PB 2011-01 - Improving Inclusiveness of Growth Through CCTs

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CCT program of lating america
  Conquering    poverty    has   been   the    fundamental    development    goal    of    every    administration   in   the   country.   However,   despite   the   government’s   various    poverty    reduction    programs,   the   increase   in   the   number    of     poor    remains   unabated.   Given   the   ineffective   and    wasteful    subsidy     programs   in   the    past,   the   government’s    preparedness   to   implement    an   intervention   like   the   CCT,   which   requires   large   budgets   and    exceptional    administrative   capacity,   is   being   met    with   doubts   and    cynicism.   Nonetheless,   the    Aquino   administration   has   requested    Congress   and    the    public   to   grant    the   CCT    a   chance   to   work,   given   its   success   in   reducing    poverty    in   Latin    American   countries   and    its   huge    potential    to   do   the   same   in   the   Philippines.   Policy   Brief    Improving   inclusiveness   of    growth   through   CCTs   The   twin   challenges   to   Philippine   growth   The   Philippines   posted   its   highest   annual   domestic   growth   rate   since   the   post ‐ Marcos   era   at   7.3   percent   in   2010.   This   is   a   welcome   progress   following   the   sluggish   growth   in   the   last   two   years,   which   is   largely   attributed   to   the   global   economic   crisis.   The   barely   year ‐ old   Aquino   administration   is   optimistic   that   the   healthy   economic   growth   will   be   sustained   in   the   medium   term. 1   However,   it   has   to   be   noted   that   while   the   economy   has   been   registering   growth   year   after   year   since   2001,   the   acceleration   has   been   described   as   erratic   and   lackluster   compared   to   other   countries   in   the   region.   Moreover,   the   growth,   being   narrow,   hollow   and   shallow,   hardly   made   an   impact   to   poverty   reduction   in   recent   years,   as   reflected   in   the   country’s   progress   reports   on   the   Millennium   Development   Goals   (MDGs)   and   various   perception   surveys   (Balisacan,   2010;   Habito,   2010;   Aldaba,   2005;   World   Bank,   2009).   In   fact,   the   latest   poverty   statistics   showed   that   the   number   of    poor   Filipinos   further   increased   by   almost   970,000,   from   22.2   million   in   2006   to   23.1   million   in   2009. 2   Therefore,   aside   from   accelerating   and   sustaining   higher   growth   rate,   the   new   leadership   is   also   faced   with   the   challenge   of    ensuring   that   such   growth   benefits   a   broader   spectrum   of    the   economy   and   more   important,   reduces   poverty.   In   pursuit   of    making   “economic   growth   statistics   real   to   the   people,”   the   Aquino   administration   on   its   first   year   scaled   up   the   Pantawid    Pamilyang   Pilipino   Program   (4Ps)   of    the   previous   administration   by   expanding   household   coverage   by   1.3   million   and   doubling   the   program’s   budget.   The   4Ps   under   the   2011   National   Budget   has   four   components:   Supplemental   Feeding   Program;   Food   for   Work   Program   for   internally   displaced   persons;   Rice   Subsidy   Program;   and   Conditional   Cash   Transfer   (CCT)   Program.   The   CCT   program   gets   the   bulk   of    the   4Ps   budget.   The   said   program   is   seen   as   a   social   protection   instrument   and   a   tool   to   empower   people   to   rise   above   poverty   by   increasing   household   income   and   improving   human   capital,   among   others.   1   Based   on   the   Year   End   Philippine   Economic   Briefing   of    the   Investor   Relations   Office,   Bangko   Sentral   ng   Pilipinas   (2011).   2   The   new   methodology   for   estimating   poverty   is   criticized   for   lowering   the   average   official   2009   poverty   line   for   a   family   of    five   to   PhP7,017   per   month   from   PhP7,953   per   month   with   the   old   system.   The   difference   of    PhP936   amounts   to   a   substantial   lowering   of    the   official   2009   poverty   line   by   11.8   percent,   and   would   thus   affect   the   estimation   of    poverty   incidence.   March   2011   PB ‐ 11 ‐ 01 SENATE   ECONOMIC   PLANNING   OFFICE The   SEPO   Policy   Brief,   a   publication   of    the   Senate   Economic   Planning   Office,   provides   analysis   and   discussion   on   important   socioeconomic   issues   as   inputs   to   the   work   of    Senators   and   Senate   Officials.   The   SEPO   Policy   Brief    is   also   available   at   www.senate.gov.ph.    2   This   brief    discusses   4Ps ‐ CCT   as   a   poverty   reduction   strategy,   its   srcins,   and   advantages   and   disadvantages.   It   also   presents   the   impact   of    CCT   and   the   issues   surrounding   it   as   well   as   the   challenges   it   faces   in   the   Philippines.   It   also   provides   a   survey   of    selected   social   protection   programs   of    the   government   and   presents   policy   insights   on   making   the   programs   responsive   in   addressing   the   poor’s   vulnerabilities   and   needs,   especially   in   a   challenging   economic   environment.   Social   protection   in   a   fragile   economic   environment   While   the   adverse   effects   of    the   recent   economic   downturn   in   the   Philippines   appeared   milder   than   that   of    the   Asian   financial   crisis   in   the   late   90s   (Yap   and   Reyes,   2009),   it   should   be   emphasized   that   even   when   there   is   no   global   or   regional   crisis,   households,   especially   the   poor   ones,   are   subject   to   risks   and   shocks   of    various   kinds   (Manasan,   2010).   For   example,   in   a   non ‐ crisis   year   like   2004,   54   percent   of    Filipino   households   were   worse   off    because   of    the   higher   price   of    food;   19   percent   because   of    reduced   income;   8   percent   because   of     job   loss;   and   3   percent   because   of    natural   disasters   (APIS,   2004).   With   the   looming   threat   of    the   adverse   effects   of    climate   change   coupled   with   the   rising   of    global   food   prices   to   alarming   levels, 3   governments   are   called   to   strengthen   their   social   protection   and   safety   net   programs.   Taking   such   action   is   also   a   way   to   make   growth   inclusive 4   since,   in   general,   social   protection   programs 5   cushion   households   from   shocks,   help   minimize   disruptions   to   income   and   prevent   adverse   coping   behaviors   that   tend   to   erode   human   capital   and   perpetuate   poverty.   Sans   the   appropriate   safety   nets,   households   attempt   to   stay   afloat   amid   a   crisis   by   increasing   working   hours,   changing   eating   patterns   and   reducing   spending   on   education   and   health,   which   can   lead   to   greater   destitution   in   the   long   run   (World   Bank,   2010).   By   estimates,   about   45   percent   of    Filipinos   are   vulnerable   to   falling   into   poverty   if    confronted   by   shocks   such   as   health   problems   and   deaths,   loss   of    employment,   natural   disasters   and   increasing   food   prices. 6   Since   poverty   reduction   has   been   the   battle   cry   of    most   of    previous   administrations,   the   Philippines   is   never   short   of    poverty   alleviation   efforts,   which   include   social   protection   and   safety   net   programs.   However,   it   was   found   out   that   the   Philippines   has   been   ineffective   in   preventing   poverty   increases   (Annex   1)   during   recessions   or   calamities   primarily   due   to   inadequate   targeting,   uncoordinated   and   fragmented   provision   of    social   protection   services,   and   unsound   policies   (Manasan,   2009;   Balisacan,   2010).   With   the   country’s   high   levels   of    chronic   poverty,   Manasan   emphasized   the   urgent   need   for   a   social   protection   program   that   will   provide   cash   transfers   to   address   the   immediate   needs   of    the   chronically   poor.   Moreover,   the   social   protection   program   should   also   provide   adequate   incentive   for   households   to   invest   more   in   the   education   and   health   of    their   children   because   that   is   3   According   to   World   Bank’s   Food   Price   Watch,   food   price   index   rose   by   15   percent   between   October   2010   and   January   2011,   is   29   percent   above   its   level   a   year   earlier,   and   is   only   3   percent   below   its   2008   peak.   The   price   hike   has   already   driven   an   estimated   44   million   people   into   poverty   around   the   world,   and   is   putting   stress   on   the   most   vulnerable   who   spend   more   than   half    of    their   income   on   food.   4   Growth   is   said   to   be   inclusive   if    it   ensures   equal   access   to   opportunities   for   all   segments   of    society   regardless   of    their   individual   circumstances.   5   Social   protection   programs   may   be   classified   under   three   main   categories:   (1)   contributory   social   insurance   programs,   (2)   non ‐ contributory   social   welfare   programs   and   social   safety   nets   programs,   and   (3)   active   labor   market   programs.   6   National   Anti ‐ Poverty   Commission   and   National   Statistical   Coordination   Board.   2005.   Assessment   of    Vulnerability   to   Poverty   in   the   Philippines.   Manila.   “The   Philippines   has   been   ineffective   in    preventing    poverty    increases   during   recessions   or    calamities    primarily    due   to   inadequate   targeting,   uncoordinated    and     fragmented     provision   of    social     protection   services,   and    unsound     policies.”     3   the   only   way   they   would   be   able   to   escape   the   poverty   trap.   Of    the   programs   assessed   by   Manasan   (2009),   the   4Ps   was   found   to   hold   much   promise   in   effectively   addressing   the   chronic   needs   of    the   poor   (Annex   1).   Manasan’s   findings   are   consistent   with   the   impressive   outcomes   of    CCT   programs   such   as   Oportunidades   in   Mexico,   Bolsa   Escola   and   Bolsa   Familia   in   Brazil,   Red    de   Proteccion   Social    in   Nicaragua,   Programa   de    Asistencia   Familiar    in   Honduras,   Program   of    Advancement   through   Health   and   Education   in   Jamaica,   Food ‐ for ‐ Education   in   Bangladesh   and   Subsidio   Unico   Familiar    in   Chile   (de   Janvry   and   Sadoulet,   2006).   Following   the   success   stories   in   Latin   America,   CCT   programs   are   now   regarded   as   a   leading ‐ edge   social   policy   tool   because   of    their   ability   to   influence   both   the   income   of    the   poor   in   the   short   run   and   to   improve   their   human   capabilities   in   the   medium   and   long   run.   The   said   programs   have   also   been   lauded   for   their   ability   to   target   the   poor   and   easily   integrate   different   types   of    social   services   such   as   education,   health,   and   nutrition;   and   for   their   cost   effectiveness   (Son,   2008).   Allowing   households   to   escape   poverty   through   4Ps ‐ CCT   The   4Ps ‐ CCT,   patterned   after   the   generally   successful   CCT   programs   in   Latin   American   countries,   aims   to   accelerate   the   country’s   progress   in   the   MDGs.   This   can   be   done   by   providing   money   to   extremely   poor   households   to   improve   the   education   and   health   of    children,   and   mothers   belonging   to   the   said   families.   Why    cash   transfer  ?   Aside   from   being   consistent   with   standard   economic   theory   that   cash   transfers   are   expected   to   generate   positive   income   effect,   even   if    unconditioned,   cash   assistance   is   seen   as   more   efficient   than   in ‐ kind/earmarked   assistance   since   it   gives   beneficiary   families   the   flexibility   to   allocate   resources   according   to   their   needs   and   circumstances.   Cross   country   studies   on   CCTs   showed   that   they   have   impacted   the   beneficiary   households’   aggregate   consumption   not   only   in   terms   of    level   but   also   its   composition,   with   beneficiaries   spending   a   greater   share   of    total   consumption   expenditure   on   food.   Analysis   in   Colombia,   for   example,   pointed   to   beneficiary   households’   increased   consumption   of    eggs,   milk   and   meat   products.   Beneficiary   households   of    Indonesia’s   CCT   Program   (Program   Keluarga   Harapan   or   PKH),   on   the   other   hand,   spent   the   bulk   of    cash   transfers   on   expenditures   linked   directly   to   children’s   education   and   health   with   much   of    the   remainder   spent   on   daily   consumption   (Syukri,   et   al.,   2010).   The   decrease   in   the   number   of    families   falling   below   the   food   threshold 7   by   58,000   in   2009   is   partly   attributed   to   the   expansion   of    4Ps ‐ CCT   to   277   municipalities   for   that   year. 8   Across   the   emerging   markets,   fuel   subsidies   were   given   by   governments   to   shield   the   poor   and   prevent   social   unrest   from   occurring.   However,   with   the   sharp   spikes   in   fuel   prices,   fuel   subsidies,   as   compared   to   cash   transfers,   have   become   costly   and   inefficient   in   protecting   the   poor   as   they   mainly   benefit   the   rich   owners   of    cars   and   air   conditioners,   and   favor   energy ‐ and   capital ‐  7   Food   threshold   refers   to   the   minimum   cost   of    food   required   to   satisfy   nutritional   requirements   for   economically   necessary   and   socially   desirable   physical   activities.   8   Average   per   capita   income   of    the   bottom   10   percent   of    families   rose   faster   than   prices   of    food.   “CCTs   have   impacted    the   beneficiary    households’    aggregate   consumption   not    only    in   terms   of    level    but    also   its   composition,   with   beneficiaries   spending   a   greater    share   of    total    consumption   expenditure   on    food.”     4   intensive   industries   rather   than   those   that   create   most    jobs.   An   International   Monetary   Fund   (IMF)   study   on   five   emerging   economies   found   that   the   richest   20   percent   of    households   received,   on   average,   42   percent   of    total   fuel   subsidies   while   the   bottom   20   percent   received   less   than   10   percent. 9   Moreover,   while   food   transfers   readily   make   food   available   to   families   and   can   address   nutritional   needs   directly,   high   transport   and   storage   costs,   losses   from   spoilage   and   theft   plague   food   transfer   programs   (Devereux,   2002).   The   nutritional   impact   may   also   be   limited,   especially   if    the   size   of    transfer   and   the   choices   of    food   items   for   transfer   are   not   adequate   to   satisfy   nutritional   requirement   of    beneficiary   households.   In   the   case   of    the   Food   for   School   Program   (FSP)    jointly   implemented   by   the   Department   of    Education   (DepEd)   and   Department   of    Social   Welfare   and   Development   (DSWD),   the   size   of    transfer   was   the   issue.   While   FSP   increased   the   supply   of    rice   in   households,   an   informal   survey   conducted   by   the   DepEd   in   February ‐ March   2006   found   that   for   80   percent   of    households,   one   kilo   of    rice   is   not   enough   to   provide   their   family   with   three   meals   a   day   and   that   only   33   percent   of    households   have   not   missed   a   meal   in   the   last   three   months   (Manasan,   2009).   Temporary   public   employment   programs   (e.g.,   Cash   for   Work)   are   likewise   less   effective   than   human   development   CCT   in   delivering   purchasing   power   to   the   poor.   About   50   percent   of    cash   for   work   budget   is   spent   on   construction   equipment,   materials   and   skilled   labor   compared   with   human   development   CCT   (10%   or   less   for   overhead/administrative   costs).   Hence,   a   much   smaller   percentage   of    cash   for   work   budget   goes   to   salaries   and   wages   of    unskilled   poor   workers.   At   the   height   of    the   recent   crisis,   the   Philippine   government   allocated   PhP13.4   billion   for   the   Comprehensive   Livelihood   and   Emergency   Employment   Program   (CLEEP)   to   create    jobs   through   investment   in   public   works,   including   infrastructure   and   enterprise   development.   The   program   merely   provided   temporary   employment   in   non ‐ productive   projects   such   as   beautification,   street   sweeping   and   rudimentary   errands   for   government   units.   Manasan   (2009)   pointed   out   that   such   projects   did   not   enhance   overall   productivity.   Lastly,   human   development ‐ oriented   CCT   supports   the   rights   of    children   to   basic   education   and   healthcare   through   a   stronger   state ‐ family   partnership.   Conditions.   The   4Ps ‐ CCT   (formerly   referred   to   as    Ahon   Pamilyang   Pilipino   Program),   spearheaded   by   the   DSWD,   provides   beneficiary   households   with   PhP500   subsidy   a   month   for   health   and   nutrition   expenses   and   PhP300   a   month   per   child   for   educational   expenses.   A   maximum   of    three   children   per   household   is   allowed.   These   grants   will   be   given   upon   the   satisfaction   of    the   following   conditions:   1)   Pregnant   women   must   get   prenatal   care   starting   from   the   first   trimester,   must   have   child   birth   attended   by   skilled/trained   professional,   and   get   postnatal   care   thereafter;   2)   Parents/guardians   must   attend   family   planning   sessions/mother’s   class,   parent ‐ effectiveness   service   and   others;   3)   Children   0 ‐ 5   years   of    age   get   regular   preventive   health   check ‐ ups   and   vaccines;   9   Arze   del   Granado,   J.,   et   al.   (2010) .   The   Unequal   Benefits   of    Fuel   Subsidies:   A   Review   of    Evidence   for   Developing   Countries.   IMF.   September.  
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