for expansion of the sewerage network and sewerage treatment in Metro Manila which is a huge problem because less than ten percent of the city is covered with sewerage which is extremely low in international comparison. It’s a serious problem both in terms of health and sanitary conditions as well as environmental conditions. This is a program that is supported by both WB itself, IBRD [International Bank for Reconstruction and Development], as well as the IFC [International Finance Corporation] which is the Bank’s private sector arm which invests directly in private companies.

Fourth example is a grant program, a series of grants to improve governance and fight corruption. This implies support to the Ombudsman’s office, presidential anti-graft commission, to the BIR. These are just a few examples.

In terms of figures, how much is the total loans that has been granted to the Philippines in terms of loans and grants?

We have right now outstanding loans to the Philippines of about 3.3 billion dollars. We are disbursing currently an amount of about 150 million dollars. This figure is relatively low in comparison to the overall lending that we could undertake in the next three years which is more than 2 billion dollars. This shows that there is a potential for the Philippines to use substantial amount of WB financing.

Does that reflect the Philippines lack of absorption capacity of the Philippine government?

It reflects a very challenging fiscal situation because we are lending to the government which means the government can take loans only to the extent that it makes investments. And since the fiscal situation has been so tight the government has not been able to invest that much and therefore it has been [using less] foreign financing.

Isn’t that these loans require counterpart financing?

That’s less of an issue today. It’s really an issue of what we call [the Philippines’] fiscal state. Because we are financing government expenditure so even if its 100 percent WB financing it would still need to be part of government budget. And we don’t want to contribute to a worsening debt situation. We don’t want to finance expenditures that are not in the context of an overall sustainable fiscal situation. We want to help solve the fiscal and economic problems [of the Philippines] rather than contribute to it.

There are impressions that a significant part of those programs are being implemented in Mindanao? Why the focus on Mindanao?

Mindanao is an important focus of our program and the reason is that Mindanao is among the poorest areas of the country. If you look at the social indicators you will see that some areas have the worst performance. There are economically dynamic areas like Davao City but there are many areas that require a lot of public investments. Secondly, the conflict situation in Mindanao is an important issue [because] it’s an obstacle to the development of the country overall. Ultimately, development, [higher] income, and less poverty are all ingredients toward the solution of the conflict.

Is it true that the World Bank is poised to provide more grants for Mindanao once the MILF-GRP peace pact is signed?

We have been working together with the government, with groups [linked] to the MILF and an international partner to prepare what is called the Mindanao Trust Fund. That program is financed by the contribution of several international agencies [involving] grants and programs. That is [on-going right now] and it will be upscaled significantly once there is a peace agreement between the MILF and the government that would allow a larger scale investment into development in conflict affected areas. Again, that’s because we want to help address the root causes which in many cases include very poor social conditions, very little public investments, and therefore very high poverty in conflict affected areas.

How about the private sector? Besides Manila Water, what other major projects are you doing with the private sector?

We see the private sector as the key driver for economic development and growth. We work for the government on what I will call investment planning [including efforts to improve] the condition that favor private investment—domestic or international—to come in and invest in the Philippines. And that is what mostly what the WB/IBRD is doing. IFC, our private sector arm invests directly in companies. The focus of IFC is on infrastructure, financial sector, SMEs, and we have a host of portfolio investments in the Philippines. We continue to invest in an on-going basis in private companies that are particularly likely to make important contribution to development.

What’s your prognosis on the prospects of the Philippine economy for 2006?

As to my expectations of 2006, I would put it under the heading of “cautious optimism—“cautious” because of all the political noise. We are not experts of political analysis, we are not political actors, but the key really there is that political noise could generate uncertainty. “Optimism” because in the last year at least has shown that despite all this political noise the country has been able to protect key policies from that political process. 2005 has actually seen a substantial turnaround in public finances and we said in the last few years that the large deficit in the public finances is the largest short and medium term obstacle to development. But the optimistic perspective will not be realized automatically, it will depend on the actions of the leaders of the institutions of this country as well as improvements in domestic policies and infrastructure development.

The Philippines doesn’t get much foreign direct investments these days. What does the international community wants to see in terms of reforms for them to be convinced to invest in the Philippines?

Last year, the ADB and WB conducted a survey of companies on what holds back their investments. The results: first is macroeconomic instability which is linked to the fiscal situation; second corruption in government; third is concern about infrastructure like power roads, ports; and fourth is uncertainty in the regulatory environment.

No comments: