International Bank for Reconstruction and Development

FOR OFFICIAL USE ONLY

CG200048

FROM: The ActingSecretary December28, 2000 Public Disclosure Authorized CONSULTATIVEGROUP MEETING FOR THE PHILIPPINES

Chairman'sReport on the Proceedin!s

1. Attachedis the Chairman'sReport on the Proceedingsof the ConsultativeGroup Meetingfor the Philippinesheld on June 19-20,2000 in TagaytayCity, Philippines.

2. The meetingwas chairedfor the first timeby the PhilippineGovernment, represented by the Departmentof Finance;hence, the reportwas preparedby the Departnentof Finance.

Distribution For Information

Public Disclosure Authorized ExecutiveDirectors for: CountryOffice, Manila Australia Malaysia EuropeanOffice Austria Netherlands TokyoOffice Belgium New Zealand Canada Norway Denmark SaudiArabia Finland Singapore France Spain Kuwait Sweden Germany Switzerland Italy UnitedKingdom Japan UnitedStates Korea Public Disclosure Authorized ExecutiveDirector for the Philippines Vice President,Investment Operations, IFC Asian DevelopmentBank Chairman,DAC/OECD Conunissionof the EuropeanUnion Embassyof Brunei(Washington, D.C.) EuropeanInvestment Bank NordicDevelopment Fund IFAD InternationalMonetary Fund IslamicDevelopment Bank KuwaitFund for Arab EconomicDevelopment OPEC Fund Public Disclosure Authorized SaudiFund for Development UnitedNations Development Program

This document has a restricted distributionand may be used by recipients only in the perfonnance of their official duties. Its contents may not otherwisebe disclosedwithout World Bank authorization. Summary Report of the Proceedings by the Chairman 2 3rd Consultative Group Meeting for the Philippines

Tagaytay City, Philippines June 19-20, 2000 1

CONSULTATIVEGROUP MEETING FOR THE PHILIPPINES Tagaytay City, Philippines, June 19-20, 2000

Summary Report of the Proceedings by the Chairman

1. The twenty-third meeting of the Consultative Group (CG) for the Philippines was held on June 19-20, 2000 in Tagaytay City, Philippines under the chairmanship of the Philippine Department of Finance and co-chairmanship of the World Bank. It was the first time that the CG meeting was held in the Philippines, and chaired by the Government of the Republic of the Philippines. Participants from the Philippines included representatives from the Departments of Finance, Agriculture, Agrarian Reform, Budget and Management, Education Culture and Sports, Energy, Environment and Natural Resources, Foreign Affairs, Health, Social Welfare and Development, and Transportation and Communications; National Economic and Development Authority; Bangko Sentral ng Pilipinas (central bank); Bureaus of Customs, Internal Revenue, and Treasury; Office of the President; representatives from the Economic Coordinating Council, House of Representatives and Senate of the Philippines; Development Academy of the Philippines; Development Bank of the Philippines; Land Bank of the Philippines; National Anti- Poverty Commission; Supreme Court of the Philippines; and a representative from the non- government organizations.

2. The donor community was represented by delegations from Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Italy, Japan, Korea, Malaysia, Netherlands, New Zealand, Norway, Saudi Arabia, Singapore, Spain, Sweden, Switzerland, the United Kingdom, and the United States of America. The international organizations participating in the meeting included the Asian Development Bank, European Community, International Finance Corporation, International Fund for Agricultural Development, International Monetary Fund, Saudi Fund for Development, United Nations Agencies (UNDP, ILO/SEAPAT, UNFPA) and the World Bank. Please see "List of Participants" in Annex 1.

3. The theme for this year's CG meeting was "SustainingPoverty Reduction Through Growth and Other Supporting Policies" (see Agenda of the Meeting in Annex 2). The Philippine delegation presented the following main documents in the meeting: The Philippines: Accelerating Development, Sharing Growth; ConsolidatingEconomic Growth; Expanding the Capacities and Reach of Pro-Poor Services; Status and Prospectsfor Rural Development and Poverty Alleviation in the Philippines; and Embracing Governance Reforms in the Philippines: Promoting Competition, Accountability and Social Responsiveness. The Philippines also distributed The President's 1999 SocioEconomic Report, Sustaining Poverty Reduction Through Growth and Other Supporting Policies: A Progress Report, and Report on the 8th Annual ODA Portfolio Review. In addition, the World Bank distributed reports entitled Philippines Growth with Equity: The Remaining Agenda, and Combating Corruption in the 2

Philippines. The main statements by the Government and Donor representatives delivered during the meeting are in Annex 3, and other statements delivered by donor representatives are in Annex 4.

Opening Session

4. The Chairman, Mr. Jose T. Pardo, Philippine Secretary of Finance, welcomed delegates to the meeting, and thanked the co-chairman, Mr. Vinay Bhargava, Country Director for the Philippines of the World Bank, for the World Bank's support in the preparations for this year's CG meeting. Secretary Pardo emphasized that while the Philippine economy continues to post respectable growth three years after the Asian crisis, the Government needed the support of the donor community in its socio-economic program which focuses on enhancement of basic services and economic opportunities, particularly in the rural areas. The meeting agenda covered economic development, poverty reduction and policies, structural and public sector reforms, and aid utilization. Secretary Pardo enjoined donors to express their views on these Government priorities.

5. In his opening remarks as co-chairman, Mr. Bhargava commended the Government for hosting the CG meeting, thus, taking a stronger leadership role in the aid coordination process, and for its responsiveness to suggestions from the last meeting. Mr. Bhargava pointed out four areas which he hoped would receive concrete suggestion during the meeting: (i) how to boost sagging investor confidence and accelerate GDP growth to 5-plus percent in the remaining years of the Medium Term Plan; (ii) how to make growth more equitable, particularly in Mindanao, through a focused development program; (iii) how to improve governance in the private and public sectors; and (iv) how to make better use of ongoing and new ODA commitments.

Session 1: Recent Socio-Economic Developments, Achievements and Challenges

6. Secretary Pardo gave a presentation about the present state of economic development in the Philippines. He assured the donors that the Estrada administration was pursuing the economic reforms the Government had embarked on. The fundamentals of the Philippine economy remained strong, as seen by continued economic growth, low inflation and low interest rates. The budget deficit in 1999 reflected the efforts of Government to sustain the economy inspite of lower tax collections. Government spending was also within the expenditure target, inspite of the requirements arising from the Mindanao conflict. To enhance the country's long-term competitiveness, Government aimed for (i) a balanced budget by year 2003, (ii) continued banking reforms through the enactment of a new central banking act; (iii) privatization of certain Government assets; (iv) more foreign investments with the new Retail Trade Liberalization Act; (v) completion of legislation on the restructuring and privatizing of the power sector; (vi) reforms towards development of domestic capital markets; (vii) reforms in the grain sector aimed at food security and stable prices; (viii) building of a knowledge-based economy to keep up with technological advancement; and (ix) substantial progress in enterprise and farms credit policy. To increase investor confidence, the Government had created a high-level interagency task force to maintain peace and order in the country. For year 2000, Government targeted to achieve GNP and GDP growth of 4.5 to 5.5 percent, and 4 to 5 percent, respectively, an inflation rate of 5 to 6 3 percent, while keeping the 91-day T-bill rate at 9.5 to 10.5 percent, and the budget deficit at P62.5 billion or 1.8 percent of GNP.

7. In addition to Secretary Pardo's statement, a presentation was made by central bank Governor Rafael Buenaventura on monetary and external account performance of the Philippines. Governor Buenaventura highlighted the achievements of the Philippines in terms of strong export growth, which contributed to an impressive current account surplus and overall balance of payments position. The gross international reserves were at record levels, while total external debt of the country continued to be manageable, consisting mainly of medium-to-long term loans. The banking sector had sustained its soundness. Interest rates were kept consistent with requirements for growth, and the peso exchange rate versus the U.S. dollar had remained broadly stable. In terms of banking reforms, the General Banking Law was enacted to strengthen the regulatory and supervisory framework of the banking system.

8. Mr. Sean Nolan of the International Monetary Fund (IMF) stated the IMF's views on the Philippines' socio-economic development. Mr. Nolan observed the solid macroeconomic performance of the Philippines, and said that the weak business confidence in the country may undermine the benefits of recovery. The factors that affected investor sentiment included budget deficit, slow progress in implementing Government's structural reforms, governance concerns, and the Mindanao conflict. The IMF recognized Government's efforts to manage the deficit in year 2000, the formation of the Economic Coordinating Council, progress made in reform legislation, and continuing adherence to existing foreign exchange, monetary, exchange and trade, and domestic regime policies. According to Mr. Nolan, the following measures and actions were needed to strengthen the reform program and revive market confidence: passage of power sector reform legislation, restoring confidence in the stock market, passage of revisions to Bangko Sentral ng Pilipinas law, and completion of privatization of the Philippine National Bank. He added that the Government's macroeconomic targets for 2000 were achievable if macroeconomic policies remained on track, the reform agenda was vigorously pursued, and the security situation improved. Mr. Nolan concluded that the Philippines had the potential to achieve a GDP growth rate of at least five percent per annum over the medium term considering the evident global competitiveness of Filipino workers. He emphasized the need for: (1) strengthening public service delivery in education, rural development, and physical infrastructure, through increased tax revenues and implementing expenditure reforms; (2) strengthening the legal and regulatory environment; and (3) putting in place appropriate incentives to savings and investments through development of capital markets and contractual savings schemes.

9. The Asian Development Bank (ADB) likewise presented its assessment of the Philippine economy. ADB reaffirmed that the Philippines had gained economic growth momentum despite the lingering effects of the Asian economic crisis. However, ADB pointed out the minimal growth in industry and services, shrinking investments, and need for balancing fiscal stimulus with domestic and external stability. ADB expressed particular concern on the composition of the budget for 2000, need for better tax collections, distress in the banking and corporate sector, need for improved governance and regulation of the capital markets and non-bank financial institutions, and the peace and order situation in Mindanao. These concerns needed to be attended to position the economy on the path to a full recovery. To achieve medium term growth 4 targets, the country needed large investment support in the areas of agriculture, rural development and infrastructure. This would require public savings and the greater participation of private sector and local governments in the overall investment effort. In terms of poverty reduction target in the medium term, ADB observed that little progress had been achieved since 1997. On the other hand, progress in population management and environmental improvement was slow. ADB concluded that it was important to immediately address the socio-economic impediments that had inhibited development in the past, such as those calling for policy changes.

10. The summary of general discussions during the meeting is contained in "Closing Session".

Session 2: Progress and Plans on Poverty Reduction Policies and Programs

11. Agriculture Secretary Edgardo Angara talked on the "Status and Prospects for Rural Development and Poverty Alleviation in the Philippines", particularly on Government's five-fold rural development strategy including (i) modernizing the agriculture and fisheries sector; (ii) speeding up and fully implementing agrarian reform; (iii) promoting the proper use and conservation of natural resources; (iv) focusing the delivery of basic social services as well as providing safety nets during the transition period; and (v) implementing institutional reforms and strengthening inter-agency cooperation. The Government had progressed in its rural development strategy with the implementation of the Agriculture and Fisheries Modernization Act from which programs such as "Agrikulturang MakaMASA" and Agro-Industry Modernization Credit and Financing Program were conceived. The Government had also gained headway in intensifying land distribution and enhancing partnerships in support of agrarian reform communities such as launching of a joint venture program between agrarian reform beneficiaries and private sector entrepreneurs called "MAGKASAKA"; promoting environmental sustainability through adoption of strategies and programs such as Sustainable Forest Management Strategy, Community-Based Forest Resources Management Program, Coastal Resources Management, and Watershed or Ecosystems Management Approach; and initiating institutional reforms and inter-agency cooperation. These initiatives were to be pursued by Government amidst significant challenges posed by increasing resource constraints, operational bottlenecks in devolution to local governments, and the recent conflict in Mindanao.

12. Secretary Horacio Morales of the Department of Agrarian Reform (who is also lead convenor of the National Anti-Poverty Commission) explained the efforts of Government in "Expanding the Capacities and Reach of Pro-Poor Services". He discussed the efforts and achievements of Government in improving the efficiency and effectiveness of social services, addressing issues such as unequal income distribution, and improving access to education and health. The accomplishments in the implementation of the National Anti-Poverty Agenda (NAA), health sector reform, population program, and new education initiatives were also discussed. Secretary Morales explained the NAA aimed to create an enabling and empowering environment for the poor. Under NAA, Government would pursue focused targeting towards the poorest families throughout the country, convergence of services in targeted communities, mobilization of private sector investment, strengthening local governance for poverty initiatives, strengthening basic sector participation in anti-poverty policy formulation, and effective governance of the anti- poverty program of the Government. On health services, Government's action plan included the Health Sector Reform Agenda which intended to reform health care financing, health regulatory 5 environment, hospital systems, public health programs, and local health systems. Government's population program entailed formulation of a Population and Development Directional Plan for 2001-2004 in 1999, and preparation of the State of the Philippine Population Report. On the other hand, new education initiatives included prioritizing resource provision for basic education and middle-level manpower development, and establishment of a National Coordinating Council for Education. Secretary Morales noted that Government's budgetary allocation for basic social services was below 20 percent of total budget, and emphasized the importance of official development assistance support, which he noted had shown an unstable trend - the share of support to social services in total ODA fluctuated from 14.7 percent in 1995 to 9.6 percent in 1996, peaked at 18.45 percent in 1997 and suddenly declined to 6.06 percent in 1998. This highlighted the need for greater resources to be channeled into social services.

13. A non-government organization (NGO) representative, Ms. Ana Maria Nemenzo, was invited to the Meeting to deliver her views about the role of NGOs in the delivery of basic social services. Ms. Nemenzo explained the crucial role of people's organizations (POs) and NGOs in the National Anti-Poverty Commission (NAPC) in the planning, implementation, monitoring and evaluation of anti-poverty policies, programs and projects aimed to promote development and quality of life of the Filipino people. POs and NGOs were the links of NAPC-Basic Sector in different levels of communities in promoting and implementing national anti-poverty policies and programs. She stressed that the key foundations for empowering the poor still lay in available opportunities for self-organizing, social preparation, values and commitment building, savings mobilization, training of local leaders and organizers and continuing capability building. On microfinance lending, she suggested that donor support be directed at programs that would enhance the savings initiatives of the poor, upgrade the existing credit systems at the level of poor households, and strengthen their capacity to adopt improved financial systems.

14. Mr. Terence Jones, head of delegation of the United Nations (UN) agencies, was invited to talk on the subject of poverty reduction. The UN commended the Government for sustaining its growth and structural reform agenda and the progress it had made in tackling the challenges set out in the Medium Term Development Plan. On Government's aim to reduce poverty, Mr. Jones identified several opportunities to redefine and refocus the present efforts in macro-economic reform. He cited the need to produce and review with Congress and other stakeholders a gender- sensitive and pro-poor budget. In the area of employment policy, he stressed that employment could be tackled through growth and targeted measures, complemented by an effective social safety net, mechanisms that ensured compliance with labor standards, and measures that assured security of tenure. He informed that the International Labor Organization, with support from UNDP, should field a mission to explore these concerns with Government. In the area of population management, Mr. Jones suggested that Government consider the demographic impact of various policy instruments and program services, and to incorporate population management dimensions into the allocations of resources and determination of priorities. Finally, Mr. Jones urged Government to institute programs that strengthen the country's capacity to manage globalization that is consistent with the requirements of a national anti-poverty strategy.

15. The summary of general discussions during the meeting is contained in "Closing Session". 6

Session 3: Progress and Plans on Structural and Public Sector Reforms

16. Secretary Benjamin Diokno of the Department of Budget and Management gave a presentation entitled "Embracing Governance Reforms in the Philippines: Promoting Competition, Accountability and Social Responsiveness" to discuss Government's efforts in undertaking governance reforms. The Government's programs were categorized into nine areas: (i) institutional strengthening and streamlining of the bureaucracy; (ii) public expenditure and financial management; (iii) revenue generation and administration; (iv) local governance; (v) citizen and private sector participation; (vi) corporate governance; (vii) the rule of law, involving primarily the administration and delivery of justice and the maintenance of peace and order; (viii) graft and corruption; and (ix) information and communications technology. The first four represented the core of public management reforms, while Government continued to cooperate with the citizenry to achieve reforms in remaining areas. Government had created the Presidential Committee on Effective Governance- to ensure consistency and congruence of approaches to address institutional weaknesses. Reforms in public expenditure and financial management focused on budgeting and planning, procurement, and accounting and auditing. To strengthen revenue generation and administration, the elements of reform centered on the Bureau of Internal Revenue involving its organizational restructuring, the improvement of its information management system, streamlining the system of bank remittances, and improving its wage and incentive structure. For local governance, Government had formulated a policy framework for financing local governments' basic services and development projects predicated on promoting self-reliance.

17. The World Bank followed Secretary Diokno's presentation with its statement entitled "Governancefor Growth: The Immediate Agenda". The Bank acknowledged the steps taken by the Philippines in establishing a governance framework that is conducive to transparency, participation and poverty reduction. The Bank likewise noted the recent concerns on a weakening governance framework both in the private and public sectors. It also observed the Government's response to this new challenge as evidenced by the creation of the ECC, efforts to curtail tax erosion, progress on key economic legislation, creation of the Presidential Commission on Effective Governance, and the anti-corruption strategy developed by the Development Academy of the Philippines. The Bank commended the governance agenda presented by Government and suggested the following priority areas to help advance such agenda: (i) regaining confidence with legislation of a Revised Securities Act, and to trying a few, high visibility corruption cases conclusively; and (ii) maintaining the momentum and completing reforms in tariff reduction, banking sector, fiscal consolidation, and comprehensive tax reform process. In public sector reforms, the Bank suggested Government focus on the following basic areas: (i) intensifying anti-corruption efforts under a strong leadership from Government and with active civil society involvement; (ii) taking steps towards creating a meritocratic civil service; (iii) revamping Government financial management systems; and (iv) developing a more foolproof procurement system. The rapidly evolving field of e-government was noted as suitable for innovative approaches in the two latter areas. In advancing private sector participation, competition and transparency into new areas, the finalization of a power sector reform was seen as a next major step in the right direction. To improve both the growth prospects and distribution of income, the Bank suggested that food trade liberalization would afford growth and equity. While recent housing policies have been financially unfavorable and regressive, the Bank 7 endorsed the Medium-Term Philippine Development Plan for Shelter. The Bank concluded that law enforcement was important in many areas of reform - thus the need for judiciary reform under the Supreme Court, and strengthening the independence and diligence of regulatory bodies under the Securities and Exchange Commission.

18. The summary of general discussions during the meeting is contained in "Closing Session".

Session 4: Aid Utilization and Indications of Donor Assistance

19. A presentation was made by Socio-Economic Planning Secretary Felipe Medalla to discuss "Mobilizing ODA for Sustainable Growth and Poverty Reduction". Secretary Medalla cited that the Medium-Term Development of the Government called "AngatPinoy 2004" was in agreement with the new development paradigm of the donor community since both promote the principles of partnership and ownership. To address donors' concern, Government had instituted measures to improve aid disbursement including (i) improved project design and selection criteria; (ii) strict adoption of readiness criteria in the prioritization of new ODA; (iii) application of certain approaches such as use of adaptable program loans for complicated projects; (iv) establishment of a right-of-way fund in the 2001 budget to resolve resettlement problems prior to project implementation; and (v) the enhancement of a cost-sharing arrangement between the national government and local governments to effectively decentralize project identification and ensure project sustainability. To fast track the project approval process, government offices cooperated to ensure timely compliance with conditions for project approval, issuance of environmental compliance certificates, and addressing of implementation bottlenecks. Secretary Medalla also pointed out that an improved coordination between the Government and the donor community would help avoid disbursement-relatedproblems. Such improved coordination would involve the (i) continuing conduct of consultative-style programming exercises; (ii) non-inclusion of legislative measures in program loans; and (iii) avoidance of policy decisions as condition for loan effectiveness. Secretary Medalla recognized that Government needed to pay attention to governance aspects of project management. Finally, Secretary Medalla informed the donors that Government's priority in the development of Mindanao was to immediately implement or accelerate projects that were already in place and to improve and expand the delivery of basic social services.

20. Each of the donor delegations expressed their views on the Philippines' socio-economic development. The donors acknowledged that economic progress had been achieved through sustainable policies and reforms but expressed their concern primarily on the alleviation of poverty in the country (please see "Closing Session" for a complete summary of discussions). As an indication of their continuing support to socio-economic development in the Philippines, the donors pledged a total of US$2.6 billion in new ODA.

21. The summary of general discussions during the meeting is contained in "Closing Session".

Closing Session

22. The Co-chairman, Mr. Vinay Bhargava, thanked President Estrada for hosting the Heads of Delegations dinner held on June 18, 2000 and the Government of the Philippines for hosting the 8 meeting for the first time and for the warm hospitality extended to all delegates. The Co- chairman also summarized the views expressed by the donors during the meeting:

* Donors welcomed the steps taken by Government to improve investor confidence; * Donors commended the government for reinvigorating the structural reform process; * Donors noted concerns and identified several areas needing Government priority action, which included: (1) implementing key measures to enhance resource mobilization; (2) boosting investor confidence by addressing governance at the stock exchange; (3) focusing on rural development and implementation of the Comprehensive Agrarian Reform Program and other asset reform programs; (4) supporting family planning programs to reduce birth rates; (5) finalizing and implementing the National Anti-Poverty Action Agenda in a timely manner; (6) implementing efforts initiated on Judicial Reform to improve the country's overall governance framework; (7) instituting specific anti- corruption measures based on the reports of the Development Academy of the Philippines and the World Bank; (8) setting-up a CG working group to have a regular GOP-donor dialogue with regard to the comprehensive governance improvement program outlined by Government; (9) implement commitments made during the December 1999 ODA portfolio review. The donors suggested that Government provide a progress report on actual accomplishments on these areas in the next CG meeting; - Donors welcomed briefings and assurances given by Government concerning Mindanao; - Donors could consider providing urgent relief to displaced persons, and said that conclusion of a peace agreement quickly and addressing socio-economic needs of the poor in Mindanao were essential to a permanent and lasting solution to the conflict; - Donors believed that accelerated implementation of existing ODA-financed projects in Mindanao was the most effective way to deliver assistance; new projects for Mindanao could be considered in the framework of a medium-term development plan prepared with extensive participation of local Muslim communities; and - Donors welcomed Government's suggestion to hold a post-CG meeting on Mindanao.

23. The Co-chairman announced that in addition to the US$7.7 billion of undisbursed ongoing ODA (of which $700 million was for Mindanao), the donors present in the meeting pledged an amount of US$2.6 billion equivalent in new commitments of which about $361 million was for Mindanao. The pledged amount brought the amount of existing ODA commitments available to Government to US$10.3 billion (of which about $1 billion was for Mindanao). Finally, Mr. Bhargava commended the Government for being responsive in a frank and substantive dialogue with donors in a true spirit of partnership, exemplified by the joint-portfolio review, pre-CG meetings, and briefings on Mindanao, which donors hoped would continually help improve the lives of the Filipino people.

24. Secretary Pardo expressed sincere gratitude to everyone who had taken part in the consultations on the Philippines' programs and plans for development. In response to the action agenda presented by the Co-chairman, Secretary Pardo outlined the position of Government on each of the issues raised by donors:

* Enhance Resource Mobilization - Government had instituted effective reform measures in its revenue collecting agencies, including the full computerization of the Bureau of 9

Internal Revenue (BIR) and the Bureau of Customs (BOC) and the improvement of their information systems. Government was committed to rationalize the system of incentives and subsidies in build-operate-transferschemes, fast track the privatization of some of its assets, and pursue measures to address the country's low savings levels; * Investor and Business Confidence - Government would continue its endeavor to revive investor and business confidence by pursuing the passage of the Revised Securities and Exchange Act, and the proposed legislation for a comprehensive restructuring and privatization of the power sector, which should improve the sector's efficiency, bring down the cost of power and provide a level playing field and market oriented-system for market participants; * Focusing on Rural Development and the Comprehensive Agrarian Reform Program - Rural development and agrarian reform remained as a principal thrust of the Administration in its continuing campaign against poverty. Government efforts to achieve this objective were explained in the earlier sessions;- * Population Management - Government recognized that population management was key to accelerating development, and with the complex social and cultural milieu of the Philippines, would have to be flexible in addressing the issue. Government would continue to implement resource generation, reproductive health interventions, support to the delivery of family planning services, and adhere to its official policy to enjoin all sectors to contribute to an integrated approach to population management; * Finalizing the National Anti-Poverty Action Agenda - The National Anti-Poverty Action Agenda was in the last stages of refinement, and the holding of the Anti-Poverty Summit in August would formalize the adoption of the Action Agenda; * Efforts on Judicial Reform - Government supported efforts by the Judiciary for judicial reform, including initiatives by the Judiciary for institutional strengthening. The Executive Branch expressed its appreciation for the assistance extended by the World Bank, UNDP and USAID in this area and welcomed any further financial assistance for its reform efforts; * Anti-Corruption Measures - A Ten-Point Jumpstart Anti-Corruption Program was drawn up from a government study commissioned by the President. This would be boosted by the expected early signing of the Executive Order for strengthening of existing anti- corruption entities, and the setting-up of an anti-corruption council; * CG Working Group - The Government welcomed the donors' suggestion of a regular GOP-donor dialogue with regard to the Government's comprehensive governance improvement program, with the Department of Budget and Management as Chair; * Commitments on the December 1999 ODA Portfolio Review - Government reaffirmed its commitments made during the Joint ODA reviews to improve ODA performance. As disbursements improved, Government would focus on achieving the expected development outcome, or the measurable results; * The Mindanao Situation - Government was fully committed to implementing comprehensive and sustainable programs to promote peace and development in Mindanao, including formulation of an action plan for relief and rehabilitation projects and accelerating the implementation of ongoing projects. Government would support the localization of peace and development initiatives and reliance on the trisectoral approach as advocated by the Philippine Civil Society, Government and Business Conference at the national level. Secretary Pardo emphasized that it was during the Estrada 10

administration that Mindanao had received a higher per capita appropriation, and that the military agenda was not the Government's overriding goal for Mindanao. He also recognized the difficulty in undertaking development projects in areas where peace and order posed considerable risks. Government had ascertained that actual figures reflecting the additional funding for military operations in Mindanao were not significant enough to cut into social expenditures.

25. Responding to the suggestion of the Co-chairperson, Government advised that it would provide a progress report on identified priority areas for Government action even before the next CG Meeting through regular dialogue with donors.

26. Finally, Secretary Pardo acknowledged with deep gratitude the expressions of financial commitments made by the Philippines' development partners in the amount of US$2.6 billion.

27. A press conference followed the closing of the meeting. Press statements are attached in Annex 5. List of Annexes

Annex Document

I List of Participants

2 Agenda of the Meeting

3 Statements of Government, World Bank and Lead Discussants per the Agenda: a. Opening Remarks by the Chairman, Mr. Jose T. Pardo, Secretary of Finance, Philippines b. Opening Remarks by the Co-Chairman, Mr. Vinay Bhargava, Country Director, Philippines, World Bank c. Statement by Mr. Jose T. Pardo, Secretary of Finance, Philippines d. Statement by Mr. Rafael Buenaventura, Governor, Bangko Sentral ng Pilipinas, Philippines e. Statement by Mr. Sean Nolan, Representative of the International Monetary Fund f. Statement by the Asian Development Bank g. Statement by Mr. Edgardo Angara, Secretary of Agriculture, Philippines h. Statement by Mr. Horacio Morales, Secretary of Agrarian Reform, and Lead Convenor of the National Anti-Poverty Commission, Philippines i. Statement by Ms. Ana Maria Nemenzo, representative of Non- Government Organizations, Philippines j. Statement by the United Nations Agencies Delegation k. Statement by Mr. Benjamin Diokno, Secretary of Budget and Management, Philippines 1. Statement by Mr. Bernard Funck, Principal Economist, World Bank m. Statement by Mr. Vipul Prakash, Country Manager, International Finance Corporation-Manila: Discussion on Corporate Governance n. Statement by Mr. Felipe Medalla, Socio-Economic Secretary, National Economic and Development Authority, Philippines o. Closing Remarks by the Co-Chairman p. Closing Remarks by the Chairman 4 Other Statements including those delivered during Session IV: a. Statement by Mr. Aloysius Ordu, Principal Operations Officer, World Bank: "Mobilizing ODA Flows for Poverty Reduction through Better Performance" b. Statement by the Asian Development Bank: "ADB-Philippine Partnership in Development and Poverty Reduction" c. Statement by the United Nations Agencies: Progress and Plans on Structural and Public Sector Reform d. Statement by the United Nations Agencies: Peace and Development in Mindanao e. Statement by the United Nations Agencies: Report on UN Indication of Assistance for 2000 and 2001 f. Statement by Mr. David Swan, Acting Assistant Director General, Australian Agency for International Development g. Statement by the Government of the Kingdom of Belgium h. Statement by the Canadian Delegation i. Statement by the French Delegation j. Statement by Mr. Lother Zimmer, Director, South-East Asia Division, Federal Ministry for Economic Cooperation and Development (BMZ) k. Statement by His Excellency, Yoshihisa Ara, Japan Ambassador to the Philippines 1. Statement by the Netherlands Delegation m. Statement by His Excellency Graeme Waters, New Zealand Ambassador to the Philippines n. Statement by the Spanish Delegation o. Statement by the Swedish Delegation p. Statement by the United States of America Delegation q. Statement by the Asian Development Bank r. Statement by the European Commission s. Statement by the European Investment Bank t. Statement by the International Fund for Agriculture Development u. Statement by Saudi Fund for Development

5 Press Release Annex 1 Annex I Page 1 of 14 LIST OF PARTICIPANTS

Australia Mr. David Swan Acting Assistant Director General East Asia Branch Australian Agency for International Development Manila

His Excellency John Buckley Ambassador Embassy of Australia Manila

Mr. Bob Mann Counselor, Development Cooperation Australian Agency for International Development Manila

Dr. Patricia A. Ludowyk First Secretary, Development Cooperation Australian Agency for International Development Manila

Austria Dr. Wolfgang H. Harwalik Austrian Trade Commissioner Embassy of the Republic of Austria

Belgium Mr. Theo Myers First Secretary for International Cooperation Royal Belgian Embassy Manila Canada Mr. Edward Langtry Director-General Indonesia, Philippines and South Pacific Program Canadian International Development Agency

Ms. Vivien J. Escott Counselor and Head of Aid Embassy of Canada Manila

CG Meeting List of Participants CG Meeting List of Participants Annex I Page 2 of 14

Mr. Kent Vachon Assistant to the Ambassador Embassy of Canada Manila

Denmark H.E. Peter U. W. Rosting Ambassador Royal Danish Embassy

Finland Mr. Raimo Anttola Deputy Director-General Ministry of Foreign Affairs of Finland

France Mr. Jean-Yves Leclercq Financial Attache Embassy of the Republic of France

Mr. Jean Philippe Quercy French Trade Commissioner Embassy of the Republic of France Manila

Germany Mr. Lothar Zimmer Director South-East Asia Division Federal Ministry for Economic Cooperation and Development

Mr. Christian Germann Counselor Embassy of the Federal Republic of Germany Manila

Mr. Erich T. Geis Chief Economist East Asia and Pacific Department Kreditanstalt Fuer Wiederaufbau Frankfurt CG Meeting List of Participants Annex I Page 3 of 14

Italy Mr. Andreas Ferrarese First Secretary Embassy of the Republic of Italy Manila

Japan His Excellency Yoshihira Ara Ambassador Extraordinary and Plenipotentiary Embassy of Japan, Manila

Mr. Yujiro Fujisaki Second Secretary Embassy of Japan

Mr. Masamashi Abe Loan Aid Division Economic Cooperation Bureau Ministry of Foreign Affairs

Mr. Tomoo Takeshita Deputy Director Development Finance Division Coordination Bureau, Economic Planning Agency

Mr. Mokoto Hojo Deputy Director Development Finance Division International Bureau Ministry of Finance

Mr. Shinya Ejima Director DAI-1 JBIC-Tokyo

Mr. Masatomo Ogane Senior Representative Japan Bank for International Cooperation Manila

Mr. Seichi Kitazawa Chief Representative Japan Bank for International Cooperation Manila Annex I CG Meeting List of Participants Page 4 of 14

Mr. Hideo Ono Resident Representative Japan International Cooperation Agency

Mr. Kiyoshi Masutomo Deputy Resident Representative Japan International Cooperation Agency Manila

Korea Mr. Park Kang-ho Director Development Cooperation Division Ministry of Foreign Affairs and Trade

Mr. Han Choong-sik Resident Representative Korea International Cooperation Agency, Manila

Mr. Lee Byung-hwa Counselor Embassy of the Republic of Korea Manila

Malaysia Mr. Raihan Shariff Trade Commissioner Malaysian Embassy Manila

Netherlands His Excellency Theo Arnold Ambassador Royal Netherlands Embassy Manila

New Zealand His Excellency Graeme Waters Ambassador New Zealand Embassy

Ms. Moira M. Turley Deputy Head of Mission New Zealand Embassy

Ms. Patricia Montemayor-Tan Programme Officer New Zealand Embassy CG Meeting List of Participants Annex I

Norway Mr. Joar Strand Second Secretary Royal Norwegian Embassy Manila

Saudi Arabia Mr. Abdullah Al-Subaihi First Secretary and Finance Officer Royal Embassy of Saudi Arabia Manila

Singapore Mr. Robin Chua Centre Director Singapore Trade Development Board

Mr. Oscar Via Economic and Commercial Counsellor Embassy of Spain Manila

Mr. Carlos Robles Assistant Director for International Cooperation and Development Assistance for Asia Ministry of Foreign Affairs Spain

Mr. Victor Guasch Coordinator General Spanish Technical Cooperation Office Embassy of Spain Manila

Ms. Jennifer Catron Desk Officer Development Assistance for the Philippines Spanish Agency for International Cooperation Ministry of Foreign Affairs Spain

Sweden His Excellency Ulf Hakansson Ambassador Embassy of Sweden CG Meeting List of Participants Annex 1 Page 6 of 14

Mr. Per G. Hallstrom Counselor Embassy of Sweden Manila

Switzerland Mr. Alberto Groff Attache Embassy of Switzerland Manila

United Kingdom of Great Britain Mr. David Campbell Deputy Head of Mission Embassy of the United Kingdom of Great Britain and Northern Ireland Manila

United States of America Mr. Robert Randolph Assistant Administrator Bureau for Asia and the Near East United States Agency for International Development Washington D.C.

Mrs. Patricia Buckles Mission Director United States Agency for International Development Manila

Mr. Joseph Ryan Mission Economist United States Agency for International Development Manila

Mr. Robert Barnes Economic Development Advisor United States Agency for International Development Manila

Mr. Gil Dy Liacco Senior Program Economist United States Agency for International Development Manila

Mr. Todd Schwartz First Secretary US Embassy, Manila Annex I CG Meeting List of Participants Page 7 of 14

Asian Development Bank Mr. Ayumi Konishi Manager, Programs Department (East) Asian Development Bank Manila

Mr. Shiladitya Chaterjee Senior Economist, Programs Department (East) Asian Development Bank Manila

European Community His Excellency Yves Gazzo Ambassador Delegation of the Commission of the European Community Manila

Mr. Gildo Pivetta Development Counselor European Community Manila

Mr. Enrique Buatas Desk Officer European Community Manila

IFAD Mr. Penumaka Venkat Ramesh Country Portfolio Manager IFAD Rome

IFC Mr. Vipul Prakash Country Manager International Finance Corporation Philippines

IMF Mr. Sean Nolan Resident Representative International Monetary Fund Manila CG Meeting List of Participants Annex 1 Page 8 of 14

Saudi Fund Engr. Mohammed Al-Arifi Technical Department The Saudi Fund for Development Riyadh

Mr. Abdullah Al-Shedokhi Senior Economic Specialist Research and Economic Studies The Saudi Fund for Development Riyadh

Mr. Abdulazziz Al-Hadlag Economic Specialist and Project Officer Technical Department The Saudi Fund for Development Riyadh

United Nations Agencies Mr. Terence Jones United Nations Resident Coordinator and Resident Representative United Nations Development Programme Manila

Ms. Ricarda L. Rieger Deputy Resident Representative United Nations Development Programme

Mr. Wolf-Rudiger Bohning Director SEAPAT & OIC International Labor Organization

Mr. Philip Wan Deputy Representative Senior Programme Coordinator UNICEF

Dr. Sang Mu Lee Representative Food and Agriculture Organization Manila

Ms. Uyen Luong Representative United Nations Population Fund Manila CG Meeting List of Parficipants Annex I Page 9 of 14

Mr. Joseph Clarence Soriano Advisor Resident Coordinator's Office United Nations Population Fund Manila

World Bank Group Mr. Vinay Bhargava Country Director World Bank Office, Manila

Mr. Aloysius Ordu Principal Operations Officer World Bank Office, Manila

Mr. Bernard Funck Principal Economist World Bank Office, Manila

Ms. Heidi Hennrich-Hanson Country Program Coordinator, Philippines East Asia Region

Ms. Maribelle S. Zonaga Program Officer World Bank Office, Manila

Mr. Joven Balbosa Economist World Bank Office, Manila

Ms. Leonora Gonzales External Relations Officer World Bank Office, Manila

Office of the Executive Director - World Bank Mr. Murilo Portugal Executive Director for the Philippines World Bank, Washington D.C

Mr. Felix Enrico Alfiler Advisor, Office of the Executive Director for the Philippines World Bank, Washington D.C CG Meeting List of Participants Annex I Page 10 of 14

Office of the Executive Director for the Philippines - Asian Development Bank Ms. Patricia Riingen Executive Director for the Philippines Asian Development Bank, Manila

Ms. Rosalia V. De Leon Advisor, Office of the Executive Director for the Philippines Asian Development Bank, Manila

Republic of the Philippines

Department of Finance Mr. Jose T. Pardo Secretary

Mr. Joel A. Baniares Undersecretary

Ms. Florencia Gozon-Tarriela Undersecretary

Ms. Lily K. Gruba Undersecretary

Mr. Rodrigo P. Castelo Undersecretary Mr. Jeremias N. Paul, Jr. Assistant Secretary

Mr. Roberto B. Tan Assistant Secretary Mr. Gil S. Beltran Assistant Secretary Ms. Ma. Edita Z. Tan Director Ms. Ma. Gilda Victoria Director

Ms. Leonor Magtolis-Briones Treasurer of the Philippines Bureau of the Treasury

Mr. Dakila B. Fonacier Commissioner Bureau of Internal Revenue CG Meeting List of Participants Annex I Page 11 of 14

Mr. Melchor S. Ramos Assistant Commissioner Bureau of Internal Revenue

Ms. Teresita S. Luchico HREA/Policy and Planning Service Bureau of Internal Revenue

Mr. Renato Axnpil Commissioner Bureau of Customs

Ms. Cecilia Reyes Deputy Commissioner Bureau of Customs

Mr. Aaron Redubla Special Assistant Bureau of Customs

National Economic and Development Authority Mr. Felipe M. Medalla Director General

Mr. Augusto B. Santos Deputy Director General

Mr. Ruperto P. Alonzo Deputy Director General

Ms. Ofelia M. Templo Assistant Director General

Ms. Socorro Zingapan Director

Mr. Felizardo Virtucio Director

Ms. Erlinda Capones Director

Mr. Rolando Tungpalan Director

Mr. Eugenio Inocentes Director CG Meeting List of Participants Annex I Page 12 of 14

Bangko Sentral ng Pilipinas Mr. Rafael B. Buenaventura Governor

Mr. Diwa C. Guinigundo Managing Director

Mr. Bernardo J. Barrientos, Jr.

Department of Agriculture Mr. Edgardo J. Angara Secretary

Department of Agrarian Reform Mr. Horacio R. Morales, Jr. Secretary

Ms. Antoinette Raquiza Assistant Secretary

Ms. Erlinda F. Dolatre Division Chief

Mr. Marvin Macatol Staff

Department of Budget and Management Mr. Benjamin E. Diokno Secretary

Ms. Cynthia G. Castel Undersecretary

Ms. Amelita D. Castillo Director

Mr. Jose Edgardo L. Campos Senior Strategy Advisor Public Sector Reform

Department of Education, Culture and Sports Mr. Ramon C. Bacani Assistant Secretary

Department of Energy Mr. Cyril C. del Callar Undersecretary CG Meeting List of Participants Annex I Page 13 of 14

Department of Environmental and Natural Resources Mr. Antonio H. Cerilles Secretary

Mr. Ramon J.P. Paje Undersecretary

Ms. Joseph Lita Director

Mr. Dionisio S. Tolentino, Jr. Program Director, National Forestation Development Office

Department of Foreign Affairs Ms. Laura Q. Del Rosario Special Assistant CM II

Mr. Anthony Achilles L. Mandap Principal Assistant/Foreign Service Officer IV

Department of Health Ms. Susan Pineda Mercado Undersecretary

Department of Social Welfare and Development Mr. Felicidad L. Villareal Undersecretary

Ms. Belinda C. Manahan Undersecretary

Department of Transportation and Communications Mr. George D. Esguerra Assistant Secretary

Ms. Lydia S. Malvar Director

Office of the President Ms. Donna Gasgonia Vice-Chairperson NAPC/Govermnent Sector

Economic Coordinating Council Mr. Margarito R. Teves Consultant/Private Sector Representative CG Meeting List of Participants Annex I Page 14 of 14

Senate of the Philippines Mr. John H. Osmefia Senator

House of Representatives Mr. Joey Sarte Salceda Congressman

Supreme Court of the Philippines Ms. Evelyn Toledo Dumdum Project Director, Judicial Reform Program

Government Financial Institutions Mr. Florido P. Casuela President Land Bank of the Philippines

Ms. Remedios L. Macalincag President Development Bank of the Philippines

Development Academy of the Philippines Mr. Eduardo T. Gonzales President

Mr. Edgar P. Callanta Senior Vice-President for Programs

Ms. Ma. Antoinette G. Virtucio Director

Non-Government Organizations Ms. Ana Maria R. Nemenzo Vice-Chairpersonfor the Basic Sector

Mr. Blenn Huelgas Commissioner NAPC-Victims, Disasters and Calamities Sector u-A

Annex 2 Annex 2 Page I of 2

PHILIPPINES Consultative Group Meeting June 18-20, 2000 Tagaytay Highlands, Tagaytay City, Philippines

Chairman: Hon. Jose T. Pardo, Secretary of Finance, Government of the Philippines Co-Chairman: Mr. Vinay Bhargava, Philippines Country Director, World Bank

AGENDA

Sunday, June 18, 2000

7:00 p.m. to 9:00 p.m. Heads of Delegation Dinner hosted by the Government of the Philippines

Monday, June 19, 2000

8:30 a.m. to 9:00 a.m. Registration

9:00 a.m. to 9:10 a.m. Chairman's Opening Remarks

9:10 a.m. to 9:20 a.m. Co-Chairman's Opening Remarks

9:20 a.m. to 10:30 a.m. Session I: Recent Socio-Economic Developments, Achievements and Challenges

* Statement by the Government of the Philippines (Secretary of Finance, Jose Pardo and Bangko Sentral ng Pilipinas Governor Rafael Buenaventura) * Lead Discussants: International Monetary Fund, Asian Development Bank * General Discussion

10:30 a.m. to 10:45 a.m. Coffee Break

10:45 a.m. to 12:30 p.m. Session II: Progress and Plans on Poverty Reduction Policies and Programs (with focus on rural development and basic social services)

* Statements by the Government of the Philippines (Secretary of Agriculture, Edgardo Angara, and Secretary of Agrarian Reform and Lead Convenor of the National Anti-Poverty Commission, Horacio Morales) * Short Statement by an NGO Representative * Lead Discussant: UNDP * General Discussion Annex 2 -2 - Page 2 of 2

12:30 p.m. to 2:00 p.m. Lunch hosted by the World Bank

2:00 p.m. to 2:45 p.m. Continuation of Session II - General Discussion

2:45 p.m. to 5:30 p.m. Session III: Progress and Plans on Structural and Public Sector Reforms (focused discussion on economic,financial and corporate governance)

* Statement by the Government of the Philippines (Secretary of Budget and Management, Benjamin Diokno) * Lead Discussant: World Bank * General Discussion

(Fifteen-minute coffee break will occur around 3:30 p.m.)

6:30 p.m. Reception hosted by the Government of the Philippines

Tuesday, June 20,2000

9:00 a.m. to 11:00 a.m. Session IV: Aid Utilization and Indications of Donor Assistance

* Statement by the Government of the Philippines (Secretary of the National Economic and Development Authority, Felipe Medalla) * Statements on Aid Utilization and Aid Indications by Members * General discussion 11:00 a.m. to 11:30 a.m. Coffee Break

11:30 a.m. to 12:00 p.m. Closing Session

* Co-Chairman's Closing Remarks (Mr. Bhargava) * Statement by the Government of the Philippines (Secretary of Finance, Jose Pardo)

12:00 p.m. to 1:30 p.m. Lunch hosted by the World Bank

1....m. to.2..5...m....e... Confr......

1:30 p.m. to 2:15 p.m. Press Conference 1]

Annex 3 I~~~~~~~~~~~i~~~~~~~~~~Annex 3a J R j Page I of 2

CONSULTATIVEGROUP MEETINGFOR THE PHILIPPINES Tagaytay City, June 18-20, 2000

Opening Statement by the Governmentof the Republic of the Philippines

Finance SecretaryJose T. Pardo Chairman

I now declare the 23rd Consultative Group Meeting for the Philippines open. I am indeed very pleased to welcome all delegates of the donor community and participants from the Philippines in Tagaytay City where we will hold the CG Meeting in the Philippines for the first time. This is also the first time the Government of the Philippines will chair the Meeting, with the World Bank as co-chairman. May I thus welcome Mr. Vinay Bhargava, the Country Director for the Philippines of the World Bank. I am likewise very pleased to welcome Mr. Murilo Portugal, Executive Director for the Philippines on the World Bank's Board, and Ms. Patricia Zamora-Riingen,Executive Director for the Philippines on the Asian Development Bank's Board.

Three years after the Asian crisis, the Philippine economy proved to be resilient as it continues to post respectable growth in 1999 and the first quarter of this year. Upon assumption of office, the Estrada Administration has aimed at poverty reduction as its mission. To achieve this, Government has embarked on the mobilization of resources increasingly towards the enhancement of basic services and economic opportunities, particularly in rural areas. Sustained economic expansion shall complement our equity objective to ensure meaningful redistribution of wealth. We high appreciate the donor community's openness in providing renewed support to the socio- economic program of Government as evidenced by your presence here today.

The theme for this year's Meeting is Sustaining Poverty Reduction Through Growth and Other Supporting Policies , which would give the Government the opportunity to update the official donor community on the economy and discuss its priority programs for which we seek donor support. The discussions in this CG Meeting shall be a continuation of the pre-CG consultations between the Philippine Government and the donors. Let me take this opportunity to thank you- the donors and Government agencies, for your support in the three pre-CG meetings held recently. The meetings proved to be very productive in discussing Government's socio-economic performance and priorities, as well as generating donor reactions, which proved to be most useful in preparing for this CG Meeting.

The Agenda for this year's meeting is composed of four sessions. In the first session, Recent Socio-Economic Developments, Achievements and Challenges, the Government shall present an account of the Philippine macroeconomicconditions and the financial sector, key reforms affecting fiscal management, banking and economic competitiveness, among others, and economic targets for the year. Annex 3a Page 2 of 2

The second session, Progress and Plans on Poverty Reduction Policies and Programs, the Government shall focus on the achievements and challenges it is facing in areas of basic social services and rural development,the lynchpin of the Administration.

