36682 A WORKING PAPER ON RURAL GROWTH AND DEVELOPMENT REVISITED Summary Report THE WORLD BANK GROUP The World Bank Group in the Philippines East Asia and the Pacific Region Rural Development and Natural Resources Sector Unit Supporting Islands of Good Governance Disclaimer Technical papers are published to communicate the result of The World Bank's work to the development community with the least possible delay. The typescript manuscript of this paper therefore has not been prepared in accordance with the procedures appropri- ate to formally edited texts. Some sources cited in the paper may be informal documents that are not readily available. This paper has not undergone the review according to official World Bank publications. The findings, interpretations, and con- clusions expressed herein are those of the author(s) and do not necessarily reflect the views of the International Bank for Recon- struction and Development/The World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the government they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. A WORKING PAPER ON rural GroWTh and developmenT revisiTed Summary Report JUNE 2006 Rural Development and Natural Resources Sector Unit East Asia and the Pacific Region The World Bank Group acknowledgements thisreportispreparedundertheoverallsupervisionofms.IdahPswarayi-Riddihoughandms.carolina Figueroa-geronoftheRuraldevelopmentandnaturalResourcessectorUnit.mr.ajaymarkandayprovidedsignificant inputtothesummarydocument. contributingtothereportweremessieursandmesdames:messieursRolandody(PrivatesectorInvestments); gilbertollanto(RuralFinance--subsequentlyconsolidatedintosectionsofPrivateInvestmentsandagricultural Policyworkingpapers);Joselitosupangco(RuralInfrastructure);germelinoBautista(naturalResourcemanagement); andgerryBulatao(comprehensiveagrarianReformProgram),andmesdamesdelyPascual-gapasin(agricultural Research,development,andextension),chingdelaPeña(agriculturalPolicy);andJosefinaesguerra(governance Issues).copiesoftheirworkingpapersareavailablefromtheworldBankoffice,manilaandtheworldBankwebsite: www.worldbank.org.ph. theteamofconsultantsreceivedadvicefromnedaofficialsandstaffandguidancefrommessieursJoachim vonamsberg,JoricmaglangueandJovenBalbosaoftheworldBankoffice,manila.thepapersincludeideasgenerated duringdiscussionsandinterviewswithgovernmentofficialsandotherknowledgeableindividualsfromthedepartments ofagriculture(da),environmentandnaturalResources(denR),andagrarianReform(daR)andotherattached agencies.also,theycitethefindingsandconclusionscontainedinawideselectionofliterature. thestudyteamalsoextendsitsappreciationto:ms.maryJuddwhoprovidedsupportthroughthemindanao trustFund;mr.BenedictoRaycoforeditingthefinaldocument;andmr.andrewmendozaforcoordinatingthestudy logistics,editing,documentcoverdesign,layoutandprinting. i contents 1. EXECUTIVESUMMARY... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... 1 2. THEECONOMYANDRURALGROWTH... ... ... ... ... ... ... ... ... ... ... ... ... 3 3. DRIVERSINECONOMIC&RURALGROWTH.. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . 7 aggregatecapitalInvestment. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . 7 landandassetReform. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . 9 theenvironmentandnaturalResourcemanagement ... ... ... ... ... ... ... ... ... ... ... 10 technologyandProductivitydevelopment. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. 12 4. THEFACILITATORSOFGROWTH ... ... ... ... ... ... ... ... ... ... ... ... ... ... ..14 Policy,Publicsectorandexpendituremanagement .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. 14 PoorallocativeefficiencyandPublicexpendituremanagement. .. . .. . .. . .. . .. . .. . .. . .. 15 Policy,PlanningandBudgeting... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... 17 agriculturalFinance. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. 19 5. GOVERNANCE,POLICYANDREGULATIONS .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. 21 5.1.governanceandcorruption. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. 21 5.2.BureaucraticandInstitutionalefficiency... ... ... ... ... ... ... ... ... ... ... ... ... ... 21 5.3.PolicyandRegulation. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. 21 ii lIstoFaBBRevIatIons AARNR agriculture,agrarianReformandnaturalResources ACEF agriculturecompetitivenessenhancementFund AE allocativeefficiency AFMA agriculturalandFisheriesmodernizationact AFMP agricultureandFisheriesmodernizationPlan AMCFP agriculturemodernizationcreditFinancingProgram ARB agrarianReformBeneficiary ARF agrarianReformFund BSP BangkosentralngPilipinas(PhilippinecentralBank) CARP comprehensiveagrarianReformProgram CBFMA communityBasedForestmanagementagreements CO capitaloutlay CPSD consolidatedPublicsectordeficit DA departmentofagriculture DAR departmentofagrarianReform DBCC developmentBudgetcoordinationcommittee DBM departmentofBudgetmanagement DCP directedcreditPrograms DENR departmentofenvironmentandnaturalResources DOF departmentofFinance EIU economistIntelligenceUnit ENRM environmentandnaturalResourcemanagement FDI ForeigndirectInvestment FTAA Financialandtechnicalassistanceagreement GAA generalappropriationsact GDP grossdomesticProduct GFI governmentFinancingInstitutions GOCC government-ownedandcontrolledcorporations GOP governmentofthePhilippines ICC Investmentcoordinationcommittee IPAF IntegratedProtectedareasFund IRA InternalRevenueallotment LAD landacquisitionanddistribution(caRP) LBP landBankofthePhilippinesofthePhilippines LGC localgovernmentcode LGU localgovernmentUnit MFO majorFinaloutput MOOE miscellaneousoperatingandotherexpenses MPSA mineralProductionsharingagreements MTEF medium-termexpenditureFramework MTPDP mediumtermPhilippinesdevelopmentPlan2004-2010 MTPIP mediumtermPhilippineImplementationPlan NEDA nationaleconomicdevelopmentauthority NFA nationalFoodadministration NG nationalgovernment NRM naturalResourcemanagement NSO nationalstatisticsoffice ODA officialdevelopmentassistance PAMB ProtectedareasmanagementBoard PAP ProgramsactivitiesandProjects PIP PublicInvestmentPlan PS Personnelservice R&D Researchanddevelopment SEER sectorefficiencyandeffectivenessReviews VAT valueaddedtax iii lIstoFFIgURes 1. PercentageRateofgdPgrowthinasia,Philippineactual,trendandmtPdPtarget. . . . . . .3 2. gdPsector(PBnconstant1985Prices) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 3. gdPbysector(real%change)..................................................3 4. export(FoBUs$m)includingelectronics. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4 5. export(FoBUs$m)excludingelectronicsandclothing . . . . . . . . . . . . . . . . . . . . . . . . . . . .4 6. componentsofgdP(2004). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4 7. structureofemployment(`000). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4 8. PaddyYieldsmt/ha. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 9. cornYieldmt/ha. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 10. majorexportdestination(%)totalFoBvalue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 11. Investment-economicgrowthandmultipliers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7 12. ForeigndirectInvestment,2001-2004. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7 13. domesticsavingsasPercentageofgdP(2003). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 14. totalForestexports(Us$'000). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11 15. cornYieldsPhilippines/asia(1961-2004). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12 16. RicePaddyYieldsPhilippines/asia(1961-2004). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12 17. PhilippineandworldPricesofUrea. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13 18. governmentRevenue,expenditureanddeficitasof%ofgdP(2001-2009). . . . . . . . . . . . . .14 19. denRBudget,2000-2004constant2000Prices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14 20. PercentageofnationalBudgettolgUs(1992-2001). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14 21. PercentageofnationalBudgetbycategory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15 22. PercentageoftotaldaBudgetbycategory,2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16 23. daProjectexpenditurebycategoryandsource,2005. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17 24. denRBudget,2000­2005,currentPrices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17 25. shareoftotallendingtoagriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20 lIstoFtaBles 1. majoragriculturalexports2003. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4 2. PhilippineBusinessenvironmentRanking. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 iv Working Paper on Rural Growth and Development Revisited 1. EXECUTIVE SUMMARY 1.1. this summary report integrates the findings inattractingforeigndirectinvestments(FdIs). and recommendations outlined in the various the chief disincentives to FdIs appear to be workingpapersincludedintheRuralgrowthand political and fiscal instability, perceived poor development Revisited study1. It is structured governanceandcorruptioninpublicinstitutions, around the framework of drivers and facilitators and ineffective infrastructure, transport and of, as well as policy and regulatory issues and informationnetworks.thisdoesnotmeanthat medium term Philippine development Plan opportunities do not exist, especially with a (mtPdP)2004­2010thrustsinruralgrowth rapidlygrowingregionaleconomy,butthatthe inthePhilippines.Inaddition,itemphasizesthe countryneedstoaddresstheseissuesurgentlyto relative weight of rural sectors in the economy makefulluseofitscomparativeandcompetitive andtheimportanceofeffectivepublicsectorand advantages. expendituremanagement.Ithasdonesogiventhe intrinsiclinkandcommonalityandcommoralityof 1.4. the economic, social and development cost issuesgoverninggrowthintheeconomyasawhole of not doing so are significant, especially as a andinruralareas,andthenecessityofgovernment low domestic saving rate and a potential fall insettingthemacroenvironmentforimproving in remittances, a principal driver of private governance, rationalizing the bureaucracy, and consumptionandtheeconomy,couldhaveserious improving fiscal and expenditure discipline. the knock-on consequences. For the same reasons, issuesraisedinthisreportarecentraltothedebate the domestic private sector remains risk averse onsectorgrowthastheydeterminethedirectionof inmakinginvestments.additionallytherearea theeconomy(whatappearstobeworkingandwhat numberofprograms,policiesandlegislationin not)andtherelativesuccessofgovernmentand agriculturethatdistortprices,resourceallocation thepublicsectorintargetingandmanagingscarce and markets, all of which create uncertainties. publicresourcesandprovidingtherightsignalsfor For example, land distribution under the stimulatinginvestmentandcompetitiveness,which comprehensive agrarian Reform Program ultimatelydeterminegrowth. (caRP),hasnotbeencompleted;landmarkets aredistortedbysignificantweaknessesinproperty 1.2. the economy and rural growth are discussed in rights, title and ownership, and land cannot section2,thedriversofeconomicandruralgrowth be used freely as collateral for accessing credit. insection3,andthefacilitatorsofsuchgrowth theseinconsistencies,therefore,undermineland insection4.governance,policyandregulatory investment,productivityandgrowth. issuesaretackledinsection5,whichalsooutlines thepublicroleinmeetingtheneedsoftheprivate 1.5. governmenteffortsatboostingconfidenceand sectorinstimulatingagribusiness[section5.3.2]. investmentsinfactorsofproductionneedtobe stronglysupportedbythewayitmanagesand 1.3. Rural growth is intrinsically linked to overall allocates public resources. the past five years economic performance and the efficiency havewitnessedtheemergenceofsignificantfiscal of government in managing it through the imbalances, increased government borrowing legislature, policies and resources. a primary andgrowingindebtedness.theriseinpublicdebt driver in economic growth is domestic and isparticularlyworryingasithasreachedlevels foreigninvestments.However,relativetoother thataredeterringpublicandprivateinvestments. regionalandworldeconomies,thestandingof addedtothisarestructuralweaknessesinthe the Philippines needs to improve considerably way public resources and expenditures are allocatedandused.Proportionately,verylittlein 1 working papers are in the main study document. copies of the publicfinancesactuallygoestoincreasingcapital workingpapersareavailablefromtheworldBankoffice,manilaand stock,whilstthebulkisspentforkeepingthe theworldBankwebsite:www.worldbank.org.ph bureaucracygoing.toredressthis,government 1 rural development and natural resources sector unit (easrd) muststeadfastlyimplementitsbureaucraticand (e.g. expediting completion of the caRP and publicexpenditurereformprogram. thepassageoftheFarmlandcollateralBill)and focusingpolicyandpublicinvestmentonmarket 1.6. moreover,theprocessofgovernmentplanning, andagribusinessdevelopmentareencouraging. budgeting and monitoring is fragmented, with inadequatelinkagesbetweenprioritysettingand 1.9. Incontrasttocommonperceptions,theoverall resourceallocation,whileasignificantportionof economy is fairing reasonably well, registering public finances (e.g. congressional allocations) reasonablegrowthratesinthelasttwoyears.this are not subject to prioritization, accountability suggeststhatsomesectorsareexpanding,though and transparency rigors. meanwhile, local notagriculture,whereinafallinnationalincome governmentunits(lgUs)havenotbeenfiscally isevident.thisneednotbethecase.continued weanedoffnationalgovernment,morethan10 growth in private consumption and the service yearsafterthepassageofthelocalgovernment sectorswillfuelstrongdomesticdemandforfood code (lgc) that provided for, among others, andagri-productsthroughcorrespondinggrowth thedevolutionofsubstantialresponsibilitiesfor insectorssuchashotels,restaurantsandtourism. service delivery to lgUs. the onus therefore the challenge, however, will be how much of clearlyliesonimprovingfiscalandexpenditure thegrowthinthisdemanddomesticproducers disciplinebyadoptingaholisticapproachtopublic willmeetandhowmuchwillgotooutsiders.on planningandinvestmentwhichiscloselyaligned thebroaderfront,regionaleconomicexpansion, tobudgetrealities.Informulatingameaningful particularlyinchina,meanstherearesignificant public investment plan (PIP), the national opportunitiesforsuppliersofqualityproducts,as economicanddevelopmentauthority(neda), longastheyremaincompetitive.Fromapublic departmentofFinance(doF)anddepartment expenditure perspective, increasing resources of Budget and management (dBm), working to the market aspects of the agricultural and closely with congress, could lead the way by Fisheriesmodernizationact(aFma)arelikely makingdifficultinvestmentchoices.withoutthis, tohavehighreturns. PIPsattheagencylevelhavelimitedworth. 1.10. the competitive base of the Philippine rural 1.7. theseimbalancesandinefficienciessignificantly economyremainshamperedbycontinuedlack impede agriculture and the rural economy. ofinvestmentingood,reliableandreasonably despite resource advantages and expanding priced transport infrastructure. the roads are domesticandinternationalmarketopportunities, not there or are poorly maintained, whilst the sector's importance in the economy is shippingremainsuncompetitiveandoverpriced decliningasitfailstomodernize,diversifyand duetomonopolisticpractices.apartfromthe becomemoreproductiveandcompetitive.this directbenefitoflinkingproducerstomarkets, lackofresponsivenessanddynamismintherural reliableinfrastructureisacriticalprecursorto sectors,especiallyasothersintheeconomy(like investmentasconfidencegrows. telecommunicationsandelectronics)canandare takingoff,isattheheartofthisstudy. 1.11. while economic growth is essential to development, it is not without environment 1.8. For producers and entrepreneurs to be more and natural resource repercussions and costs. responsive, the price and market signals in Recent experience in managing these in the agriculturehavetobeconsistent,non-distortive Philippineshasbeeninadequateandifcurrent andconsumer-orientated.agriculturalandfood trendscontinuetherewillbefewresourcesto security policies, however, have historically exploitbeforelongandthecostofcleaningup emphasized public investment in commodity theenvironmentwilloutweightheshortterm and price support programmes, which have benefits.viewedbythiscost/benefitperspective, shielded producers from being more dynamic thepropermanagementoftheenvironmentand and responsive to market needs. to this end, naturalresourceisarguablyasmuchalongterm the current mtPdP thrusts on asset reform driverofeconomicgrowthasinvestment. 2 Working Paper on Rural Growth and Development Revisited 2.tHeeconomYandRURalgRowtH 2.1. theeconomygrewatover6percentin2004, rateofoutputgrowth[section3.5].Incontrast, thefastestin15years.thiswasencouragingand therelativeshareofindustryandservices,which ispartlyattributedtopositiveexternalfactorsin employfarlesspeoplethanagriculture,willlikely theworldeconomyandtopaststructuralreforms, increase from the present 33 percent and 48 whichhavebegunintegratingsignificantsectors percentrespectively,astheycontinueregistering oftheeconomytoglobaltradeandinvestment strongerproductivityandgrowthrates[Figures flows,enhancedcompetitionintheprivatesector, 2&3],inresponsetodemand. and began transforming the export base from relianceoncommoditiestovalueaddedgoods Fig. 2: Gdp by sector (p Bn constant 1985 prices) such as electronics. moreover, entrepreneurial talent and proficiency in english are strongly enhancing competitiveness in sectors such as business outsourcing and telecommunications whichfurthersupportgrowth. 2.2. In terms of gross domestic Product (gdP) growth, the country has fared reasonably well compared with other regional economies, although the mtPdP growth targets seem somewhat optimistic compared to trend and a (comparative) forecast by the economist IntelligenceUnit(eIU)[Figure1]. source:eIU/BsP Fig. 3: Gdp by sector (real % change) Fig. 1: % rate of Gdp Growth in asia philippine actual, Trend and mTpdp Target* source:BsP/eIU * targetismedianofrange source:eIU/mtPdP 2.4. agriculturalexportshavebeendecliningand nowaccountforlessthan5percentofforeign 2.3. although the agricultural sector, including earnings. [Figures 4 & 5, table 1]. this forestry and fisheries, will continue playing a has been the result of slow agriculture and strategicroleintheeconomyandruralgrowth, productivity growth, subsidies, and limited itsrelativeshareofgdP (around20percent) diversificationawayfromstaplecrops,which hasbeendecliningforyearsbecauseoftheslow are raised almost entirely for the domestic 3 rural development and natural resources sector unit (easrd) market. subsidies and limited diversification 2.5. Privateconsumption,fuelledbylargeexpatriate havemeantthattherehasbeenlittlepressure remittances,[Figure6]willremainaprincipal forproducerstoinnovateorresponsetoprice driver in economic growth in the medium andothersignals. term. Fig. 4: export (FoB us$ m) including electronics Fig. 6: Components of Gdp (2004) source:eIU/BsP 2.6. arelatedgrowthdriverinboththeruraland Fig. 5: export (FoB us$ m) excluding national economy will be the high level of electronics and Clothing employment (and hence household income) agricultureprovidesandtheconsequentdemand this generates for services and consumption [Figure7]. Fig. 7: structure of employment (`000) source:eIU/BsP Table 1. major agricultural exports 2003 Total Export US $ m % earnings Coconut oil 5051.4 Desiccated coconut 96 0.2 2.7. totakeadvantageofthefooddemandfrom Copra 36 0.1 a rapidly growing population, which more Bananas 333 0.9 thandoubledfrom36millionin1970to76 Pineapple products 131 0.4 millionin2000,andincreasedconsumption, Mangoes 31 0.1 the sector will have to increase productivity Total inc others 1458 4.1 andgrowth.achievingthisposesconsiderable challenges as overall crop and factor productivity in the sector is low compared source:BsP tothoseofothercountriesintheregionand 4 Working Paper on Rural Growth and Development Revisited to the world average [Figure 8 & 9]. low productivity, moreover, compounds serious Fig. 10: major exports destination (%) Total FoB value underlying problems of a stagnant sector whichrequiresurgentimpetusforinnovation anddiversification. Fig. 8: paddy Yields mt/ha source:eIU/BsP upandflexible.thegovernmentisalsotargeting chinaasacriticalsourceofinvestmentcapital. thisisfoundedonchina'sstrongdemandfor Fig. 9: Corn Yield mT/ha rawmaterialsinthemediumtermandbythe recentopeningupoftheminingsectortoforeign investment2.Inapril2005,agreementsworth Us$1.5bn3 covering loans and investments in railway and mining projects were signed between the two countries. this represents a significant increase in volume of potential investmentgivenrecenttrends,whichhavebeen quitevolatileduetouncertaintyandchangesin thepoliticallandscapeofthePhilippines[Figure 3§ion3.1].clearly,exploitingthesetypes of comparative advantages and historic and indigenoustradelinkagesinthedomesticand source:Fao regional economy will be important to future growthinthewholeeconomyandkeyinsectors 2.8. the Philippines will also need to look at inruralareas. neighbouring economies as sources of further growth.Forthecountry,beinghometoalarge 2.10. thesectorsthatareprojectedtobenefitmost ethnic-chinesebusinesscommunityhasmeant fromthisgrowtharetelecoms,health,restaurants, that trade relations with china will become hotels,tourism,leisureandeducation.theshare increasinglymorecentraltotheeconomy.china ofthesegrowthmarketsthatdomesticproducers andHongkongtogetheraccountedforalmost areabletocapturefromagricultureandrelated 15%ofPhilippineexportsin2004upfrom7% sectors(i.e.food,beveragesandagro-processing) threeyearsago[Figure10]. 2.9. RapidgdPandincomegrowthinchinaand 2 this ruling will open the way for significant outside investment its projected demand for diversified, quality (interest)inthesector,whichwouldbeimportantforgrowth,itwill beequallyimportantthatsuchinvestmentsaremanagedresponsibly agricultural and fisheries products also mean from an environment and natural Resource management (nRm) thatitsmarketswillbeofconsiderablestrategic perspective to ensure that long term costs do not outweigh the (andgrowth)importancetothePhilippinerural shorttermbenefits.[Refsection3.3].australiaisalsolikelytobean importantinvestmentsourceinmining. economy­providingthelatterissuitablygeared 3economistIntelligenceUnitcountryForecastReportmay2005. 5 rural development and natural resources sector unit (easrd) will be highly relevant in determining the relax, the export market for agriculture directionandextentofruralgrowth. produce will grow rapidly. the Philippines, however,hasonlybeenabletocaptureasmall, 2.11. Insummary,theoveralleconomyappearstobe anddecliningshareofthismarket.Fourth,the faringwellincertainquartersbutnotsowell naturalcomparativeadvantagesthePhilippines in others. In the rural/agricultural economy has,togetherwithitsliteracyandtechnicaland there will be a number of factors that will entrepreneurialskills,haveonlybeenpartially influencefuturegrowth.First,thereareclear harnessedinpushingeconomicgrowth­and domesticgrowthtriggers,suchasanincreasing little in agriculture. growth in rural areas, populationandanexpandingnonagricultural therefore, would benefit enormously if the economy, with growing aggregate income, signals (policy and price) are less distortive which will need to be supplied with food and can capture the competitiveness and andfoodproducts.second,withincreasing dynamismwhicharebeingenjoyedbyother, incomes, the domestic market is becoming emerging sectors in the broader economy. increasinglysophisticatedandpriceandquality last,theoverallpeaceandsecuritysituation, conscious.Howmuchofthisdemandcanbe particularly in mindanao greatly hinders successfully captured by domestic suppliers investmentandoutput.longtermpeaceand is a key challenge. third, as other powerful security in mindanao would greatly improve regional economies grow, and trade barriers theoveralleconomicenvironment. 6 Working Paper on Rural Growth and Development Revisited 3.dRIveRsIneconomIc&RURalgRowtH 3.1 AggregateCapitalInvestment domestic investment to maintain sustainable growth. In an analysis conducted by the 3.1.1 economic growth is highly contingent on economist Intelligence Unit (eIU), the investment,whichiscriticaltodevelopingand Philippinesisranked36thamong60countries maintaining the country's vital capital stock. worldwide and 10th among 16 countries in capitalstock,inturn,stimulatesemployment, asiaintermsofprojectedinvestmentflowsfor incomes, demand for improved productivity theperiod2000-2004(table2),althoughits enhancingtechnologies,anddemandforhigher scoreisprojectedtoimproveoverthenextfive human skills capacity while facilitating better years(2005-2009),itsregionalrankingislikely integration between producers and consumers to remain unchanged, suggesting that efforts in existing and emerging markets. this vital inothercountriestocourtinvestmentwillbe synergy underpins a number of essential equallystrongorstronger. economiclinkagesandmultipliers,whichinter alia,stimulate(Figure11). 3.1.4. globallyhowever,thePhilippines'rankingis projectedtodecreaseto40th,againsuggesting Fig. 11: investment-economic Growth and multipliers strongerglobalcompetitionforinvestmentand asluggishmomentuminthecountry'sreform agenda.thecountry'sscoreforpoliticalstability andeffectivenesswillremainmiddlingtopoor, as uncertainties persist and progress remains veryslowonpolicylegislation.Howevermore encouragingimprovementsareforecastinthe macroeconomic environment and in policies 3.1.2. ForeignDirectInvestment.asthePhilippines toward foreign investment, trade, and exchange controls. the macroeconomic hasoneofthelowestdomesticsavingsrates environment will improve as tighter fiscal inasia,foreigndirectinvestment(FdI)will measuresarebroughtintoreducethebudget remain an extremely important engine of deficit.thesemeasures,however,willmostly growth[Figure12]. beontherevenueside(taxes)asthescopefor lowering expenditures is limited given high Fig. 12: Foreign direct investment, 2001-2004 interest payments and public service costs. the largest single factor that compromises investmentinthecountryispoorinfrastructure, therankingforwhichisalmostatthebottom of the world and regional scores. Higher public/private investment in infrastructure wouldthereforehaveconsiderablebenefitsin improving not only investor confidence but directlyinopeningupmarketsandeconomic linkages through multipliers. the issues that thegovernmentoughttoaddressare:(i)how togeneratesuchinvestmentinthefirstplace, given the budget situation; and (ii) how to 3.1.3. clearly, in the medium term, the business prioritize infrastructure investment given a environment has to remain competitive to limited public purse and conflicting public ensure higher volumes of both FdI and expendituredemands[table2]. 7 rural development and natural resources sector unit (easrd) Table 2. philippine Business environment ranking value of indexa Global rankb regional ranka 2000-04 2005-09 2000-04 2005-09 2000-04 2005-09 Overall 5.78 6.45 36 40 10 10 Political Env 4.9 4.9 41 43 11 12 Political Stability 6 6 38 39 10 10 Political effectiveness 4 4 44 46 12 12 Marco-economic Env 6.8 8.5 45 34 15 10 Market Opportunities 5.5 5.9 39 39 11 12 Policy toward private enterprise & competition 5.2 5.8 39 40 9 11 Policy toward foreign investment 6.1 7.2 41 34 9 8 Foreign trade & exchange controls 7.2 8.9 31 9 8 4 Taxes 6.9 6.9 16 22 7 7 Financing 5.5 5.9 37 42 9 11 Labour market 6.9 6.7 18 29 5 9 Infrastructure 2.8 3.9 56 52 13 12 source:eIU;a.outof10;b.outof60countries 3.1.5. Domestic Investments. In addition to FdIs, lag in productivity has resulted from failures domesticprivateinvestmentswillplayaninvaluable ineducationandhumancapital,whichindeed role in stimulating growth and increasing the are relatively high in the Philippines, but to country'scompetitiveedge.thetrendshavenot much lower physical capital accumulation beenencouraging,however.comparedtoclose and sustenance in productivity growth. regional players, the Philippines generally fares consequently,intheperiod1960to2003,the unfavourablywithitslowdomesticinvestment- output per worker in the Philippines rose by to-gdP ratio, although the gap appears less around50%,comparedto450%inothereast significantaftertheasianfinancialcrisisinthe asianeconomies.thisgap,needlesstosayisa late1990s[Figure13]. majorhurdlewhichwillneedtoberedressed. Fig. 13: domestic savings as % of Gdp (2003) 3.1.7. Investments in Rural Infrastructure. In relation to most countries, the Philippines has comparatively more complex and costly transport system, given its island-based economy. additionally, its overall state of infrastructure is poor due to significant long termunderinvestment.Inroads,lessthan50 percentareallweatherandmanyofthefeeder roadsareinpoorconditionduetosubstandard construction,inadequatemaintenance,anduse byoverloadedvehicles.Bridgesareoftenweak orabsent,andsomeremoteareashaveverylittle inaccessroads.Inruralareas,primaryeconomic source:adB growthwillbehighlydependentonareliable roadandwatertransportnetwork,whichlinks 3.1.6. amajorknock-oneffectofthislowinvestment producerswithconsumers,and,onirrigation, hasbeentheslowemergenceandintegration whichreducesrisksandraisesproductivity.the into the economy of improved, productivity majorcostoftheseinfrastructureswillliewith enhancing technologies [section 3.5]. this nationalandlocalgovernmentastheyareclearly 8 Working Paper on Rural Growth and Development Revisited perceivedaspublicgoods.Forthenationaland 3.2 LandandAssetReform localgovernments,theissuesare:(i)howcan national government can mobilize resources 3.2.1. In addition to capital and labour, the third for infrastructure investment in the current crucialfactoringrowthinthePhilippineswillbe fiscalclimate,withoutsubstantialcostcutting land,whichistheprincipalassetinruralareas. acrossothersectorsandexpenditurecategories; Heretheregulations,principlesandsignalsthat and(ii)whatcapitalandrecurrentinvestment governhowtheassetis,orallowedtobe,used canbeexpectedfromlocalgovernmentUnits will ultimately determine investor confidence, (lgUs).thefirstwillrequiregovernmentto the assets contribution to agricultural developandadoptaholisticpublicinvestment productivity and overall contribution to plan, covering national priorities and funding growth. the longer, for example, distortions strategies across all sectors. the second will anduncertaintiesinthesesignalsandinasset require a clear understanding of fund flow valuation,propertyrightsandlandmarketsare and cost share modalities between national allowed to persist, the less their contribution government (ng) and lgUs together with and the higher their cost to the economy in a substantial strengthening of their financial termsofcompetitivenessandgrowth.Indeed, management and technical capacity [see also akeyreasonputforwardforthefailureofthe section5]. Philippineeconomytotakeoff(comparedto othersintheregion)isthe`treatmentofland'- --itshistoricandskeweddistribution(formerly) MTPDP Thrust - Investment: and the long delays in completing land and In relation to investment in growth, the Medium agrarianreform.thecomprehensiveagrarian Term Philippine Development Plan (MTPDP 2004- ReformProgram(caRP)isfarbehindschedule 2010), rightly signals key trusts that will contribute andwillnotbecompletedby2008,thecurrent positively to overall investor confidence and growth. completiontarget.toremoveuncertaintiesand These include: (i) fiscal strength; (ii) power, water and improveinvestmentandproductivityinland,it infrastructure; (iii) decentralized economic activity; (iv) isimportantthattheagrarianreformprocessbe more transparent political processes; and (v) peace. completedexpediently. The relevant targets to meet these trusts are: (i) fiscal balance and reduction in public sector debt to 1% of 3.2.2. toachievethis,however,thegovernmenthas GDP by 2010; (ii) more streamlined public expenditure difficultchoicestomakeandchallengestoface, programs, together with increases in revenues to including: support greater public investments in infrastructure from 2.6% of GDP in 2003 to 4.2% of GDP by · substantiallackoffundingforcompletingand 2010; (iii) lower inflation to 3 to 4 % by 2007; (iv) consolidatinglandreformunderthecaRP;4 the maintenance of a stable peso exchange balance; · Political and social resistance to further (v) policy reforms particularly to support enterprise distributionoftheremaininglands;5 development and agri-business; and (vi) the boosting · slow resolution of existing land disputes and of revenues from mining. Aside for the macro thrusts, lackofpropertyrights,whicharesubstantially specifically from a rural economy perspective, the core areas would be agriculture and agri-business, rural infrastructure and mining. In rural infrastructure the 4 latest estimates indicate that some 100 billion pesos (Us$ 1.85 thrusts are: (i) greater investment in linking production billion) would be required to complete the land acquisition and distribution(lad)componentofthecaRP.ofthis,apartofthe areas to major markets through the construction of 38billionpesos(Us$556million)fromexmarcosassetscouldbe farm-to-market roads, expansion of shipping services used,thoughasubstantialgapstillremains.appropriationsthrough and use of roll-on roll­off facilities; (ii) construction thegaaforthisleveloffunding,especiallyintheremainingperiodof thecaRP,arealsounlikelygiventhepresentfiscalclimateandother and repair of post harvest facilities by the private governmentpriorities.Italsounlikelythatsubstantialrecoverieswill sector; and (iii) construction of regional and municipal begeneratedthroughcollectionofamortization. 5therearesome1.78millionhectaresofcaRPablelandremaining. fish port complexes. muchofthisisprivatecoconutlandwherecurrentownersarenot investinginproduction. 9 rural development and natural resources sector unit (easrd) deterringinvestment; · legislativeobstaclesthatdetertheuseofdistributed MTPDP Thrust - Land and Asset Reform: landascollateralinaccessingcredit;and In view of the issues above, related plan thrusts under · Poordeliveryofsupportservicestocomplement Agrarian Reform include: (i) the use of the Agrarian landdistribution. Reform Fund (ARF), including the Marcos assets, to complete land distribution and fast track suport services; 3.2.3. Inaddition,thereareanumberofdistortions (ii) expedite the passage of the Farmland as Collateral and uncertainties in the reform process which Bill to improve credit access; (iii) fast track mediation affectlandbeingusedproductivelyasanasset. and resolution of land disputes to improve tenure; and theseinclude: (iv) accelerate the provision of support services. ·Poor recovery of amortization funds from agrarianReformBeneficiaries(aRBs); 3.3 TheEnvironmentandNaturalResource ·Poorrecoveryinprivatetransactionsasthisis Management reliantonthebuyer'scapacitytopay; ·the decline in government land available 3.3.1. to complement measures for a sound and for future redistribution, thus leaving the open investment base in the economy, there redistribution of private lands, which are istheneedforpropermanagementofnatural mostlyplantationswhoseconversiontoviable resources (agriculture, marine, forests and agriculturallandswillrequireinvestmentfunds minerals) and the environment. Inadequate inaccessible to agrarian reform beneficiaries regard for implementing sound natural (aRBs), as the main vehicle for agrarian resource management (nRm) measures and reform; safeguarding the economy from excessive ·thelegalprohibitionthatcurrentlymortgaged environmentalcostsisrapidlyerodingresource landunderthecaRPcannotbesoldonthe inventoriesandwillseriouslycompromiseshort openmarketwithinaperiodof10yearsafter term economic gains by larger, longer term purchase,andthen,onlytootheraRBs,which costs.Inadditiontodirectresourcecosts,in deters banks from lending against such land theformofadepletedresourcebase,thatlack duetouncertainvalueandfutureownership, ofconcernforthenaturalresourcedbaseand thusseverelylimitingproduceraccesstocredit theenvironmentwillcauseinvestorconfidence anddistortingthelandmarket; to lag as pollution, health and congestion ·the hampered access to land through rental costsincrease,tourismrevenuestodeclineas and sales markets caused by compulsory the earlier comparative advantages (wild life land acquisition and collateral-based lending and natural beauty) disappear, and the cost under which collateral in land cannot be ofcleaningupafterirresponsibleindustriesto foreclosed, which, together with uncertainties fallongovernment.consequently,continued inlandownership,hasdepressedinvestmentand environment and natural Resources productivityinagriculture; management (enRm) mismanagement ·the highly inefficient land transaction system constitutesamajorimpedimenttolong-term exacerbatedbymultiplefakeandbadlandtitles; growth. ·thehighlyinefficientlandregistrationsystem: under which only 45 percent of parcels have 3.3.2. the cost of past failures has already been high. deeds; while the total number of land parcels Forestryisnowamarginalsector,asaresultof is unknown, and the titling of land and the resourcedepletionandunsustainablemanagement registrationoflandtransactionsarelongdelayed; overalongperiod,whichtookthecountryfrom and being the world's biggest exporter of tropical ·the high land transaction costs due to tax, hardwoodsinthe1970stobeinganetimporterof corruptionandinformalpaymentsresultingin forestproductsbythe1990s.Intheearly1960s, theemergenceofaparallel,informallandmarket, thetimberindustrywasthelargestsourceofforeign whichdoesnotcontributetotaxrevenues. exchange earnings, which declined rapidly and 10 Working Paper on Rural Growth and Development Revisited bythe1990sthesector'scontributiontoexport best.thisisattributedtoavarietyofreasons, earningswaslessthan0.5percent.Inadditionto including: exportproducts,therewasalsosignificantlossof naturalbio-diversitywiththelossofawidevariety ·anopenaccesspolicy,andweakpropertyrights oftropicalrainforest,floralspecies,adiverserange and management authority, the open access of endemic faunal species and several important policy being brought about by the limited marineandcoastalecotypes.[Figure14]. success of various tenurial instruments to conferpropertyrightsandtheirfailuretoclose Fig. 14: Total Forest exports (us$ 000) access,thusencouragingover-exploitation; ·thedepartmentofenvironmentandnatural Resource's [denR] falling budget and its structurewhichallocatesahighproportionon personnelservicesandlittleforoperationsand investmentinenRm; ·thefragmentationofthedenR'sbudgetover diverseandundercoordinatedfunctions(bureaus) anditshighdependenceonofficialdevelopment assistance(oda); ·theslowdevolutiontowardmorecommunity andlocalresponsibilityforenRm,compounded by complex and cumbersome processes of securing tenure and property rights, and recently, the blanket cover annulment of source:Fao all community Based Forest management agreements (cBFmas) to the benefit of the 3.3.3. Unregulated illegal logging, moreover, has also privatesector; increased human and economic cost, as landslide ·the goals of more local transparency and andflooddisastersincentralluzondemonstratedin accountability in enRm not being met as 2004. the Integrated Protected areas Fund (IPaF) 3.3.4. Infisheries,theproblemsofover-fishingand mechanism remains ineffective and there is fisherystockdepletionareattributedtothe significant lack of assured funding for local prevalenceofanopen-accesssystem,theuse institutional bodies - provincial environment of destructive techniques, and the inability councils and Protected areas management of government enforcement agencies Boards(PamBs);and to regulate entry to fishing waters and ·thelackofserviceandperformancestandards penalizedestructiveanddepletiveactivities. inenRm,e.g.veryslowproceduresinsecuring the decline in fishery stock is also related tenureinstrumentsandissuanceofresourceuse to upstream externalities, i.e. pollution, permits. siltation, sedimentation, and mine tailings, and the loss or damage of coral reefs, mangroves,andotherfishhabitats. Whatisneeded? 