Thereafter, we will move on to Progress and Plans on Structural and Public Sector Reforms, the third part of the Agenda. In this session, Government shall present the progress made and plans for improving governance which serve to enhance the environment for more effective economic, financial and corporatemanagement.

The final but not the least part of the meeting is the session on Aid Utilization and Indications of Donor Assistance where the Government shall have the opportunityto discuss the recent reviews of ongoing ODA-assistedprojects and programs, and likewise inform the donors of actions and measures put in place to improve the Government's absorptive capacity and portfolio performance. The Government considers it opportune that in this occasion, we could update and discuss with donors their concerns on project quality and implementation. In this session, we hope to obtain the types and levels of assistance the donors are ready to extend in supporting the programs of Government.

In each session we also look forward to hear the statements from donor lead discussants, to be followed by general discussions. You may note that more time is being given in this year's meeting to open discussions to facilitate the exchange of ideas between the Government and the donor community. We would appreciate hearing the donors' views on the priorities and plans of Government to enable us to develop the discussions to a point where donor cooperation and support can be best mobilized to complement Government development efforts.

It is now my pleasure to invite Mr. Vinay Bhargava to deliver the co-chairman's opening remarks, after which we shall proceed to the first session.

Thank you once again, and Mabuhay! Annex 3b Page 1 of 2 CONSULTATIVE GROUP MEETING FOR THE PHILIPPINES [H±J-JI Tagaytay City, Philippines June 19-20, 2000

Opening Remarks by the Co-Chairman Mr. Vinay Bhargava, Country Director, Philippines, World Bank

Mr. Chairnan, Ladies and Gentlemen:

I would like to begin by congratulatingthe Government for hosting the CG meeting in the Philippines and thereby assuming greater role in the aid coordination process. We in the World Bank welcome this in line with the principles embodied in the Comprehensive Development Framework or CDF as it is popularly known. I would also like to commend NEDA for taking the lead to organize the four pre-CG workshops during the last four weeks. The topics of these pre-CG workshops were closely aligned with the CG meeting agenda just described by Secretary Pardo. As many of you are aware, the participants at each workshop numbered from 80-100 persons representing donors, private sector and civil society. The discussions during these sessions were substantive and should enable a more focused discussion during today's sessions.

As we start the 2 3rd CG Meeting, I would like to remind you of the key messages from the donors which had emerged from the 22"dCG Meeting and were noted in my concluding statement for the government's consideration and action. The key messages were:

o Make the fiscal consolidation to happen by boosting revenue collections. o Accelerate structural reforms particularly in banking and corporate sectors. o Improve governance. o Take measures to reduce high rate of population growth.

IJ Focus on rural development. o Improve absorptive capacity for and performance of ODA portfolio.

You will recall that reducing poverty in Mindanao was discussed and the donors had indicated that that they would like to support the development of Mindanao but are constrained by unstable peace and order situation. I trust that during this CG meeting, we will hear from the government on actions taken in all of these areas.

Mr. Chairman, let me end my remarks with two observations. First, I would like to commend the government for its responsiveness to the feedback gathered during the survey done at the last CG meeting. The main messages from the survey were to allow more time for discussion and less for presentations, distribute materials before the meeting, hold Pre-CG and CG working group meetings and meet in the Philippines for 1- 1/2 days. From my perspective, the government has successfully and positively acted on Annex 3b Page 2 of 2 all of these suggestions. Second, I hope that the discussions during this CG meeting will result in concrete suggestions in four crucial areas. The four areas are: (i) how to boost sagging investor confidence and accelerate GDP growth to 5+ percent in the remaining years of the Medium Term Plan; (ii) how to make growth more equitable, particularly in Mindanao through a focused development program; (iii) how to improve governance in the private and public sectors and (iv) how to make better use of ongoing and new ODA commitments.

Mr. Chairrnan, I hope that this CG meeting will achieve the objective of confirming donors' commitment to the Philippines,and pulling development partners together in coordinated efforts to support the government in its peace and development efforts. Annex 3c Page 1 of 10 _ ~~2000CONSULTATIVE GROUP MEETING FORTHE PHILIPPINES

THE PHILIPPINES:ACCELERATING DEVELOPMENT, SHARING GROWTH

STATEMENTOF HONORABLEJOSE T. PARDO SECRETARY,DEPARTMENT OF FINANCE CHAIRMAN, CONSULTATIVEGROUP MEETING

Introduction

Beforeanything else, I would like to thank our foreignfriends for their continuedsupport of the Philippines'developmental projects. As you know, much has happened since the ConsultativeGroup Meeting held March of last year. And I am glad of this opportunityto apprise you of the tasks we have accomplishedand the challenges we continueto face in the years ahead.

On that note, allow me to walk you throughthe current situationwe are in. Apparently,much has been said about what has been going and not going for the Philippineeconomy and about the way things are run in this country. And we do understandyour concerns. If peoplego solely by what they hear and read, then we, who are in the forefront of the government'ssocio- economic baftle, have a good reasonto worry. But seeingthe odds and ends at eye-level,let me tell you frankly as we find ourselvesin the crossroadsof change, we do knowwhere we are movingthe economyto.

Indeed,there is moreto the Philippinesand the Filipinosthan meets the eye. Ours is not your normal cut-and-driedscenario that affords predictabilityand forecast comfort. Our nation, all of our seven thousand one hundred islands and 75 million people, is a complex mix not only of micro-economiesand personalitiesbut also of western and orientalcultures and values.

Yes, we do have our own uniqueway of respondingto change,given our strenPthsand our weaknesses,for that matter. m Annex 3c Page 2 of 10

=

That brings me to the questionmost often asked: What seemsto be the problem? As one Asian Wall StreetJournal feature puts it, "The Philippineshas long beenthe East Asian puzzle: Why did a country with quite favorableconditions-high levelsof literacyand education, strong commercialties to the US, and an advancedjudiciary and establisheddemocracy-not maintainits early positionas one of East Asia's more prosperouscountries?"

So what and why indeed? To piece togetherthe Philippinepuzzle, let us take a long, hard look at what we haveon hand.

Duringthe last CG meeting,we have presentedto you testimonialsof the country'sresilience in the midst of a cripplingcrisis that sweptthe region. Past reform efforts, which the Estrada administration continues to pursue, are now bearing fruit as evidenced by the country's improved economicfundamentals. Among these reforms are: liberalizationof trade, investment and the foreign exchange markets;deregulation of the financialsystem and of the oil and power industries;the continuedreform of tax policy administration,and big ticket privatization.

And of course, the Governmenthas taken and continues to take major steps to improvethe qualityof life of every Filipino.

GaugingEconomic Performance

Havingsaid that, please indulgeme this time as I try not to keepyour attentionwith figuresand hardfacts on the economy.

In 1999, the GNP grew by 3.7 percent. GDP, on the other hand, by 3.2 percent. Growth was largely driven by a reboundin agriculture productionwith its 6.6 percent jump from negative 7.5 percent in 1998.

Duringthe first quarter, GNP and GDP rose by 3.45 percentand 3.4 percent, respectively.The main growth drivers, however, were the I'g1 Annex 3c Page 3 of 10

ME==

industry and service sectors.Agriculture, on the other hand, slowed down. As normalizationof the weather led to the reductionof palay and corn production,losses were offset by the performanceof cash crops such as coconut,banana, poultry and livestock.

Continued strength in merchandiseexports also fuelled economic expansion, growing from 16.9 percent in 1998 to 18.8 percent in 1999. The biggest export item, electronics,held on to the banner, confirmingthe country's competitiveedge in informationtechnology, specificallyin the manpowerfront.

Becauseof this, the currentaccount and overall balance-of-payment positionshave improveddramatically.

Inflationaveraged 6.6 percentin 1999 comparedwith 9.0 percentin 1998. It further went down to 3% during the first quarter of 2000. Interest rates also remainedat manageablelevels as the country's 91-day Treasury Bill rate droppedto 10.2 percentin 1999 from 15.3 percentin 1998. The rate declinedfurther to 8.9 percentaverage for the first quarter of 2000.

On aspects of monetary management, currency, banking and financial policy, I would like to defer to Bangko Sentral ng Pilipinas Governor Rafael Buenaventura who will make a presentation subsequently.

Fiscal Outlook

With regardto the fiscal situation,the PhilippineNational Government posteda budgetarydeficit of P 111.7 billionfor 1999, about 3.6% of GNP. This deficit level was due both to a deliberate effort of the government to pump prime the economy and to arrest revenue shortfalls due mainly to lower collections. But all these veered us away from a possible recession. Moreover,higher fiscal deficit did not translateto higherinflation and higherinterest rates. Annex 3c Page 4 of 10

Among the reasons for this is that the government opted to finance the deficit largely from external sources (46% of total net borrowings were from foreign sources compared with the previous year's 14%). This enabled us to avoid crowding out private sector borrowers in the domestic market.

The fiscal deficit of the National Government for the first five months of 2000 was P34.1 billion, which is 4.8% larger than programmed for the period.

Total government revenues registered at P213.1 billion or 3.4% lower than programmed. But this shortfall is mainly explained by an P8.2 billion shortfall from projected privatization proceeds. Admittedly, the privatization program is the weakest link in the revenue generation chain. This can also be traced to the sluggishness in the equity and asset markets.

With regard to tax revenues, internal revenue collection was 2.3% below program but customs collections were 5.9% above target and tax collections by other offices were also 1.1% above target.

BIR collections fell mainly because of a P4.3 billion or 12.4% shortfall in collections of taxes on net income and profits, reflecting the continuing weakness of corporate profits in 1999. April, by the way, is when adjustments in taxes on previous year's income are made.

But as mentioned, the outlook for the rest of the sectors that account for the bulk of tax collections, namely, the industry sector, particularly manufacturing, and the services sector, is quite positive. We therefore believe that the tax revenue goals for the whole year are still attainable.

Taming Expenditures

On the expenditure side, government spending was still 2.3% below program for the first five months of the year. Unexpected pressure came mainly from requirements in addressing the Mindanao conflict. IIX1 Annex 3c Page 5 of 10

However,depending on how the situationthere further unravels,the governmentis workingon a contingencyplan to addressits impacton the budget. [But as perhapswill be shownin the specialpresentation on the Mindanaosituation, there are certainpositive developmentsas regards the peaceprospects in the area.]

The Philippineshas prudentlymanaged its external debt. We have committeddebt proceeds to productiveuses in the areas of basic infrastructure,capital goods,industrial and export competitivenessas well as investmentsin human capitalsuch as education,health, and other social services.

While the country's foreign debt increasedfrom year ago levels, we have relied less on short-termforeign borrowingsas evidencedby the increasedshare of medium and long term debt stock. This in turn improved our debt maturity profile with multilateral and bilateral assistanceaccounting for 51 percentof total externaldebt.

TowardsFar-Reaching Competitiveness

The governmentcontinues to implementreforms aimed at enhancing the country'slong-term competitiveness.

First, in the fiscal sector,we are aimingfor fiscal consolidationin the medium term. Comingfrom a short term pump-primingstrategy last year, we expectthe fiscal deficitto declineto 1.8 percentof GNP this year. Fiscal balance will hopefully be attained by year 2003. Thereafter, we will be aiming for fiscal surpluses and reduce our reliance on both domestic and external borrowings, to fund our budget.

We intend to further improve revenue generation to ensure sustainablefunding for importantpublic expenditures and to improve efficiency in the utilizationof public funds. In order to realize these goals, we will continue to aggressivelypursue tax administration reformssuch as: | Annex 3c

M* Page 6 of 10

* The full computerizationof Bureau of Customs and the Bureauof InternalRevenue; * Further strengtheningof the institutionalstructure and operationsof the largetaxpayers service; * Enhancing facilities that will promote voluntary compliance,such as taxpayer assistanceprograms, and morefocused and professionalaudit.

Second,we will continueto pursue bankingreforms through the New Central BankingAct which is meant not only to instituteinternational supervisionand regulatorystandards but also further strengthenthe system.The Governorshall elaborateon this in his presentation.

Third is privatization.The Governmentplans to put on the auction block the following: (a) National Power Corporation; (b) PNOC- Energy DevelopmentCorporation; (c) Meralco;(d) PhilippinePostal Corporation; (e) Philippine National ConstructionCorporation; (f) Philippine Phosphate Fertilizer Corporation. The Government's privatizationefforts and its public-privatepartnership initiatives offer rewardingopportunities for privatesector investments,both domestic and foreign,broadens ownership base, and developscapital markets.

Fourth, the recent signing into law of the Retail Trade Liberalization Act is expected to generate more foreign investments and employment,leading to greaterefficiencies that can ultimatelybenefit the Filipinoconsumers.

Fifth, we are in the final stages of completingthe legislationon the restructuringand privatizingthe power sector. This reform aims to improve the sector's efficiency and bring down the cost of power, which is essentialto long-termcompetitiveness.

Sixth are the reforms toward development of domestic capital markets.The Governmentis working closelywith Congressto pass Annex 3c Page 7 of 10

the proposedSecurities Act of 2000 to strengthenthe regulatoryand supervisoryframework of the SEC to improvecorporate governance.

Seventh,the proposedreform in the country'sgrain sector is aimedat food security and stable prices.This includesthe restructuringof the National Food Authority and the promotion of private sector participationin grains importations.

Eighth,the governmenthas initiatedpolicies to build a knowledge- based economywith the recent passageof the electroniccommerce bill and the issuance of guidelines for the establishment and operation of technology firms. Key activities to support these initiativesare: (a) science andtechnology research and development; (b) human resource developmentand labor-managementrelations; (c) governance; (d) monitoringof total factor productivity;and (e) productivity advocacy activities. All these are embodied in the Medium-TermNational Action Agenda for Productivity2000-2004.

Ninth, the governmenthas made substantialprogress in the area of enterprise and farms credit policy reforms. Executive Order 138 articulates government's policy to pursue a liberalized, market- oriented, and private-sectorled system for the provisionof credit to basic sectors. This is one areawhere the donor communityplays an crucial role not only by providing funding sources but also in the creationof a new credit policyframework.

Likewise,the Governmentinitiated additionalmeasures to beef up investors' confidencein the market.Among others are the following: (1) creation of Presidential Anti-Organized Crime Commission (PAOCC) and its Task Force (PAOCTF)to coordinateefforts of all law enforcementagencies to restore peace and order.; and (2) the peace talk arrangementsinitiated by the Governmentand its efforts to addressthe Mindanaoproblem which has long evadedsolution. I~j1 Annex 3c Page 8 of 10

LookingAhead: Meetingthe Challengesof 2000

Today, we stand at the crossroadsof a new millenium,mindful that there are no easy fixes to the problemsthat we face.

As one foremost economiststated (Dr. Raul Fabella), "The ultimate long-runchallenge to the Estradaadministration is not how to spur a recovery,because that invariablycomes about, but to craft a recovery that does not stumble in five years. The Estradarecovery must defy the grip of the boom-bust heritage: Marcos' watch ended with a crisis; as did Aquino's; and Ramoscould not, in the end, avoid the same fate. For PresidentEstrada to do his predecessorsone better, the qualityof recoverymust be purposelyarchitectured."

Hence,we have packageda directionalframework for development- a blueprint,so to speak, at least for the mediumterm that takes into considerationthe intricaciesof our uniquesocio-economic system.

We projecta growth in GNP of 4.5 to 5.5 percentand in GDP of 4 to 5 percent. Industryis expectedto fully recoverand grow by 4.1 to 5.1 percent.

Inflationis targeted to be 5 to 6 percent. The primaryculprit should be the prolongedperiod of relativelyhigh world crude oil prices. But even then, the experienceof the first five monthshave shownthese to be quite manageable.

The governmentshall containthe NationalGovernment's deficit of P 62.5 billion or 1.8 percentof GNP. Revenuesare targetedto increase to P 566.9 billion or 16.3 percent of GNP. The National Government'sexpenditures are programmedat P 629.5 billion or 18.1 percentof GNP.