3.3.5. longterm,sustainableeconomicgrowthand ·a sound and efficient institutional basis for povertyreductioninthePhilippineswilldepend enRm based on a watershed and ecosystem criticallyonhowsuccessfulgovernmentwill approach - only after which other purposeful be in providing an effective framework for policy and regulatory actions become more enRm.However,despitesomeimprovement feasible; in policy and other instruments to institute ·a substantial management and institutional responsibleenRm,resultshavebeenmixedat overhaultoimproveservicedelivery,including (a) the rationalization of expenditures (e.g. 11 rural development and natural resources sector unit (easrd) Personnel services (Ps vis non Ps); (b) a productivity enhancing technologies and their significant improvement in prioritization of efficientdissemination.Pasteffortsinresearch functions­linkingmajorfinaloutputs(mFos) havebeenundeniablysuccessful,withyieldsof with budget; (c) more effective partnership staplesincreasingsignificantlyinthe1960s,when withlineagenciestoimprovedelivery;(d)more foodshortageswererampantandtheworldfood effectivedevolutionandlocalresponsibilityfor outlookwasbleak.duringthisperiod,although enRm;and(e)therationalization/streamlining italsoprogressed,thePhilippineslaggedbehind ofthepolicyandlegalframeworkforenRmto othercountriesinasia.thisaccruedparticularly improveefficiency; in corn, where the projected productivity gap ·the structuring of enRm on the integrated (over the plan period) is likely to increase7 management of: (a) watersheds, (b) coastal leadingtofurtherrisesinimports[Figures15& resourceand(c)protectedareas,whichrequires 16]. thedenRtodevelopeffectivelanduseandreal timedatabasesystemstoupdateinventoriesand Fig. 15: Corn Yields philippines (1961-2004) monitorthecountry'sresources,thusproviding sound basis for environment and natural Resources(enR)planningandmanagement; ·closingopenaccessforestry,marinefisheryand water resource areas and establishing secure tenuresystems;and ·concertedeffortstoimprovemineralresource share agreements6, to solicit approval and participation, particularly in protected areas, areaswithancestraldomainclaimsandareasof highseismicandnaturalhazardrisks. MTPDP Thrust - ENRM: Fig. 16: rice paddy Yields philippines/asia (1961-2004) The thrusts in the MTPDP can only be realized if the financial and institutional basis for ENR management (primarily through DENR, LGUs and communities) is made much stronger, allowing them to direct more efficiently operational resources in aggressively pursuing the policy, legislative, regulatory and governance changes required. [Section 4]. The key thrusts in ENRM are: (i) sustainable and productive utilization and investment in natural resource; (ii) promotion of responsible mining; (iii) protection of vulnerable and ecologically fragile areas; (iv) a healthier environment; and (v) disaster mitigation. source:Fao 3.4 TechnologyandProductivityDevelopment 3.4.2 themainreasonsputforwardforthecountry's 3.4.1. enhancing the contribution of factors of low productivity are: (i) declining and poor production(land,labourandcapital)ineconomic structureofresearchexpenditure;(ii)institution growth requires complementary investment in weaknesses;(iii)thenatureofresearch;and(iv) availabilityandpriceofinputs.takingthesein 6 themineralProductionsharingagreements(mPsa)andFinancial andtechnicalassistanceagreement(Ftaa). turn: 7 Basedontrend,Philippinecornyieldsarelikelytobesome58%lower thanotherasiancountriescomparedto52%lowerin2004.thegapin · Research Expenditure. International funding paddyproductivityislikelytoremainunchanged,whichalsosuggests thatimportdemandwillincreasewithpopulation. forresearchhasbeendeclining.Forexample,the 12 Working Paper on Rural Growth and Development Revisited worldBank'slendingtoresearchhasdecreased potential. likewise, funding for training is toaroundUs$30millionin2002,fromapeak largelyonsupply-drivenissues.correctingthis ofalmostUs$400millionin1998.Inpart,the imbalance between supply- (production) and declineisattributedtothefailureofborrowing demand-(market)ledresearchwillbeimportant countriestocommittoprogramsofinstitutional inmodifyingandstrengtheningthesystem. reforms. In the Philippines, research is mostly publiclyfunded,withprivateresearchaccounting · High Input Prices. low productivity is also foraround20%.Inpublicexpenditure,Research attributedtothepoorinputdistributionnetwork anddevelopment(R&d)hastoclamourforscarce andcost.Irrespectiveofproductivityenhancing resourceswithothergovernmentdepartments researchrecommendationsandpackages,many and agencies and rates fairly low in terms of farmers will not apply recommended doses national expenditure priority in comparison, nor use high yielding seed varieties due to forexample,toinfrastructure.Problemsofthe the potential risk involved in failure and cost. declineinaggregateresearchfunding,arefurther althoughthisiscommontomostpoorfarmers exacerbated by expenditures disbursed over in developing economies, in the Philippines multipleinstitutionsandexpenditurestructure, the problems are exacerbated by inordinately which,incommonwithotherdepartments,is inflatedcosts.Forexample,pricespaidforurea heavilyweightedtowardpersonnel(wage)costs. insomeyearshavebeenmarkedlyhigherthan without being able to invest more in actual world market price8 [Figure 17]. the most research and to operationalize it much more likelyreasonsattributedforinflatedcostarethe effectively, research is becoming almost an monopoly in fertilizer supply, and inefficient endinitsself,demoralized,non-responsiveto regulations governing distribution and supply. changingdemands,andpoorlydisseminated. thesamesituationprobablyexistsforpesticides andotheragrochemicals.therearealsosupply · Institutional Weaknesses. there are a constraintsinhighyieldingseedvarieties. large number of public R&d institutions with overlapping functions and roles, many duplicating R&d networks; and with weak Fig. 17: philippine and World prices of urea linkages to producers, lgU extension units andtheprivatesector.thereis,therefore,clear needtoconvergeandstreamlinefunctionsand responsibilities. Recommendations toward this end include developing unified systems for planning, and research and extension programmingamongstthevariousagencies. · Nature of Research. Research expenditures are almost entirely on expanding production, mostly food crops, with little provided for market-drivenandpost-harvestresearchinhigh value commodities with recognized market source:workingPapers 8 BorderpricescIF. 13 rural development and natural resources sector unit (easrd) 4.tHeFacIlItatoRsoFgRowtH 4.1Policy,PublicSector&ExpenditureManagement. In most agencies, this deterioration in public Public resource availability to finance expenditures in financeshasledtosignificantdeclineinrealbudgets the medium term is saddled with critical constraints forexample,thatofthedenR[Figure19]. that will have to be addressed if the volume, allocative efficiency(ae)andmanagementofpublicfinancingisto Fig. 19: denr Budget, 2000-2004 beimprovedmeaningfully.theseincludepoor:(i)overall Constant 2000 prices fiscalsustainability,budgetsizeandinvestmentcapital;(ii) allocative efficiency, public expenditure management and budget structure; and (iii) linkage between public sector policy,planningandbudgeting.takingtheseinturn: 4.1.1. Poor Fiscal Sustainability: the Philippine publicdebthasgrowntoalevelthatsignificantly constrains public and private investments, and this is significantly undermines the quality and source:dBm sustainability of economic growth. large public sector financing requirements mean that the 4.1.2. tosustainfiscalflexibility,9theclearoptionsareto: countryisparticularlyvulnerabletoshiftsininvestor (i)reduceexpenditures;(ii)raiserevenues(reversethe sentiment[section3.1],andisatincreasingrisk declineintaxrevenuessince1997);and(iii)improve of financial market volatility and crisis. overall, allocativeefficienciesandstreamlinethebureaucracy. fiscalflexibilityisbeingsteadilyerodedasrevenues Unlesstheseareaddressedtherewouldbecontinued declineandmandatedexpendituresremainhigh. adverse impacts on growth, through: (i) reduced discretionary expenditures, growing transfers to resourcesforhumandevelopmentandinfrastructure; sub-nationalgovernments,lowrevenuecollections, and(ii)decliningpubliccapitalinvestmentandlower rising debt service, and high expenditures on foreignandprivateinvestorconfidence. personnelservicesprovideverylittleflexibilityto evolving needs, to trigger growth. since 1997, 4.1.3. a key area on the revenue side would be to therehasbeenacontinueddeteriorationinpublic enhancethecapacityoflgUstogeneratemore finances,whichhasseenaslightbudgetsurplus localrevenues,therelativelevelsofwhichhavenot translate into a significant deficit. there have, increasedsignificantlyoverthelast10years.on however, been some upward trends since 2003 theotherhand,theproportionofnationalbudget and slight improvements which are projected going through Internal Revenue allotments tocontinueasrecenttaxrevenuemeasures(e.g. (IRas)hascontinuedtoincrease[Figure20]. vat)filterintotheeconomyandthegapbetween revenuesandexpenditurenarrows[Figure18]. Fig. 20: percentage of national Budget to lGu's (1992-2001) Fig. 18: Government revenue, expenditure and deficit as % of Gdp (2001-2009) source:dBm 9 RefertoPhilippinesImprovinggovernmentPerformance;discipline, efficiency and equity in managing Public Resources a Public management,ProcurementandFinancialmanagementReviewworld source:doF Bank/adBapril2003. 