The low inflation environmentand the adherenceto the fiscal targets are expectedto keep the 91-dayTreasury bill rate to within 9.5 - 10.5 percentin 2000. X~1 Annex 3c

J11XI Page 9 of 10

With a stronger world economy, exports are expected to remain robust, to grow at 15.7 percent in 2000. On the other hand, imports will grow faster than exports growth at 19.4 percent.With a robust importsgrowth, currentaccount surplus is expectedto be around 7.5 percentof GNP while the balanceof paymentssurplus is seen at 1.7 percentof GNP in 2000.

The numbers I gave broadly show that the country's economic fundamentalsremain basicallysound. The reforms being pursued by the Government likewise point to a further improving economic environmentin the medium-term.

Extro

We all know that a regime of high growth cannot be achieved overnight. On the road to full recovery,potholes abound. In orderto forge ahead, we must pave the way, mindful there are no silver bulletsnor formulasto addressthe country'sbasic ills.

That is why I welcome opportunitiessuch as this when our donor community can see for themselveswhat is truly happeningaround us. Perception, especially that which is spawned by active imaginationand aided by a truly free andvibrant press, may serveto dampen investor and donor enthusiasm. But the facts and figures speak for themselves. There is more to the Philippinesthan pocket disturbancesand unflatteringgovernance scenarios.

Our countryand peoplehave gone throughworst trials in the past- both natural and man-made-but we have always come out whole. Bruised maybe, but not battered. Shaken maybe but not crippled. Hurt maybe but never defeated. Becauseto us, the true measureof character, national characterfor that matter, is not falling at all nor faltering in our aims, but in rising every time we fall. I.E-I Annex 3c MV.I Page 10 of 10

_

We maintainthat crisis is an opportunityin disguise. On that note, I urge our partnersin development,our donors,to help us accelerate not only the unmaskingof the said disguisebut in the unearthingof more opportunitiesin this resource-richland. Fully aware of your concerns,we urge you to take a closer look at our strengths-as a talented, highly-skilledpeople, who have chosento take the bull by the horns. For we believethat reforms,no matterhow bitterthey may seem for now, will see us through in the long hardpull. Thank you. Psas Annex3d ,_ Pagel of9 2000 CONSULTATIVE GROUP MEETING FOR THE PHILIPPINES

CONSOLIDATINGECONOMIC GROWTH'

By

GOVERNORRAFAEL B. BUENAVENTURA BangkoSentral ng Pllipinas

THE STORY OF THE PHILIPPINESFALLING BEHIND THE GOOD TIMES IN

ASIA IS GROSSLYEXAGGERATED.

TWO YEARS AFTER THE 1997 FINANCIAL CRISIS THAT SHOOK

ASIAN ECONOMIES, KEY INDICATORS DO INDICATE THAT THE

PHILIPPINESIS NOW POISED IN THE SECOND MILLENNIUMTO MOVE

AHEAD. ECONOMICRECOVERY HAS STARTEDSINCE 1999AND THE

CHALLENGEIS TO CONSOLIDATEECONOMIC GROWTH SO THAT THE

MAJORITYOF THE FILIPINOSWILL BENEFITFROM ITS FRUITS.THE ROLE

OF THE INTERNATIONALDONOR COMMUNITY IS INDISPENSABLE.AND IN

PURSUING THIS, LET ME STRESS THAT MONETARY POLICY AND A

STRONG AND STABLE BANKINGSYSTEM HAVE VERY IMPORTANTROLE

TO PLAY.

WHAT HAVEWE ACCOMPLISHED

LET ME JOIN SECRETARYPARDO IN TELLINGYOU THE STORYOF

THE GAINSAND POSITIVEDEVELOPMENTS WE HAVEACHIEVED SO FAR.

FIRST, THE ECONOMY'S PERFORMANCE IN 1999 EXCEEDED THE

'Delivered duringthe ConsultativeGroup Meeting on 19 June 2000at TagaytayCity, Philippines

BANGKOSENTRAL / CONSOUDATING ECONOMIC GROW17 I ~~~~~~~~~~~~~~~~~~~~~Annextd 1 ~~~~~~~~~~~~~~~~~~~~~~~~~Page2 of 9 W|F=qM'ff2000 CONSULTATIVE GROUP MEETING FOR THE PHILIPPINES = MACROPROGRAM TARGETS. ON THE STRENGTHOF RAPID EXPORT

GROWTH AND A RECOVERY IN DOMESTIC DEMAND, AND ON THE

SUPPLY-SIDEBY A REBOUNDIN AGRICULTURE,REAL GROSS NATIONAL

PRODUCT GREW BY AN AVERAGE OF 3.6 PERCENT IN 1999, HIGHER

THAN THE PROJECTED GROWTH OF BETWEEN 1.5 PERCENT TO 3.5

PERCENT FOR THE SAME PERIOD. THE AVERAGE INFLATIONOF 6.6

PERCENTIN 1999 COMPAREDFAVORABLY WITH THE INFLATIONTARGET

OF 7.5 PERCENTFOR THE YEAR, HELPEDMAINLY BY DECLININGFOOD

PRICES. THE CURRENTACCOUNT SURPLUSIN 1999 AT 9.0 PERCENT

OF GNP WAS HIGHERTHAN THE 2.1 PERCENTTARGET FOR THE WHOLE

YEAR.

THE RECOVERY PROCESS HAS BEEN SUSTAINED AS THE

DOME4TIC ECONOMY GREW BY 3.4 PERCENT DURING THE FIRST

QUARTERTHIS YEAR BUOYEDMAINLY BY THE REBOUNDOF INDUSTRY

AND THE CONTINUEDRESILIENCE OF SERVICES.

ON THE INFLATION FRONT, PRICE FLUCTUATIONSHAVE BEEN

REDUCED SUBSTANTIALLY DUE TO STABLE FOOD SUPPLY AND

PRUDENTMONETARY MANAGEMENT. INFLATIONFOR THE FIRSTFIVE

MONTHS OF THE YEAR AVERAGED 3.3 PERCENT DESPITE THE FACT

THAT FUEL PRICESALL OVERTHE WORLDWERE RISING.

A FAVORABLEEXTERNAL PAYMENTS POSION HAS ALSO BEEN

PRESERVED.THE OVERALL BALANCE OF PAYMENTS POSITION WAS

STRONGER IN 1999 OWING TO SIGNIFICANT CURRENT ACCOUNT

SURPLUS. THROUGHOUT THE CRISIS, PHILIPPINE EXPORTS

BANGKOSENTRA / CONSOUDATINGECONOMIC GROWuH |pN ~~~~~~~~~~~~~~~~~~~~Annex3d Page 3 of 9 dtiwM 2000 CONSULTATIVEGROUP MEETING FORTHE PHILIPPINES

CONTINUED TO GROW AND THEY HAVE BEEN DRIVINGTHE STRONG

EXTERNAL PAYMENTS POSITION. FOR THIS YEAR, WE EXPECT TO

CONTINUE REALIZINGBOP SURPLUS GIVEN THE ESTIMATEDSURPLUS

OF OVER $400 MILLIONFOR THE FIRST FIVE MONTHS.

ON ACCOUNT OF IMPROVED EXTERNAL INFLOWS,

INTERNATIONAL RESERVES ARE AT RECORD LEVELS. BY END-

DECEMBER1999, THE BSP GROSSINTERNATIONAL RESERVES (BSP-GIR)

REACHED$15 BILLION,ENOUGH TO COVER4.3 MONTHSOF IMPORTSOF

GOODS AND SERVICES. AS OF 2 JUNE 2000, BSP-GIRSETTLED AT

MORETHAN $15.4BILLION.

LIKE THAT OF A PRUDENTHOUSEHOLD, THE EXTERNALDEBT OF

THE COUNTRY CONTINUESTO BE MANAGEABLE.CEILINGS ON LOAN

APPROVALS ARE FOLLOWED STRICTLY. FOREIGN DEBT LIKEWISE

CONSISTSMAINLY OF MEDIUM-AND-LONGTERM LOANS(MLT). AS OF

DECEMBER1999, MLT LOANS,WITH A SHARETO TOTAL OF 89 PERCENT,

AMOUNTEDTO $46.5 BILLION,WHILE SHORT-TERMLOANS STOODAT

$5.7 BILLIONOR ONLY 11 PERCENTOF THE TOTAL DEBT.

CONSIDEREDAS ONE KEY FACTOR UNDERLYINGTHE RELATIVE

STRENGTH OF THE PHILIPPINE ECONOMYDURING THE ASIAN CRISIS,

THE SOUNDNESSOF THE BANKING SYSTEM HAS BEEN SUSTAINED.

NON-PERFORMING LOANS (NPLS) OF THE COMMERCIAL BANKING

SYSTEM CONTINUETO BE MODERATEAND THE RATIOTO TOTAL LOAN

PORTFOLIO, HAS LEVELED OFF IN THE 13-15 PERCENT RANGE.

MOREOVER,THE CAPITAL-ADEQUACYRATIO EXCEEDSTHE 10 PERCENT

BANGKOSENTRAL I CONSO IDAING GROWTH Annex 3d Page 4 of 9 _ 1~|t22222000 CONSULTATIVE GROUP MEETING FORTHE PHILIPPINES

FLOOR MANDATED BY LAW AND THE 8 PERCENT STANDARD

PRESCRIBEDBY THE BANK FOR INTERNATIONALSETTLEMENTS.

ANOTHER POSITIVE DEVELOPMENT IS THAT LOANS OF

COMMERCIALBANKS TO VARIOUS SECTORSIN THE ECONOMYHAVE

RISEN SINCE NOVEMBER, AFTER A SERIES OF ANNUAL DECLINES

THROUGHOUTMOST OF 1999. BY APRIL 2000, OUTSTANDINGLOANS

WENT UP BY 4.6 PERCENT,INDICATIVE OF IMPROVINGCREDIT DEMAND.

OUT OF ABOUT P1.4 TRILLION OUTSTANDING LOANS, 69 PERCENT

FINANCED MANUFACTURING,TRADE, AND FINANCIAL INSTITUTIONS-

REAL ESTATE-AND-BUSINESSSERVICES.

THE ROLE OF THE MONETARY AUTHORITIES IN ECONOMIC

CONSQLIDATION

THE WORLD CANNOT DISPUTE THEREFOREOUR OPTIMISMAND

DETERMINATIONIN CONSOLIDATINGTHE GAINS OF THE PAST TO

SECUREA BETTER FUTURE FOR OUR COUNTRYAND PEOPLE. AND IN

THIS ENDEAVOR, THE MONETARY AUTHORITIESARE MANDATEDTO

KEEP INFLATION STABLE, INTEREST RATES REASONABLE,FOREIGN

EXCHANGE MARKET STABLE, EXTERNAL DEBT AND VULNERABILITY

MANAGEABLEAND THE BANKINGSYSTEM STRONG AND SOUND.

LET ME BRIEFLY ELABORATE ON THESE GOALS. MONETARY

POLICYHAS A PROACTIVEROLE PARTICULARLYIN KEEPINGINFLATION

STABLE.

BANGK) SENTML/ CONSOUDA11NGECONOMIC GRO Annex 3d Page 5 of 9 _ _s 2000 CONSULTATIVE GROUP MEETING FOR THE PHILIPPINES

A REASONABLEMONEY GROWTH THROUGH PRUDENT MONETARY

MANAGEMENTENSURES MODERATE INFLATION. WE HAVEADHERED TO

PROGRAMMONETARY AGGREGATE WITH SUFFICIENT FLEXIBILITYTO

ACCOMMODATEVARIOUS EXTERNAL SHOCKS. LET ME ALSOANNOUNCE

AT THIS POINT THAT THE MONETARYBOARD HAS APPROVEDA MAJOR

POLICYSHIFT TOWARD ATTAININGPRICE STABILITYBY THE ADOPTION

OF INFLATION TARGETING FOR CONDUCTING MONETARY POLICY

STARTING 2001. ITS ADOPTION IS EXPECTEDTO GIVE MORE FOCUS

ON THE PRICE STABILITY OBJECTIVE BY ESTABLISHING THE

ACCOUNTABILITY OF THE BANGKO SENTRAL, BY INCREASING

TRANSPARENCY IN THE CONDUCT OF MONETARY POLICY AND BY ANCHORINGMARKET EXPECTATIONS.

MONETARY AUTHORITIES WILL ALSO HAVE TO ENSURE THAT

INTEREST RATES REMAIN MARKET-DETERMINEDTO PRESERVETHEIR

ROLE IN EFFICIENTALLOCATION OF FINANCIALRESOURCES. IN THE

CONDUCT OF MONETARYPOLICY, WE HAVE ALSO AIMED AT KEEPING

INTEREST RATES CONSISTENT WITH THE REQUIREMENT OF GROWTH

WI7THOUTSACRIFICING OUR PRICE OBJECTIVE.

ANOTHERITEM IN THE MONETARYAUTHORITIES' LIST OF AGENDA

IS ENSURING THE STABILITY OF OUR FOREIGN EXCHANGE MARKET.

THE PESO ViS-A-VISTHE US DOLLARHAS REMAINEDBROADLY STABLE

EVEN AS THE PESO EXPERIENCEDSOME WEAKENING DURING THE

FIRST FEW MONTHS OF THE YEAR DUE TO SUCCESSIVEINCREASES IN

THE US FEDERAL RESERVE INTEREST RATE, BEARISH INVESTOR

BANGKO SENTRALI CONSOUDATING ECONOMGROWTH Annex 3d Page 6 of 9 i|wq 2000 CONSULTATIVE GROUP MEETING FOR THE PHILIPPINES

SENTIMENT TOWARD THE ASIAN REGION IN GENERAL, AND LOCAL

POLITICAL FACTORS IN PARTICULAR. GIVEN THE COUNTRY'S SOUND

MACROECONOMIC FUNDAMENTALS, THE PESO'S RECENT

FLUCTUATIONS HAVE BEEN MAINLY SENTIMENT-DRIVEN. AN ADEQUATE

LEVEL OF INTERNATIONAL RESERVES, WHICH WE DO HAVE, IS HELPFUL

IN ESTABLISHING MARKET CONFIDENCE. AND OF COURSE WE CANNOT

OVEREMPHASIZE THAT WE CONTINUE TO EXPECT SUSTAINED DOLLAR

INFLOWS FROM WORKERS REMITTANCES AND MERCHANDISE

EXPORTS.

PRUDENTMANAGEMENT OF THE COUNTRYrSEXTERNAL DEBT IS

AN EQUALLY IMPORTANT TASK THROUGH IMPROVED DEBT

MONITORINGAND COMPLIANCEWITH CEILINGSON LOAN APPROVALS

THE COUNTYCAN MAXIMIZETHE BENEFITS THAT EXTERNALFUNDING

CAN BRINGTO THE GROWTH OF THE ECONOMYBY BEINGA PRUDENT

BORROWERIN THE INTERNATIONALCOMMUNITY.

FINALLY,KEEPING THE BANKINGSYSTEM STRONG AND SOUNDIS

FUNDAMENTALTO GROWTH. AS INTERMEDIARYOF FUNDS,A STRONG

BANKING SYSTEM WILL ENSURE THE CONTINUEDFLOW OF SAVING

AND CREDIT.- TOWARD THIS END, EXISTING MEASURES AND

INDICATORS HAVE BEEN PUT IN PLACE INCLUDING THE PHASED

INCREASES IN BANK CAPITALIZATION AND MERGERS, STRICT

MONITORING OF NON-PERFORMING LOAN RATIOS, LOAN LOSS

PROVISION$, AND COMPLIANCE WITH CAPITAL ADEQUACY RATIOS.

ADDITIONALREFORM MEASURESHAVE ALSO BEEN PASSED NOTABLY

BANGKOSENTRAL I CONSOUDA17NG ECONOMIC GROWTH I'-1 Annex 3d It4I Page 7 of 9 2000 CONSULTATIVE GROUP MEETING FOR THE PHILIPPINES

THE GENERAL BANKING LAW (R.A. NO. 8791 ON 23 MAY 2000) WHICH

WILL FURTHER PROMOTE FINANCIAL STABILITY BY ENHANCINGTHE

COMPETITIVENESSOF THE BANKINGSECTOR AND BY STRENGTHENING

THE REGULATORYAND SUPERVISORYFRAMEWORK.

ECONOMICPROGRAM FOR 2000

OUR VISION FOR YEAR 2000 IS CAPTUREDBY OUR PROGRAMOF

ECONOMICCONSOLIDATION. IN NUMERICALTERMS, THE PROGRAMFOR

THE YEAR IS ARTICULATEDBY THE FOLLOWINGTARGETS:

THE ECONOMY IS TO GROW BY 4.5 TO 5.5 PERCENT AND

INFLATIONRATE IS TARGETED TO AVERAGE5.0 - 6.0 PERCENT. TO

SUPPORT ECONOMIC RECOVERY, INTEREST RATES ARE TO REMAIN

LOW AT 9.5 TO 10.5 PERCENT. THE CURRENTACCOUNT IS TO ACHIEVE

A US$6.3BILLION SURPLUS WITH THE BALANCEOF PAYMENTSTO POST

A $1.4 BILLIONSURPLUS. FOREIGNRESERVES ARE ALSO EXPECTEDTO

RISE TO $17.1 BILLION. BASED ON THE LATEST NUMBERS, THESE

TARGETS ARE FIRMLY ON THE GROUND;THEY DO NOT ASK FOR THE

MOON.

BANKINGREFORMS

THESE NUMBERS ARE WITHOUT FLESH AND BLOOD UNLESS

SUPPORTED BY STRONG STRUCTURAL REFORMS. FOREMOST OF

THESEWOlJLD BE THE PASSAGEOF RECENTBANKING REFORMS THAT

WOULD FURTHERSERVE THE CAUSEOF A SOUNDBANKING SYSTEM.

BAWGKOSENTRAL I CONSOllDAJING ECONOMIC GROWTH Annex 3d Page 8 of 9 -IwA!j2ql2000 CONSULTATIVEGROUP MEETING FOR THE PHILIPPINES TO PROVIDE FOR A STRONGER LEGAL FRAMEWORK, THE

GENERALBANKING LAW (GBL) HAS BEEN ENACTEDLAST MAYOF THIS

YEAR. LONG OVERDUE FOR UPLIFT,THE GBL 2000 UPDATESSOME OF

THE RULESUNDER THE HALF A CENTURYOLD GENERALBANKING ACT,

STRENGTHENINGTHE REGULATORYAND SUPERVISORYFRAMEWORK.

IN PARTICULAR,FOREIGN BANKS ARE ALLOWEDTO ACQUIREUP TO 100

PERCENTOF THE VOTING STOCK OF A DOMESTIC BANK WITHIN THE

FIRST SEVEN YEARS OF THE LAWS EFFECTIVITY. THE NEW LAWALSO

IMPOSES STRICTER RULES ON BANK EXPOSURE TO DIRECTORS,

OFFICERS,STOCKHOLDERS, AND RELATEDINTERESTS (DOSRI).

THE CAPITAL BUILD-UP PROGRAMFOR BANKS CONTINUESAS A

POLICY. HOWEVER, COMPLIANCE WITH THE MINIMUM CAPITAL

REQUIREMENTFOR 1999 HAS BEEN EXTENDEDTO END- 2000 AND NO

INCREASES IN MINIMUM CAPITAL REQUIREMENT HAVE BEEN

PROGRAMMEDFOR 2000. INSTEAD,BANKS WILL BE REQUIREDTO PUT

UP VARYINGLEVELS OF CAPITALAS BUFFER,DEPENDING ON THE RISK

LEVEL OF THEIR RESPECTIVE PORTFOLIOS. WE HAVE ALSO

ENCOURAGEDTHE PUBLICLISTING OF BANKSIN THE EQUITIESMARKET

AS WELL AS THE MERGERS AND CONSOLIDATIONSIN THE BANKING

SYSTEMTO FURTHERENHANCE ITS STRENGTH.

THE BANKINGSYSTEM'S ABILITY TO WITHSTANDSHOCKS HAS

BEEN FURTHER IMPROVED WITH THE RECLASSIFICATION OF BANK

LOANS ANQ TIGHTENING OF PROVISIONINGREQUIREMENTS. THIS

JUNE, LOANS HAVE BEEN RECLASSIFIEDINTO SIX CATEGORIESWITH

EANGKOSENTRAL I CONSOUDA17NG ECONOMIC GROWTH Annex 3d I~~~~~~~~~~~~~I~~~~~~~~~~~~Page 9of 9 2000 CONSULTATIVE GROUP MEETING FOR THE PHILIPPINES _. UNCLASSIFIEDAS THE LEAST PROBLEMATICALAND ALLOWANCEFOR

PROBABLELOSSES AT ZERO.

IN THE AREA OF SUPERVISIONAND MONITORING,THE OFF-SITE

SURVEILLANCESYSTEM FOR THE EARLY DETECTION OF PROBLEM

BANKS HAS BEEN ENHANCED THROUGH THE PREPARATION OF

INDNIDUAL BANK PERFORMANCEREPORTS, MONITORING OF TOP 100

CORPORATEBORROWERS , DEVELOPMENTOF FAILURE PREDICTION

MODELS,AND PREPARATIONOF COMPREHENSIVEBANK FOLDERS.

CONCLUSION

THIS IS BY NO MEANS THE COMPLETEMONETARY AND BANKING

STORY OF THE PHILIPPINES. IN CONCLUDING OUR REMARKS THIS

MORNING, LET ME JOIN ALL OUR COLLEAGUESIN GOVERNMENTIN

UNDERSCORINGOUR COMMITMENTTO WORK AND TO WORK HARD TO

IMPROVE OUR WAYS OF ACHIEVING ECONOMICPROGRESS. SURELY

THERE WILL BE SORE SPOTS HERE AND THERE BUT LET ME ASSURE

OUR INTERNATIONALDONOR COMMUNITYTHAT WE RECOGNIZETHAT

THERE IS NO OTHERPATH AVAILABLE TO US EXCEPTTHE NARROWAND

DIFFICULTPATH. AND WE INTENDTO CONTINUETAKING IT. IN THIS, WE

NEED YOUR CONTINUEDFRIENDSHIP AND SUPPORT.

THANKYOU AND GOOD MORNING.

i L

BlANGKOSEN7RA U CON0SOIJDA71NGECONOMIC GROWTH - Annex 3e Page 1 of 4

Consultative Group Meeting for the Philippines Tagaytay, Philippines June 18-20, 2000

Statement by the Representative of the InternationalMonetary Fund

In my remarks today, I will first offer an assessment of recent economic developments and the near-term outlook, and then turn to the policy challenges that must be addressed to ensure rapid, sustainable, and broad-based growth over the medium-term.

1. Recent developments and near-term outlook

Macroeconomic developments have been generally encouraging since the last Consultative Group meeting in March 1999. Economic recovery is underway, led by continued strong export growth and a gradual pickup in domestic demand. Inflation has fallen faster than expected, aided in part by good harvests and an associated easing of food prices. The external current account is in large surplus, allowing the central bank (BSP) to further strengthen its external reserve position (which now frlly covers short-term debt and other amortization due over the next 12 months).

Notwithstanding solid macroeconomic performance, business confidence has been weak, and, unless restored, could undermine the recovery. Investment and private sector credit growth have been sluggish; the stock market has fallen by around 3 5 percent over the last twelve months; and the peso has come under intermittent pressure in spite of a large current account surplus, indicating sizable capital outflows.

Several factors have adversely affected investor sentiment, offsetting the impact of otherwise favorable macroeconomic developments. These factors include the slippage in the budgetary position during the second half of 1999;the slow progress made until recently in implementing the government's structural reform agenda; and broader governance concerns, highlighted by a major insider trading scandal on the stock exchange. The recent intensification of the armed conflict in Mindanao has added to investor concerns.

In response to last year's slippages, the government has taken important steps to buttress its financial position and accelerate reforms:

* The fiscal program for 2000 seeks a reduction in the budget deficit while avoiding an overly-sharp cut in fiscal stimulus at a time when the recovery is still fragile. The fiscal targets are appropriate and achievable if revenue collection efforts are pursued vigorously and expenditures are carefully monitored and controlled.

* The formation, in January, of the Economic Coordinating Council has significantly strengthened policy coordination both within the government and with Congress.

A:\CG STATEMENT Final.Doc June 17, 2000 (9:32 AMl) -~ Annex 3e Page 2 of 4

Key pieces of reform legislation, including the retail trade bill, the general banking act, the securities act, and the power sector act have recently moved forward.

The authorities have also stayed the course with policies that have proven to work well for the Philippines, including a market-determinedexchange rate, backed by prudent monetary management; a commitmentto an open exchange and trade regime; and a market-oriented domestic business regime (includingmarket-determined oil prices).

But further measures and actions will be needed to strengthen the reform program and revive market confidence:

* Final passage of power sector reform legislation will lay the basis for a major restructuring of the industry.This legislationwill need to ensure effective competition in power generation; provide for a strong regulatory body; and ensure the privatization of NPC assets through transparent and competitive procedures.

* Restoring confidence in the stock market will require prosecution of those shown to have violated securities laws and regulations; governance reforms at the stock exchange; and expanded transparency and disclosure requirements. e Passage of revisions to the BSP law will further strengthen the BSP's capability to supervise the banking system. Looking further ahead, it will be important to give bank supervisors the tools they possess in other well-regulated markets, including adequate protection from civil lawsuits for official actions taken and access to vital depositor information (currently precluded by bank secrecy).

*Completion of the privatization of the Philippine National Bank, in a fully transparent process, will get the governmentout of mainstream commercial banking, limiting the scope for politically-directedlending that has proven to be so costly in the past.

The government is pursuingthese actions as part of the policy package being supported by the IMF under the current stand-by arrangement.The next review of this program is expected to be taken up by the IMF's Executive Board in the coming weeks; the arrangement, approved in March 1998, would then be extended through the end of this year.

The government's macroeconomicprogram for the year targets GDP growth of 4-5 percent; inflation of 5-6 percent for the year; and a further build-up in external reserves to about $16 billion. Developmentsto date suggest that these targets are achievable if macroeconomic policies remain on track, the reform agenda is vigorously pursued, and the security situation improves in the near future. - Annex 3e Page3 of 4 2. Medium-Term Challenges

Let me now turn to the challengesthat need to be addressed if the Philippinesis to meet its objective of sustained and rapid growth over the medium-term,thereby laying the basis for accelerated poverty alleviation. These issues are well-laid out in the government's medium-term development plan, Angat Pinoy 2004; let me briefly highlight the key themes here.

The Philippines has the potential to achieve trend GDP growth rates of at least 5 percent per annum over the medium-term- a growth rate that can be deemed the minimum needed to ensure significant growth in per capita incomes and an acceptable pace of poverty alleviation. The rapid growth of the electronics industry, and related back-office service operations, provides a telling illustration of the capability of Filipino workers to compete effectively in a global industry.

But important challenges need to be addressed if this potential is to be fully realized - challenges that fall into three broad groups: (a) strengtheningpublic service delivery; (b) improving the legal and regulatory environment within which private sector activity takes place; and (c) ensuring an appropriate set of incentives to promote savings and investment.

There are several areas in which public service delivery needs to be improved: priority areas include public education, rural development, and physical infrastructure. While private sector participation can play an important supportive role in these areas, the government will need to increase substantiallythe resources made available for these purposes if growth and poverty alleviation objectives are to be met. This in turn will require boosting tax revenues and implementingwide-ranging expenditure reforms to ensure efficient use of scarce budgetary resources.

Improving tax administrationis an overarching priority, lest low tax collections continue to undermine the government's ability to deliver key public services. Progress has been made by the Bureau of Internal Revenue in strengthening its operations over the past year, but vigorous efforts are needed to strengthen audit and collection efforts and take frill advantage of the resources already devoted to computerization.Simplification of tax incentives is also critical to ensure a sound revenue base and effective tax administration.

Parallel to a stronger revenue effort, there is a need to free up budgetary resources via public sector reform and better targetting of expenditures.Priority issues here include civil service reform, to lay the basis for a smaller yet more effective public service; and enhancing the tasks and capabilities of the local government units, which are benefiting from a rising share of budgetary resources over time.

The Philippines has made steady progress in removing the government from direct engagement in production and exchange,via market deregulation and privatization of government-owned commercial enterprises. The challenge ahead is to strengthen the legal Annex 3e Page 4 of 4 and regulatory environment within which private activity can take place. Important examples that come to mind include:

* improving the speed, transparency,and consistency of the ways in which commercial issues are resolved via judicial processes;

* strengthening the surveillance and enforcement powers of capital market regulators, notably the Securities and Exchanges Commission, to ensure that markets work smoothly and transparently with a "level playing field" for all participants;

* improving the supervision of banks and affiliated financial institutions to promote sound management and guard against fraudulent practices;

* reforming the framework governing insolvency and creditors' rights, since the current framework distorts lending practices and impairs the access of small and medium- sized firms to capital.

Finally, let me touch briefly on the need to promote savings, the resource that fuels economic growth, and their efficient use in investment. Savings levels in the Philippines have traditionally been low by regional standards, and act as a constraint on the pace of sustainable growth over the medium-term.Priority needs to be given, therefore, to raising public savings, strengtheningcapital markets, and broadening the coverage of contractual savings schemes in an environment of continued macroeconomic stability. By contrast, investment promotion is an area where government engagement, at least in the form of tax incentives, may become overly-interventionist,with unnecessarily generous tax holidays proving to be a very expensive way of encouraging investment.

To conclude, the Philippines has the potential to achieve rapid, sustainable, and broad-based growth if key policy reforms can be put in place. The challenges confronting policy-makers, who need to build public support for often-difficultreform measures, are substantial but not insurmountable. Implementation of this reform agenda will merit the full support of the international community. As in the past, the IMF stands ready to assist the authorities in these endeavours.

Thank you for your attention. Annex 3f Page l of5 ThePhilippine Economy: RecentDevelopments, Achievements and Challenges

Paperprepared for the ConsultativeGroup Meeting for Philippines 19-20June 2000

1. Despitesome lingering effects of the Asianfinancial crisis, the Philippineeconomy has begunto regainits growthmomentum. 1999 saw a recoveryof the agriculturalsector from the El Nifio effect which contributedlargely to the economy'sgood GDP growth performanceof 3.2 percentin the year. However,growth performance was unevenover sectorsas well as overcomponents of demand.Industrial growth for example,was very weak and growth in servicesmodest. On the demandside, while consumptiongrew steadilyand exports experienced very rapidgrowth, investment continued to shrink.

2. The continuanceof good growthin the agriculturalsector and a resumptionof industrialgrowth are necessaryfor the economyto experiencebetter growth performance in 2000.These need to be aidedby a stronggrowth in demandsupported by a recoveryof investmentgrowth. The first quarterresults show manypositive developments. A definite industrialrecovery is underwayand investment growth appears to be pickingup. However, agriculturalperformance has beendisappointing.

3. The Govemment'seffective macroeconomic management of the economyhas resultedin many successes. From the social point of view,the successin controlling inflation is a major achievement. There has also been a reductionin the rate of unemploymentin the last few months. The country'sbalance of paymentsis in a more secureposition now than before and foreign exchange reserves are at a comfortablelevel. The largefiscal deficit of 1999 was alsotolerated without causing inflation or interestrates to rise. Withthe revivalof the economyand of aggregatedemand, however, pressures on the balanceof payments,through rise in imports,and on the inflationfront are likelyto be witnessedin 2000. It is thereforenecessary to carefullymonitor the fiscaldeficit situation to see that the needsof impartinga fiscal stimulusand ensuringadequate outlays for critical social sectors is balancedagainst the need to maintaindomestic and extemal stability. Annex 3f Page 2 of 5

4. On the other hand,there continueto be severalareas of concem. In the budget for 2000,for example,the compositionof expendituresshow a larger sharefor defense comparedto 1999,a sharpdrop in capitaloutlays and a reductionin expendituresin real terms for educationand health.The shareof economicservices shows a drop and the assumptionhas been made that enhancedprvate sector activitiesin the areas of economicservices and infrastructurewould substitute for reducedgovernment presence in these areas. For this to happen,however, more determined efforts are necessaryto encourageprivate sector participation.On the revenuefront, tax projectionsare quite modest,and much belowthose experiencedas a percentageof GNPprior to the crisis. Effortsto ensurebetter collections need to beenhanced.