14 Working Paper on Rural Growth and Development Revisited 4.1.1. moreover, although revenue mobilization and 4.2.1. maintenance, operating and other expenses administration at the local level appear to have (mooe)andcapitaloutlay(co)areessential greatpotential,theimpassevis-à-visIRasandcost for making and maintaining past and current sharearrangementsbetweenngandlgUshas investments. that these cost items have had introducedconsiderableuncertaintyininvestment declining allocations is unfavourable in terms planning and expenditure. this needs to be of increasing and sustaining the productive, addressedquickly. capital stock of the country. these will require governmenttofocusonprovidingstrategicpublic goodsinlinewithrecognizedpriorities,reducing MTPDP Thrusts - Fiscal Strength: thepublicsectorwagebillthroughrationalizing The Plan clearly recognizes that the government can not thebureaucracytoincreasetheshareofnon-wage continue sustaining national growth through foreign expenditure. and domestic borrowing as growing interest payments will fast erode the budget share of non debt servicing 4.2.2. allocativeefficiencyisalsodiminishedbyvarious expeditures. This will have clear repercussions on distortions.amajorconcernistheallocationof public service delivery and invesment. The government scarceresourcestospecialbudget/development is, therefore, committed to strengthening fiscal and funds that are not necessarily aligned with expenditure discipline and by doing so provide positive nationalprioritiesandarenottransparentinuse. signals to investors to increase the inflow of foreign theprevalenceofspecialcongressionalfundsin and domestic capital, new technologies and jobs. the national budget raises the issue of budget In the medium term the priorities, therefore, are: (i) comprehensiveness, as expenditures from these generate higher tax revenues through VAT (the bill for fundsarefrequently"off-budget"astheyarenot which has been passed); (ii) balance the Government accountedforeitherduringbudgetformulationor Budget by 2010; (iii) reduce the consolidated public execution.Individualsenatorsandcongressmen sector deficit (CPSD) from 6.7% in 2004 o 1% of GDP arealsoentitledtoavarietyofadditionalfundsfor by 2010 and; (iv) reduce the ration of public sector developmentpurposes,andothercongressional debt to GDP from 136% in 2004 to 90% by 2010. initiatives,andtocompensatoryallowances.these congressionalfundsineffectrepresentasignificant amountofoff-budgetresourceallocationthatis 4.2PoorAllocativeEfficiency&PublicExpenditure not open to prioritization, accountability, and Management. to compound the problems of falling transparencyrequirementsasotherexpenditures budgetsisthedeteriorationinspendingonoperations are.thisinevitablyunderminestheefficienciesof andespeciallycapitalinvestment(mooeandco).In properpublicinvestmentplanning[section4.3]. contrast,thecostandshareofpersonnelserviceshave increasedsharply[Figure21]. 4.2.3. an additional issue is the myriad of special authorities,corporations,funds,andadministrations Fig. 21: percentage of national Budget by Category affiliatedwithsectoraldepartments.Forexample, the da and daR have 11 government corporations and numerous special-purpose funds, the total allocation of which represents morethantwothirdsofthetotalsectoralbudget. Inagriculture,publicgoodsandservicesaccount foronly40percent,whilstricepricestabilization receives20percentofallocation. 4.2.4. theslowdevolutionoffunctionsandresources has added to the problem and costs, as institutional arrangements for service delivery remain incomplete and national agencies source:dBm continueplayingaroleinfunctionsthatshould 15 rural development and natural resources sector unit (easrd) havebeenfullydevolved.Inagriculture,research 4.2.7. themajorsourcesofgrowthincropproduction and extension, for example, remain de-linked will also need sustained public expenditure and key infrastructure such as farm-to-market investments in improved and strategically roadsandcommunalirrigationaredeteriorating located irrigation and farm-to-market roads, duetothisconfusionofresponsibilityandfund market related developments and increased flow.tomakedevolutionanddecentralization farmer access to these facilities, adoption moreeffectiveandlesscostly,lgUcapacityin of improved seed varieties, and limited area financial management and procurement will expansion. be essential to improve service delivery and accountability. 4.2.8. In agrarian reform, key recommendations would be to complete land distribution and 4.2.5. ImprovingAllocativeEfficiencyinAgriculture agrarianreformasquicklyaspossibletoreduce andAgrarianReform.Inlinewiththethrusts distortions and uncertainties as the economic inthemtPdP,theallocativeefficiencyofpublic cost of delaying the process are extremely resourcestoagricultureandagribusinesssectors high. the suggestions10 toward this end hastobeimprovedsubstantially.Inagriculture, include: (i) exploring ways to finance land given resource constraints, public expenditure acquisitionthroughalternativesources,inview will need to be more narrowly focused on ofthemagnitudeoftheresourcesrequired;(ii) "growth-enhancingpublicgoodsandservices" greateruseofmarket-orientedandcommunity- and less on personnel. Figure 22, illustrates driven modalities of land transfer; and (iii) the distribution of da's regular (non-aFma) pursuitofa"parallelapproach"thatbalances budgetbycategory. public expenditure on land acquisition and distributionwithprovisionofsupportservices Fig. 22: percentage of Total da Budget to previously redistributed landholdings. by Category, 2005 the provision of support service through convergence in rural development involving agenciesandstakeholders,undersomeformof areabasedapproach,forexampleagribusiness [section 5.3.2], would also have additional benefitsthroughcomparativeadvantages,value additionandmultipliers. 4.2.9. the composition of expenditures can also be improved by goP: (i) phasing out of private and non-growth-enhancing goods and services - including price stabilization, whichbenefitsonly3percentofricefarmers, and production inputs (e.g., seeds); and (ii) source:da movinglgUstowardfinancingmajorgapsin devolvedresponsibilities,especiallycommunal 4.2.6. conversely, non-growth enhancing ex- irrigation, research and extension and penditures such as those for rice price strengtheningfarmers'institutions.directing stabilization, which account for 20 percent more resources for agriculture development of the agriculture sector's allocations, need in mindanao would also have large benefits, to be phased out. the government has also inviewoftheisland'sconsiderableuntapped expressed determination to resolve issues potential. relatedtotheremovalofthenationalFood authority's monopoly to import rice and to allow farmers' organizations to undertake 10Improving government Performance: discipline, efficiency and equity in managing Public Resources goP, world Bank asian directimportation. developmentBank(2003). 16 Working Paper on Rural Growth and Development Revisited 4.3.2. In addition, line agencies tend to budget MTPDP Thrusts for Allocative Efficiency: and spend on an ad hoc basis as even small The MTPDP recognizes that revenue reforms and fiscal discretionary allocations are rarely predictable. strengthening have to be complemented strongly by expenditure restructuring and discipline at agency Indeed,unpredictabilityoffunding,fromoneyear level. The following are advocated: (a) rationalizing the tothenextandwithinthebudgetyear,isoneof scope and function of government agencies through manyfactorsthatcontributetopooroperational voluntary separation and reengineering; (b) improving performance in the public sector. others are budget allocation to focus expenditures towards relatedtothefailuretodirectresourcestopolicy those areas with the greatest number; (c) reversing priorities­insignificantpartbecausebudgetingis the decline in public investments to strengthen treatedasanannualfundingexercise,notapolicy- the economic capital and strictly prioritize capital basedexercise-andtothelackofauthorityand expenditures for infrastructure to those with the responsibility given to line managers to manage greatest economic returns for the country, as a whole, resourcesattheirdisposal. in terms on ensuring transport and communication linkages, providing base power and water supply, and 4.3.3. Budgetinginthelineagenciesismostly"planor promoting agribusiness; (d) rationalizing NG spending for devolved services; (e) reducing debt service through needsdriven"ratherthanbasedonaperception debt management; and (f) reducing Government ofavailability,despitethedepartmentofBudget Owned and Controlled Corporation (GOCC) deficits. management's (dBm) prior warning on the The specific expenditure rationalization measures available funding in an annual cycle. these include both administrative and legislative measures. conflicting positions have become par of the course.thedepartmentofFinance(doF)and dBmareobligedtokeeptightbudgetceilings 4.3. Policy,PlanningandBudgeting inlinewiththepresentfiscalclimateandforecast availability, whilst line agencies routinely inflate 4.3.1. governmenteffortsatimprovingfiscalhealthand needstoprotectagainstperceivedcutsandfear disciplinecouldbeconsiderablycompromisedby that if lower better prioritized budgets were thecontinuedpoorlinkageamongdevelopment submittedtheirceilingswouldbecut.thisleads policy (targets), planning and budgeting. this