5. In the bankingsector, the continuanceof highnon-performing loans suggests that difficultiescontinue to be faced by the corporatesector. This is also evidentfrom the sharp increase in the number of dissolvedcompanies in 1999 over 1998.The new measuresto assistdistressed corporations issued by the SEC in late 1999may help the corporatesector overcome the still lingeringeffects of the financialcrisis. Also,the recent measurestaken by BSP to enforce stricter regulationson lending, introducebetter disclosurestandards and further the consolidationprocess will also go a long way to strengthenthe bankingsystem. Unlesscredit growth picks up in a big way, however,the problemsof the bankingsector will continue.

6. There havebeen reportsof impropertrading practices in the stockmarket. Also, instancesof apparentirregular lending by certaininvestment houses which impacted adverselyon somecommercial banks, have come to light. Thesepoint to the very critical needfor improvedgovemance and regulationof the capitalmarket and non-bankfinancial institutions.Reforms in this area havebeen slow. Properly functioning capital markets are critical for investorconfidence and enhancedprivate sector activity in the economy. RecentGovemment efforts to steer pendinglegislation in the areais thereforeheartening.

7. The current situation in Mindanao,if prolonged,is certain to cause severe consequenceson the economy. To stop the sufferingthat it is causingto the civilian populationand to preventa furtherdecline in the economyof Mindanaowhich has a very high incidenceof poverty,it is hopedthat the conflictcomes to an end soonand the peace anddevelopment effort is pursuedby all parties. Mostdonors, including ADB, have been closelycooperating with the Govemmentin the developmentof Mindanao.The promotion Annex 3f Page 3 of 5 of peaceand development is mutuallyreinforcing. The donorcommunity will continuethis effortin partnershipwith the Govemment.

8. In orderthat the economycan be positionedfirmly on the path to a full recovery, eachof theseareas of concernneed to be attendedto. Thedevelopment prospects of the economyover the mediumterm depend on how successfullythese issues can be addressed.The Govemment'smedium term developmentplan providesan excellent blueprintfor enablinga return to pre-crisisrates of economicgrowth while at the same time achievinga significantreduction in poverty. The plan's vision of sustainable developmentand growth with social equity is extremelyappropriate, given the high inequitiescurrently existing and constrainingsocio-economic development. The success of developmentefforts in the mediumterm depends, however, on fulfillmentof somebasic underlyingassumptions of the Govemment'smedium term development strategy.

9. Mediumterm growthtargets, for instance,will requirea very major investment effort if they areto be achieved.The investmentrate is projectedto increasefrom around 20 percentat presentto about25 percentby the endof the Plan period. Areas needing massiveinvestment support are agriculture,rural developmentand infrastructure.A high agriculturalgrowth rate of 3.9 to 4.7 percenthas beenprojected, based on expectationsof such investmentlevels, against around1.0 percentgrowth achieved on averagein the previous 5-yeai period 1994-98. In both the agricultureand infrastructuresectors, investmentshave been weak by regionalstandards and this has been a critical factor limitinggrowth performance.

10. Financingsuch as investmentlevel, however, is a difficulttask. The MediumTerm DevelopmentPlan expects domestic savings to riseto 22 percentof GNPin the medium term, a major challengefor the Govemmentconsidering that the averagefor the last 5 yearshas beenonly around 19 percent.The roleof publicsavings is criticalin this effort, particularlyin improvingtax collection,considering that runninga largebudgetary deficit is imprudent.The Planalso expectsmajor contributionsfrom the privatesector and local govemmentsin the overallinvestment effort.

11. For instance,in the roads sector,more than half and in power more the three- fourth the investmentsin the Plan periodare expectedfrom eitherthe privatesector or local govemments.While higherdegrees of participationby the privatesector and local Annex 3f Page 4 of 5 communitiesin the developmentprocess is a worthyobjective to be pursued,substantial groundwork needs to preparedfirst beforesuch participationwill take place. For private sector participation,a critical need is the further developmentof the capital market particularlywith respect to the supplyof long termfunds needed for infrastructureprojects. An appropriatepolicy environment in the infrastructuresectors needs to be nurturedalso. As far as privateinvestments in local areas is concemed,apart from developinglocal capacities,a major stumbling block is the frequent changes in local government administrationresulting in inconsistentpolicies and priorities affecting business climate.

12. Meaningfulparticipation of local govemmentsin the nationaldevelopment effort would also requiresubstantial review of policiesand institutions.The financialstate of mostLGUs remains weak, and without a stableand regular access to developmentfunds, LGUsmay not be able to fulfillthe investmentresponsibilities placed on them. A detailed assessmentof LGU needs and capacitiesincluding an assessmentof the gap in developmentfunds they face may need to be workedout throughregular dialogue with them. An attemptto work out ways of meetingthe shortfallsin funds for development shouldthereafter be made.These could comprise plans to augmentrevenues, better use of bankingresources, improved access to the capitalmarket and finally a predictableflow of developmentassistance from the nationalgovemment particularly for the poorerLGUs.

13. The extent of poverty reductiontargeted in the mediumterm (i.e by from 32 percentin 1997 to 25-28 percentby 2004) is similar to the actual povertyreduction achievedin the past;but consideringthe majorstorm the economy,and in particularthe rural sector,has passedthrough recently,attaining this targetedreduction would be a significantachievement. There has been little progresssince 1997, however,in this regard. Studieson the Annual Poverty IndicatorsSurvey data indicatethat poverty increasedin 1998. Of particularconcern is the lack of any significantprogress with respectto the subsistenceincidence of povertyin ruralareas which shows that a quarter of the rural populationare still not even being able to meet minimum nutritional requirements.This indicatesthat effortsto improvethe circumstancesof this core group livingbelow subsistence levels has not beenvery successfuland factors determining their situationhave been particularly resistant to amelioratingmeasures.

14. Populationmanagement and environmentalimprovement are areas where progresscomes only slowly. However,the importanceattached to the populationissue is Annex 3f Page 5 of 5 evident in Govemmentpublications which is commendable.On environment,where Philippinesperformance is low by regionalstandards, Govemment has launchedseveral major initiativesincluding some in MetroManila such as for air qualityimprovement, which if pursuedvigorously, could yield resultsin a shortspace of time.

15. In conclusion,with the economynow in a recoverypath, it is necessaryto consider the majorsocio-economic impediments that haveinhibited development in the past,and to addressthem speedily.Current social necessities call for fasterprogress in neededpolicy changes and improvementsin economicperformance. A new determinationis now evidentin Govemmentto resolvelong pendingissues and to undertakeimprovements in publicfunctioning. It is hopedthese effortswill continueto be pursuedwith energyin the future.

G:sc(memo.doc 2000 CONSULTATIVEGROUP MEETING FORTHE PHILIPPINESPaeIo

(Embargountil June 19, 2000, 12:00p.m.)

STATUS AND PROSPECTSFOR RURAL DEVELOPMENT AND POVERTY ALLEVIATION IN THE PHILIPPINES

Statementof Honorable EdgardoAngara, Secretary,Department of Agriculture

Honorable ChairpersonsJose T. Pardo of the Department of Finance, Government of the Philippines and Mr. Vinay Bhargava,Philippines Country Director of the World Bank, fellow officials in governmentand membersof the donor community, Good Morning!

We wish to thank the donor community for the continuing support it had accorded the agriculture, agrarian reform and natural resource sector over the years. This has sustainedthe government'seffort at facing the challengesof the sector,which as we all know, have been substantial.

We are pleased that this year's consultative group meeting for the Philippines is being held right here. This should provide us a more realistic context for our work today, servingto remind us of the urgencyof addressingthe crippling and dehumanizing poverty pervasive in our country, particularly the rural sector.

Today, we are to explore the ways by which the support so generously provided the agriculture, agrarian reform and natural resource sector by the donor community, and for which we are deeply grateful, can be sustainedand enhanced. This task will be facilitated if we review the progress we have achieved in alleviating poverty in the sector, and the plans we have of moving forward. This is my humble contribution here today - a task which I am privileged to dischargein behalf of my partnersin the sector, SecretaryHoracio Morales of the Departmentof Agrarian Reformand SecretaryAntonio Cerilles of the Departmentof Environmentand Natural Resource.

The Government's Rural DevelopmentStrategy

As you know, about one half of the 73 million Filipinos live in rural areas and are dependenton farming and fishing as the major if not the sole sourcesof livelihood. These farmers and fishers have little or no accessto markets and production resources.As a consequence,poverty pervadesin rural areas.Of the Page 2 of7

*

8 million rural families in the country, 44% live in poverty. Roughly half of them live below subsistencelevels.

Clearly, we have to raise - and sustain- the level of income growth in the agriculture and the rural economy in general,if we are to win the war against poverty. This imperative is contained in the Philippine Medium Term Development Plan 1999-2004 which identified poverty reduction as the government's over-arching socio-economicobjective for all its policy agenda, programsand projects.

Government's strategy in achieving this goal is five-fold. First, we will modernize the agriculture and fisheries sector, thus increasingthe productivity and incomes in rural areas. Second,we will speed up and fully implement agrarian reform. In so doing, we ensurethat the vast majority of the population sharesthe productivity and income gains achievedthrough the modernization. Third, we will promotethe proper use and conservationof our natural resources, thereby ensuring the sustainability of the resource base on which agricultural productivity is dependent. Fourth, we will better-targetthe delivery of basic social serviceswhich increasethe long-run earningcapability of the poor as well as providing safety nets during the transition period. Lastly, we will implement institutional reformsand strengtheninter-agency cooperation in order to ensurea more efficient and effective delivery of governmentsupport servicesin the rural areas.

Progressin the Government'sRural Development Strategy

Agricultureand FisheriesModernization. The roadmap to agriculture and fisheries modernization is contained in the Agriculture and Fisheries Modernization Act or AFMA. This roadmap prescribesthe following strategies: (a) enhancing productivity and competitiveness;(b) widening people's accessto land and other productive resources;(c) promoting sustainable use of natural resourcesand protecting the environment; and (e) empowering stakeholdersand rationalizing functions of institutions. AFMA also includes the identification of strategicagricultural and fisheriesdevelopment zones (SAFDZs) and the focusing of government support into these areas. Substantial budgetary support for irrigation, farm-to-market roads and other rural infrastructure, research and development, extension, farmer credit, information and marketing support services,product standardizationand consumerprotection, is also prescribed.

Notwithstanding severe budgetary constraintsdue to the delays in the funding of the AFMA and the current fiscal difficulties being experiencedby the government, the implementation of core components of the AFMA have been initiated. First, we have completed the formulation of regional agriculture and fisheries modernization plans and are in the processof consolidating them. -I~i Annex 3g Page 3 of 7

These plans shall be the basesfor resourceallocation and program and project implementation for the sector.

We have also delineated SAFDZs, which will serve as centers of production, agro-processingand marketingactivities. Most of the agrarianreform communities (ARCs)are also in theseareas.

We have also launched the Agrikulturang MakaMASAprogram aimed at increasing productivity in rice, corn, high value crops, livestock and fisheries through better irrigation, seedsand breeders,marketing systems, and technology. As part of this program, we have started the massiverehabilitation of existent irrigation facilities and the constructionof new ones.

We have likewise started the long and arduous process of creating a policy environment conducive to agriculture and fisheries modernization. We have initiated the implementationof the Agro-IndustryModernization Credit and Financing Programunder which all directed credit programsshall be phasedout over a four-year period and eventually consolidated into the new program. To boost competitivenessand improve cost efficiency of the sector, EO 133 was issued last year specifyingthe implementing rules and regulationsgoverning the exemption from the payment of tariffs and duties of inputs to agriculture and fisheries enterprisesas mandated by Section 109 of AFMA. Finally, we have prepared a set of criteria in the selection and prioritization of irrigation investments, and are in the process of preparing guidelines that would rationalize irrigation servicefees.

Intensifying Land Distribution and Enhancing Partnerships in Support of Agrarian Reform Communities (ARCs). The ComprehensiveAgrarian Reform Program (CARP)continues to be the centerpieceprogram of the governmentfor asset reform. As of December 1999, the Departmentsof Agrarian Reform and Environment and Natural Resourceshave acquired and distributed around 5.3 million hectares,65% of the total programscope.

In order to strengthen the economic viability of agrarian reform beneficiaries (ARBs)and agrarian reform communities (ARCs),we have recently launched the Joint Economic Enterpriseor the MAGKASAKA Program under which joint venture arrangements between ARBs and private sector entrepreneursare promoted. The arrangementsinclude production, processing, and marketing agreements;build-operate-transfer schemes; management, service, and lease contract arrangements;or any combination of these. We have also expanded the ARC framework to enhance greater complementation among CARP implementing agencies in the implementation of development interventionsfor the ARBs. Annex 3g Page 40of7

Under the present administration, we have launched 192 new ARCs, bringing the total ARCs created since 1993 to 1,140. We have strengthened support to these communities. Lastyear, some 1,380 cooperativesand farmers' organizations availed of P 2.3 billion worth of credit, 33% more than the 1998 level. We have also provided the following basic social services:(a) potable water supply, (b) power supply, (c) educationalservices, (d) health services,and (e) recreational facilities. We have likewise intensified our investment and marketing assistanceto ARCs,helping forge a total of 137 marketing agreements between 73 agribusinessfirms and 152 people's organizationsin 112 ARCs.

Promoting Environmental Sustainabiity. We have adopted several strategiesto strike a balancebetween developmentand environment. One such strategy is the Sustainable Forest ManagementStrategy, which provides the framework in addressingupland poverty as well as forestprotection problems.

Another is the Community-BasedForest Resources Management Program which aims to improve the well-being of forest-dependent communities, including indigenous peoples,by legitimizing their rights to peacefully occupy, manageand reap the benefitsfrom forestlandsin a responsibleand sustainable manner.

Still another strategy is Coastal ResourcesManagement. This strategy addressesthe need to ensurethe well being of poor communities dependent on coastal-basedeconomic livelihood activities through their empowerment in planning and managingthe developmentof coastalresources.

We have also adopted a Watershed or Ecosystems Management Approach, which aims at a holistic strategyin managingdevelopment initiatives affecting inter-relatedecosystems to sustaintheir economic uses.

Institutional Reforms and Inter-Agency Cooperation. Speeding up the modernization of the agriculture, agrarian reform, and natural resourcessector requires new ways of thinking and doings things. Mind-sets and viewpoints need to be realigned and more efficient and effective institutional arrangements be forged to better ensure the delivery of more innovative and responsive supportto the sector.

For its part, the Departmentof Agriculture has shifted its perspectivefrom that of being actual implementers of programs and projects to that of being principally facilitators, coordinatorsand providersof technical support. The new DA organizationalstructure along functional lines reflectsthese changes.

The DA has also institutionalized counterpartschemes with stakeholders in order to encourage more meaningful and responsiveparticipation in, and Annex 3g

Page 5 of 7

consequentlyensure sustainabilityof, programsand projects. Once such schemeis "BalikatanSagip Patubig," a crashcounterpart scheme among DA, LGUs and IrrigatorsAssociations (lAs) to fast-trackrehabilitation of devolved CommunalIrrigation Systems covering some 500,000 hectares. The Department is also developing counterpartschemes under which it will provide funding support for local governmentunit initiatives supportive of agriculture and fisheriesdevelopment.

There havealso been initiativesto addressimplementation bottlenecks. For instance,an InspectorateGeneral was constitutedin the DA to overseethe implementationof all infrastructureprograms and projects. Furthermore, guidelineswere adoptedto rationalizethe deliveryof extensionservices in the Department.

In order to strengthensynergy, the DA, DAR and DENR have been identifyingareas of collaborationwhere eachindividual agency can effectively fulfill its mandateonly in cooperationwith others. For instance,in watershed- irrigation systemsand in the conservationand protectionof coastal-municipal fishery ground, closer collaborationis being forged betweenDA and DENR, while in the provision of technical support servicesand infrastructurefor AgrarianReform Communities (ARCs), closer cooperation between DA and DAR is beingworked out.