tosignificantdiscrepanciesbetweenproposedand contributestopoorbudgetingoutcomesatthe appropriatedbudgets[Figure24].theresultis macro, strategic and operational levels as the aninefficientbudgetprocess,whichundermines processishighlyfragmentedandindependent. effectiveness. Planning,moreover,ismostlyfocusedondonor fundedinvestmentactivities,whichsupplement Fig. 24: denr Budget, 2000-2005, Current prices capitaloutlayandmooe.consequently,annual budgeting is reduced to allocating resources thinly across donor and domestically funded capitalprojectsandtooperations[Figure23]. Fig. 23: da projected expenditure by Category and source, 2005 4.3.4. moreover,betterreconciliationbetweenproposed andappropriatedbudgetswillneedtimeandmore fundamental restructuring of public expenditure engaging dBm, neda, line departments and the cabinet (as inter-sectoral trade-offs have to 17 rural development and natural resources sector unit (easrd) be faced) in a process that has a medium-term adjustmentofinteragencyandlgUallocations perspective.donorsalsoneedtobeinvolvedgiven based on performance assessment results, and theirsignificantcontributiontobudgetfinancing. developcongressionalcapacityformoreeffective "availability,"bothdomesticfundsandaid,must oversight of the planning and budgeting beprojectedbeyondasingleyear,andindicative process. shares communicated to departments. "needs" must be prioritized and made consistent with 4.3.7. Inviewofthelevelsofexpenditureinagriculture the resource framework. all these must happen andagrarianreform,keyactionsintheshortterm inamannerthatencouragesdepartmentstore- couldcompriseamoredetailedreviewofapparent examine commitments, together with oversight agencyandlgUunder-spendingonagriculture agencies, under a workable and holistic Public andagrarianreformbasedonaFma,agriculture InvestmentProgramframework. andFisheriesmodernizationPlan(aFmP),and other objective criteria, exploring alternative 4.3.5. Improving Planning and Budgeting in methods of financing; and implementing new Agriculture. to continue the process of landacquisition.Inthemediumterm,areview improvingbudgetingandresourceutilizationin ofagriculturesectorallocationsbasedonaFma theagriculturesector,thereisaneedtocontinue levels,buildinglgUcapacitytoaccessalternative moving towards functional budgets and away financing schemes for agriculture and agrarian fromthecommodity-basedstructurewhilealso reformPaPswillbeneeded.Inthelongerterm, enhancing convergence of resources. there is theemploymentofalternativefinancingschemes also a need to eliminate costly duplication of andmodalitiesfornewlandacquisition,andthe functions (e.g. public sector several agencies design and implementation of alternative lgU involvedinfarmtomarketroads).short-term financingschemesarerecommended. actionstowardtheseendscomprisestrengthening the linkage between planning and budgeting 4.3.8. allocatingresourcesbyfunction11andmeasuring withineachagencyinlinewithmFosandthe the impact of outcomes and service delivery further simplification of reporting systems. In are also important in effective planning and the medium-term, budget control needs to be budgeting. In the short term, this would decentralized away from agencies to lgUs, includestrengtheningthesectorefficiencyand as capacity and accountability improve, and effectiveness Reviews (seeR) process and the ways found to make levels of lgU financing capacityoflgUsinagriculturesectorplanning, proportionatetodevolvedresponsibilities.Inthe budgeting,andextension.Inthemediumterm, longer term, a holistic PIP would require that there is a need to pursue effective cost-sharing sector representation participate in the budget mechanisms for expenditures on infrastructure, settingprocess. research, development and extension, and productioninputs.thereisalsoaneedtopursue 4.3.6. ForprioritizingPaPs,keyrecommendationsfor the convergence of PaPs across da, daR, theshorttermincludethepursuitofa"plan- lgUsandtheprivatesectorespeciallyinagrarian driven" approach to budgeting with stronger reformcommunitiesandconductofindependent output-outcome linkages, and a systematic impactandoutcomeassessmentsatsector,agency reviewofthekeyreasonsforreversionoffunds andlgUlevels.Inthelongerterm,itmaybe at year-end. In the medium term, there is a necessaryto"mainstream"keyissuesregarding need to strengthen strategic planning capacity implementationofexternally-financedprojects. in agencies and lgUs, and develop and use quantitative methodologies for prioritizing agencyandlgUPaPs,developandpilotsector- 11 anexampleincludestheworldBankdiversifiedFarmIncomeand market development project, which set budget targets by mFo/ level,agencyandlgUperformancemonitoring function (not commodity or programme) to meet better declared and assessment methodologies. In the longer daprioritiesinmarketdevelopmentunderaFma.theprojectalso term,thereisaneedtoadjustsectorallocations prioritizedimprovedlinkagesbetweenplanningandbudgeting.the proposedworldBankprojectsfordenRanddaRwillalsobebased basedonsectorperformanceassessmentresults, ontargetedexpendituresupportbymFo. 18 Working Paper on Rural Growth and Development Revisited importance of finance to other sectors, the MTPDP Thrusts - Planning and Budgeting poor performance of agricultural banks and The main thrust in the medium term will be credit lines, and moves against the use of on operationalizing the Medium-Term Public subsidizedcredit. Investment Program (MTPIP), to build on national 4.4.2. thefocusofrecentBankoperationsistherefore priority programs, activities and projects (PAPs) in shiftingmoretocreditforagriculturalproduction support of the MTPDP. The approach to planning and agribusiness, small loans for off-farm needs to be bottom up and participatory. The MTPIP activities, and savings services. although these will be used to monitor NG targets, commitments havemetwithsomesuccess,thereisconsiderable and resources, in terms of public investments, over needtofindviablemechanismstoaddressthe the medium term. It will also serve as a critical input specificdemandsforagriculturalfinancing.to to the annual NG budget formulation, guided by meetthesechallenges,therefore,theworldBank the Medium-Term Expenditure Framework (MTEF) advocates12anumberofinnovativeapproaches through the Development Budget Coordination includingfinancialsystemsdevelopment,which Committee (DBCC) and set the tone in resource viewsagriculturefinancingaspartofthewider programming by the Investment Coordination rural finance market. the approach is based Committee (ICC). The program will be a three- on the premise that institutions adhering to year rolling list of PAPs, which will be updated commercialprinciplesaremorelikelytoachieve outreachandsustainability,whilstthattheroleof annually to roll out over the succeeding years until thepublicsectorshouldbefocusedonensuring the end of the medium term. The MTPIP shall also thattheenvironmentremainsconduciveforthe be consistent with the fiscal program, for which establishmentandgrowthofsuchinstitutions. the PAPs shall be prioritized through the Efficiency the Bank also advocates the formulation of and Effectiveness Review Criteria approved by the a policy framework for the crucial role of the planning committees. Initially, the 2005 budgets public sector in maintaining macroeconomic of the 11-piloted departments with harmonized stability and establishing sound regulatory major final outputs (MFOs), for which performance principlesinthefinancialsector.tobeeffective indicators have been developed, will be submitted this must be supported by accompanying to Congress. provisions for secure property rights, financial transactions,andmobilisationofsavings.the Bank further advocates credit focus for the poor through microfinance and the provision 4.4. AgriculturalFinance ofsubsidies,creditlinesandguaranteesunder certainagreeablecircumstances,whichwillnot 4.4.1. agriculturalfinanceiscriticaltoproducersfor distortmarkets. meetingarangeofproductionandmarketing needs i.e. inputs, irrigation, technologies; 4.4.3. In the Philippines, a number of key reforms transport and other marketing costs. such wereintroducedinruralfinancialmarketsinthe financingenablesproducerstoinsureagainst late1990sinrecognitionofthefailureofearlier price and/or yield fluctuations and invest subsidized directed credit programs (dcP). in value addition and agribusinesses. the to facilitate and consolidate programs, the internationalexperienceofprogramsincredit agricultural modernization credit Financing andruralfinance,however,hasnotbeenoverly Program (amcFP) was created under the encouragingasmanyschemeshavenotproved aFmaandwasviewedasawholesalefinancing to be neither financially nor economically facility for the agriculture sector. a number soundandsustainable,principallyduetothe of constraints, however, still persist in rural prevalenceofsubsidies.consequently,lending lending,chiefly:(i)somesubsidizedprograms for rural financing, like research, has been declining.thisisattributedtothegrowing 12worldBankagricultureInvestmentsourceBook. 19 rural development and natural resources sector unit (easrd) still remain in the da and its bureaus; (ii) 4.4.4.thefollowingareneeded:(i)therationalization the da and land Bank of the Philippines of of directed credit programs in agriculture the Philippines (lBP) have yet to develop and the immediate termination of remaining details of the amcFP and the strategies and (subsidized)creditprograms;(ii)thedownsizing instrumentstobeusedforfinancingagricultural ofmorefundsneedtobechannelledthrough modernization; (iii) banking obstacles that gFIsforon-lendingthroughtheprivatesector; do not allow land from agrarian reform to (iii)thefinalizationbythelandBankofthe be used as collateral for credit still exist; and Philippines (lBP) and da, working with the (iv) the partnership between government private sector, of operational modalities for financialinstitutions(gFIs)andprivatesector implementing the amcFP in line with the institutions for on-lending remain very weak. aFma;(iv)makingmoreaccessiblefundingfor oftotallending,therefore,little(lessthan10 long-termcrops;and(v)increasingthefacility percent)goestoagriculture.[Figure25] forsmallloans(150,000-1millionpesos)as financingforexportorientatedcropsneedsto beencouragedandincreased. Fig. 25: share of Total lending to agriculture MTPDP Thrusts - Rural Credit: To ensure efficient rural finance support to agriculture and agri-business development the plan advocates: (i) all directed credit programs will be rationalized by December 2005; (ii) public-private sector mechanisms to mobilize finance for the fisheries sector will also be established; (iii) legislation on the farmland as collateral bill will be expidited; and (iv) the Agriculture Competitiveness Enhancement Fund (ACEF) will be extended to 2015. source:creditPolicycouncil 20 Working Paper on Rural Growth and Development Revisited 5.governance,PolicyandRegulations Inspearheadingeconomicgrowth,thegovernmenthasto Furtherprogressisessentialonthegovernment's maintainaconduciveandcompetitivemacro-economic, plans for providing incentives for exit packages policyandregulatoryenvironmentthatwillencourage (eo 366) and ensuring that related costs are greater inflows of aggregate foreign and domestic fiscally manageable and that there are minimal investments.Inadditiontophysicalinfrastructure,thiswill abusesthroughre-entry.Reducingthenumber requireittosendtherightandsustainedpolitical,fiscal, of presidential appointments to civil service expenditure,policy,institutionalandgovernancesignals. positions would also send a strong signal of strengtheningtheoverallinvestmentclimate,providing governmentcommitmenttostrengtheningcivil the required infrastructure, improving fiscal discipline servicemeritocracy,professionalismandmorale. andrationalizingpublicsectorexpenditurearediscussed above.theremainingissuesinclude:(i)governanceand 5.2.1. specificallyinruralinstitutions(da,denRand corruption:(ii)bureaucraticandinstitutionalefficiency; daR),theproblemsofalargebureaucracyare and(iii)"good"policyandregulations. exacerbatedbyoverlappingmandates,functional duplication, and incomplete functional and 5.1.GovernanceandCorruption fiscal devolution to local governments. these inefficiencies add substantially to the cost 5.1.1. efforts by the administration in strengthening of running institutions and substantially governance in public institutions and reducing compromises service delivery. to redress corruption will go a considerable way in these inefficiencies will require greater efforts, determiningoverallinvestorconfidence.However, outlined in the mtPdP, at forging agency thePhilippineshasbeenrankedpoorlybytheworld convergence on planning and implementation economic Forum at 100 out of 104 countries of rural development activities, rationalizing worldwide for widespread corruption in 2004.13 overlapping functions and strengthening thisexternalperceptionisconsistentwiththatof devolutiontolgUsfordevolvedpublicservices domestic investors, a large proportion of whom like infrastructure. caution in the devolution considermostpublicinstitutionsasbeingcorrupt. process,however,isneeded,asexperienceshows althoughanumberofinitiativeshavebeeneffected, thatalthoughsomelgUshaveperformedwell, thesewillneedtobesustainedandfollowed-upto others have not. Improving service delivery haverealimpact.theseinclude:(i)procurement through improved lgU performance calls for and financial management reform under the greater local resource mobilization and the ProcurementReformactof2003;and(ii)greater implementation of procurement and financial decentralizationofservicestolocalgovernments. managementreformscoupledwithinstitutional strengthening,betterlocalbudgeting,andmore effective management of human and financial MTPDP Thrusts - Corruption: resources and assets. key areas which need to Themainstrategiesare:(i)zerocorruptiontolerance;(ii) be addressed to make decentralization more minimize opportunities for misconduct in government; effectiveinclude:(i)designofdecentralization; (iii) improve audit of systems and procedures; and (iv) (ii) lgU revenue mobilization; (iii) lgU further strengthening procurement reforms. financing;and(iv)lgUbudgeting14. 5.2.BureaucraticandInstitutionalEfficiency 5.3. PolicyandRegulation 5.2.1. In addition to rationalizing costs through rightsizing, efforts at making the civil service 5.3.1. Poor, conflicting and inconsistent policies and more merit-based, improving the structure of unnecessarilycomplexregulationscansignificantly salariesandremunerationandingrainingstronger distort economic signals and markets and add integrityinpublicofficeareessentialtoimproving considerablytothecostofdoingbusiness.this overallpublicservicedeliveryandperformance. canleadtosubstantialmisallocationofresources; deter investment, and compromise innovation, diversification and ultimately growth. In the 13worldeconomicForum:globalcompetitivenessReport2004-2005 Philippines,thepreponderanceofregulations(that -competitiveIndexsurvey2004. 21 rural development and natural resources sector unit (easrd) environment,strongfinancesandservicedelivery, MTPDP Thrusts - Bureaucratic Reform: a well functioning and transparent regulatory, The main strategies are the: (i) elimination of irrelevant policyandlegalsystem,andgoodinfrastructure. functions; (ii) consolidation of duplicated functions; (iii) improving of salary structure and merit based 5.3.3. thePhilippineslagssignificantlybehindmany competing countries in providing for these promotions; and (iv) ensuring of continuity in public veryclearneeds,makingthecountrymuchless sector staffing and reduction in the number of competitive and responsive to fast emerging political appointees. Specifically in the agriculture, global trade and market opportunities. agrarian reform and natural resources (AARNR) Unaddressed,thegapwillsimplygetlarger.to sector, the emphasis of reforms will be on: (i) greater promotebetterpublic/privatecooperationand functional compliance with the provisions under the partnership in agribusiness development, the LGC, AFMA and the Fisheries Code; (ii) improving followingareadvocated15:16: efficiency and convergence and reducing overlaps in the three agencies; (iii) implementing AFMA · thepublicsectorshouldnotdowhattheprivate provisions for rationalizatinon and consolidation of the sector can do better (e.g. direct provision or system of agriculture and natural resources research, distribution of agricultural inputs - seed or development and extension; (iv) integrating various fertilizer); · Publicinterventionsshouldgotoactivitiesthat agencies involved in the land titling; and (v) shifting have the highest potential for economic and further the orientation of DA toward functional lines socialbenefitsandnotwherepowerfulpolitical and away from commodities. lobbyistswantittogo; · the use of input and credit subsidies, where theyexist,needtobephasedout;and oftenfacilitaterentseeking,andpoliticalandjudicial · greaterconsultationshouldbeencouragedin interferenceinregulatorydecisionsaredetrimental preparation and implementation of new rules to policy credibility. conversely, if public sector and regulations related to the agricultural servicedeliveryisimprovedandaccesstoeconomic (domesticandinternational)trade. opportunity enhanced, public confidence in economicpolicywouldstrengthen.Furthermore, thewillingnessofcitizenstopaytaxesinexchange MTPDP Thrusts - Agribusiness: forimproveddeliveryofpublicgoodsandservices The principal plan goals are to substantially increase wouldalsoimprove.taxes,expendituresandpublic aggregate production (2 million hectares), raise servicesarethereforeinextricablylinkedviaasocial productivity, particularly of high value and export crops, contractlinkingeconomicandgovernanceagendas, and improve access to food markets. The related thrusts providingasustainableapproachtoeconomicand are: (i) fostering greater public/private partnership to humandevelopment. facilitate the transformation of farming to agribusiness; (ii) implementing specific programs for intensifying crop, 5.3.2. PolicyReform&Agribusiness:agribusinessis livestock and fisheries production, especially high value veryhighontheagendaforpromotingsectorand products; (iii) transforming idle lands and resources into general economic growth in the Philippines. to productive agribusiness enterprises; (iv) promoting off- achievethiswillrequirewellfunctioningmarkets and non-farm enterprises; and (v) making Mindanao andanengaged,innovativeandcompetitiveprivate the country's main agro-fishery export zone. In sector.loweringdistortionsandpricesignals(see raising productivity the plan focus is to: (i) raise factor above)andfacilitatingefficientagriculturalmarkets productivity -- to regional average levels in 6 years; (ii) willprovidethecrucialplatformforinvestmentand improve the effectiveness of transport and logistical capitalizingonmarketopportunities.tomeetthe systems; and (iii) implement critical governance reforms needs of the private sector, the government, as to make the public sector and policy less distortive15 and discussedthroughoutthispaper,hastobeproactive more responsive to enterprise and private sector needs. inprovidinganenablingandstablemacroeconomic 15 14 worldBankReport(32055-PH)Philippines:shorttermgrowthto worldBankagricultureInvestmentsourceBook. 16 sustaineddevelopment.april2005. thisincludesfurtherrationalizationofgraintradingandreorganisation ofnationalFoodauthority(nFa). 22 The World Bank Group World Bank Office Manila 23rd Floor, The Taipan Place F. Ortigas Jr. Road, Ortigas Center Pasig City, Philippines Telephone: (632) 637-5855 Internet: www.worldbank.org.ph World Bank - Headquarters 1818 H Street N.W. Washington, D.C. 20433 USA Internet: www.worldbank.org