The DA will also be implementingthe ADB-assistedGrains Sector DevelopmentProgram that addressesboth policy and institutionalreforms. The overridinggoal of GSDPis to attainsustained growth in productivity,household incomes,and rural poverty reductionand achievea more cost-effectiveand resource-efficientfood security.

Prioritiesfor the Future

To spur agriculturaland rural developmentin a sustainablemanner, in the processreducing poverty and attainingsocial equity, we will focuson the following initiatives:

* Provision of public goods such as rural infrastructure(irrigation, farm/coast-to-marketroads) in the SAFDZareas so that the privatesector will be motivatedto supportagricultural production in theseareas. This will also ensure that production areas are brought closer to market centers;

* Undertakingof research,development and extensionto strengthenthe technology resource base necessary for improved agricultural Page 6 of 7

productivity. An example of this is in the field of biotechnology and human resourcedevelopment;

* Strengtheningof governancefor all stakeholdersin the sector;

* Improving land tenure through surveying,beneficiary identification, and landholding registration;

* Strengtheningof supportservices to the ARCs;

* Delineation of permanent forestland boundaries to prevent illegal encroachmentinto forestzones;

Development of plantation corridors, which will facilitate the reforestationof the more than 10 million hectaresof forest lands under various statesof denudation;

- Adoption of state-of-the-arttechnology in Environment and Natural ResourcesManagement, such as telemetry that is used to measurethe available resourcesof the country and monitor environmentalprocesses;

* Development of managementplans for priority watersheds. These integrated and holistic plans will serve as guide for more effective, efficient, and client/people-oriented investment programming in the future.

TheChallenges We Face

The initiatives that need to be undertaken will be pursued amidst significant crosscutting challenges posed by increasing resource constraints, operationalbottlenecks in devolution, andthe recentconflict in Mindanao.

As we are all aware of, the governmentis currently experiencingfiscal difficulties brought about by an inefficient and insufficient revenue collection systemaggravated by an economic downturn. This has adverselyaffected the level of resourcesthat governmentcan make availablefor the rural sector.The Departmentof Agriculture, for instance,has gotten only 40% of the budget it has proposed over the past four years. This less-than-desiredlevel of resource allocation has diminished the number and intensityof interventionsthat can be implementedfor the sector.

Moreover,despite almost ten yearsof experience,government has yet to find reasonable levels of efficiency in the devolution of authorities and responsibilitiesto local governmentunits or LGUs. At present,devolution has -~iI Annex 3g Page 7 of 7

barely progressedfrom theoriesand rhetoricaldiscussions. Principally,program and project identification, implementation,and monitoring are still retained at the national level. This hasbeen the resultof the reluctanceof nationalagencies to surrenderauthorities, on the one hand,and the reluctanceof LGUs to accept responsibilities,on the other. The reluctanceof LGUs to accept responsibilities stem from what they had claimed to be insufficientlevels of both the resources provided them and the technical capabilitiesof LGU personnelto assumesuch responsibilities.

Finally, we have to contend with the social, economic and political dislocation in Mindanao. This dislocation threatensnot only food security but also the very integrity of the country. The imperativesof today and tomorrow should therefore include as one of the highest priorities, the formulation and implementation of a comprehensiveprogram to addressthe Mindanao problem. One effort toward this goal had been the proposed creation of the Cabinet ClusterM that will direct the developmentof a unified StrategicFramework and Action Plan for Poverty Alleviation and Rural Development in Mindanao. By doing this, we will be able to harmonize and coordinate all our actions in Mindanao.

ConcludingRemarks

Ladiesand gentlemen,we hold no illusionson what elseneed to be done to achieve sustainabledevelopment in rural areas. Clearly, the challengesare daunting, and the wherewithal we haveis lessthan ideal.

We are, however, unafraid and confident becausewe know how and with what we shall proceed. We havethe vision and the frameworkwith which to proceed. We have the will. Today, we will add one final ingredient to this mixture - the support of the donor community. To this effort we look with hope, and ultimately gratitude,in behalf of the millions of Filipinosoppressed by poverty and hopelessness.We pray that, once again, the donor community will prove that generosity, and humanity, knows no political and geographical boundaries.

Thankyou so much for your attention. Annex 3h Page 1 of 10 __E 2000 CONSULTATIVE GROUP MEETING FOR THE PHILIPPINES

(Embargountil June 19, 2000, 12:00 p.m.)

EXPANDINGTHE CAPACITIESAND REACH OF PRO-POORSERVICES

Statementof Honorable Horacio R. Morales,Jr. Secretary,Department of Agrarian Reform,and LeadConvenor, National Anti-PovertyCommission

Development is about enabling people to make genuine choices, giving them the opportunity to improve their potentials and to lead productive lives. The Estradaadministration is explicit on its pronouncementsfor ensurilig that all Filipinos be given the most effective packagesof programsfor them to pursue their own interestsand to widen their choices. The key requirementto making this vision a reality is providing an enabling environmentthat shall narrow down inequality, and a basic strategy for attaining this objective is to ensure the efficiency and effectiveness of the delivery mechanism for social services, specifically basic social servicestargeted for the poor. This is the rallying point of the National Anti-PovertyAgenda and the core motivation behind every social development program in the country.

Consensusfor Improvingthe Efficiencyand Effectivenessof SocialServices

All of us will agree that there is a need to expand and adopt meaningful ways of delivering servicesfor the people and especially those who are most vulnerable to both natural calamities and socioeconomictrends, both domestic and global trends. Our thrusts for improving social development goals are reflected in the modestgains we have achievedin the past couple of years. Our efforts since the start of the Estrada administration resulted in relative improvementsin key social development indicators.

Accessto basic education improved with near universal participation rate and gender parity in primary education. There is also a high level of basic literacy among Filipinos. Moreover, with the calls for early childhood development,there has been substantialexpansion of day care centersoperated by local officials at the barangay level. Non-formal programs implemented nationwide through NGO and LGU participation as well as the expansion of accreditation and equivalency system reaches the out-of-school children and adults. At the tertiary level, strong private sector participation (about 80% are privately-run tertiary education institutions) in the delivery of education is positively recognized. In terms of progressmade in education quality, public - ~~~~~~~~~~~~~~~~~~~~Annex3h Page 2 of 10

school students posted higher improvement rates in National Elementary Achievement Test (NEAT) and National SecondaryAchievement Test (NSAT) scores over their private school counterpartswith public science high schools performingwell.

In the face of critical backlogs of education inputs, improving the efficiency and effectiveness of the system is warranted. Through ODA, procurement systems,especially of textbooks are being strengthened.For basic education, decentralizationand school empowerment measuresare also being pilot-tested to enable schools to become more creative and pro-active in initiating measuresto addressproblems on low cohort survival rates,increasing drop-out rates, and inefficient deployment of teachers in elementary and secondarylevels, among others.At the tertiary level, calls for the moratorium on the creation of state universities and colleges (SUCs) have resulted in the creation of only one SUC in 1999 compare to ten in the previous year. Rationalization efforts of higher education towards cost-efficient SUCs is underway. Moreover, more industry-relevant curriculum is offered at the middle-level schools as a result of greaterprivate/industry-sector consultations. This is intended to addressthe increasingunemployment and underemployment of tertiary education graduates.

Major improvements in the health sector have been observed over the years. The trends in certain health indicators show that mortality rates have declined, morbidity ratesfor certain diseaseshave<-i'nproved and life expectancy at birth has increased. In terms of addressingpopulation and developmentissues and concerns, the Government embarked on the following: re-stating the Philippine Population Management Program (PPMP); changing the health program from purely family planning (FP)to integratingand mainstreamingthe 10 elements of reproductive health (RH) in government programs; implementation of youth innovativeprojects; and the passageinto law of various policies concerning health servicedelivery, welfare of women, and children.

Following the declaration of mass housingas the centerpieceprogram of the present administration, the Pabahaysa Bagong Siglo (PBS)program was launched. The PBSprogram targets the production of 350,000 housingunits per annum, 60% of which will be constructed for socialized housing for low income groups. The repayment terms for socialized housingunits , i.e., valued at P180,000 or below, were revised to make these more affordable to the beneficiaries. Theserevisions include the reduction of interestrates from 16°/, to 9% and the extension of amortization payment from 25 years to 30 years. Moreover, the Home GuarantyCorporation (HGC) Act of 2000 allocates40% of HGC's guaranty capacity to socialized housing, as well as provides 100% loan-to-collateralratio for socialized housing retail loans. I Annex 3h Page 3 of 10

IssuesRequiring Further Action

Despite these improvements, several issues remain. Poverty estimates peg poverty incidence at more than one-third of the total population. Inequality continues to widen. The income decile distribution showed decreasingincome sharesof families from the first to the ninth decile. Only families belonging to the richest group, i.e., the tenth decile, registeredan increaseof 3.8 percentage points in their income share. The changes in the income decile distribution resulted in an increasein the Gini coefficient from 0.4507 in 1994 to 0.4872 in 1997 which indicates that the income distribution in 1997 became more unequal compared to that in 1994.

In terms of accessto education, there is still a low participation rate for pre-schooleducation. The actual number of out-of-schoolchildren is still at half a million for the elementary school-aged population, and 2.25 M for the secondary school-aged population. In schools, there are critical backlogs in classrooms and desks, and shortage of teachersand school heads. Another causefor concern is the decreasingshare of the private sector in enrolment at the secondarylevel which increasesthe burden for public education. There is also a low coverage of potential middle level manpower clientele. Across education levels, intensified regional disparity may be observedbeginning at the secondary level. Furthermore, adequatemechanisms for quality assuranceat the tertiary level remain wanting. Teachercompetencies in higher education needs urgent upgradingsince only 30% of the faculty have Masters/Doctoratedegrees. Spatial disparity in quality is also markedacross education levels.

In terms of health, while infant mortality rate and maternal mortality rate have declined, the rate of decline has slowed down in the 1990s.The country also suffersfrom the double burden of disease,i.e., even as infectious diseases like diarrhea, bronchitis, influenza, pneumonia and tuberculosis remain prevalent, the burden of chronic and degenerativediseases is getting heavier. Largevariations in health statuspersist across population groups, income levels and geographic areas. In all of these, the burden of diseaseis heavieston the poor.

It should also be noted that the progressof the Philippines' compliance to the ICPD Program of Action, is beset with challenges like the gap between desired and actual fertility, low contraceptive use, male's low participation in fertility regulation, increasing incidence of teenage pregnancy, program sustainability,and operating mechanismfor RH/FP. i~~~~~~~~~I1~~~~~~~~~~~Annex 3h M Page 4 of 10

Areasfor FurtherReform and ImmediateAttention

New Directions for PovertyReduction

The National Anti-Poverty Agenda (NAA) is our manifestofor a genuinle pro-poor responseto poverty and for the identification and provision of basic social servicesto the critical and poorestcommunities. The NAA shall serveas a crucial social contract over which the interestsof the Stateand the basic sectors can be organized and made coherent. In our struggleagainst poverty, the NAA emphasizesthat democracy is an integral part of this effort. However, even in a democracy,the poor might not always be heardand heeded in decision making. Thus, through the NAA, we aim to create an enabling and empowering environment where the poor can exercise their rights and pursue their needs and aspirations and address our social inequities with assured participative democracy. Our challenge lies in narrowing inequality by unleasingthe socio- civic entrepreneurial spirit of the poor. Our democracy, therefore, is our distinctive edge in our anti-povertycampaign.

A four-pronged approach has been adopted which recognizes the multifacetednessof poverty and would ensurethat each face would merit equal emphasisand fair amount of resources. The first element of the approach is to democratizedecision making and managementof anti-povertyefforts, encourage civil society and private sector participation. The secondelement is to undertake assetreform and improve accessof the poor to economic opportunities including fast tracking the agrarian reform and the implementation of the Indigenous Peoples Rights Act. It is noteworthy that agrarian reform and the delivery of support services in the Agrarian Reform Communities (ARCs)has contributed immensely to social development. A recent World Bank sponsoredstudy on agrarianreform implementation in the Philippines(Deininger, 2000) cited that:

* positive inter-generational improvements in human capital in education were achieved in ARCs with the mean years of schooling increasing from 3.8 to 6.2 years over a period of one and a half decadeswhich benefited mostly the women; and

* positive improvements in health including the eradication of major diseasesin the ARCs.

Moreover, the mid-term review mission of the World Bank ARCDPnoted that in a span of three years, incomes improved by 61 percent in 78 percent of the sample project areasvisited. Annex 3h Page 5 of 10

The third component is to improve the poor's accessto "quality" basic services by preventing the exclusion of the vulnerable to merit goods and by guaranteeinguniversal accessto food, shelter, health and education. And the fourth element is to sustainablydevelop the country's productive resources.

The four-pronged approach is envisioned to be achievedthrough six key strategies: 1) focusedtargeting towards the poorestfamilies all over the country; 2) convergence of servicesin targettedcommunities; 3) mobilization of private sector investment; 4) strengthening local governancefor poverty initiatives; 5) strengtheningbasic sector participation in anti-povertypolicy formulation, and 6) effective governanceof the anti-povertyprogram of the Estradaadministration.

Focusedtargeting towards the poorest families nationwide involves the delivery of basic social servicesto the poorestfamilies in every province/city and the evolution of a community-basedanti-poverty program.

The convergence of services in targeted communities ensures that the delivery of basic social servicessuch as health, nutrition, education is governed by coherence, integrationand inter-agencycollaboration and coordinatioll. The CIDSSoperationalizes this objective.

The mobilization of private sector investmentcalls for the promotion of investmentsin our poor communities through entrepreneurialpartnerships with the private and businesssector. Our partnershipwith the private sector in the delivery of low cost masshousing exemplifies this strategy.

Strengthening local governance for poverty initiatives recognizes that poverty is a local problem best attackedwith local solutions with our LGUs at the forefront. The formulation of local anti-poverty plans and implementation of local anti-poverty programsare our stepsin this direction.

The strengthening of basic sector participation in anti-poverty policy formulation is attuned to our objective of intensifying the partnershipbetween government and basicsector in the NAPC through the Commissionen banc and the local anti-poverty committees which will be formed. This partnership has alreadyevolved in the formulation of our National Anti-PovertyAgenda.

Finally, the effective governance of the anti-poverty programs of the Estradaadministration is aimed at enhancingthe capabilities of our institutions to deliver, closely coordinate, and improve the accountability of our anti-poverty interventions. X ~~~~~~~~~~~~~~~~~~~~Annex3h Page 6 of 10

Ten flagship programs are being pursued under the overall poverty program: Agricultural Development; Fisheries and Aquatic Resources Conservation, Management and Development; the Comprehensive and Integrated Delivery of Social Services (CIDSS); Low Cost Mass Housing; Workers' Welfare and Protection; Respect, Protection and Management of Ancestral Domains; Livelihood and Enterprise Development; Expansion of Microcredit Services;Basic InfrastructureDevelopment; and InstitutionlBuildinig and Participation in Governance.

Health Sector ReformProgram

To address the problems affecting the health sector, a Health Sector ReformAgenda was drafted in 1999. The agendaseek to institute major changes in the way health care is delivered, regulated and financed. It involves five general areas of reforms namely: 1) health care financing; 2) health regulatory reforms; 3) hospital systemsreforms; 4) strengtheningpublic health programs; and 5) local health systems.

Health care financing reforms include increasing the benefits of the national health insurance program to make it more attractive. The improved benefits will be used to aggressivelyenroll more membersespecially the urban poor. At the same time, administrative infrastructure that can handle the increasedwork load will be developed.

On health regulatory reforms, the capacity for standardsdevelopment, regulation and licensing to improve quality, effectivenessand efficiency will be strengthened. Efforts will also be geared towards reduction of the cost health servicesand products including pharmaceuticals.

For the hospital system, fiscal autonomy and corporatizatioln is envisioned. Government hospitalsshould follow the lead taken by the specialty hospitals in reducing its dependenceon direct subsidiesfrom the natiolial arid local government budget by introducing socialized user fees. Critical capacities in government hospitalswill also be upgradedto enable hospitals to effectively exercise fiscal autonomy. As hospitals become more competitive anid autonomous, a progressivedecline of the subsidiesfrom the national and local budget is expected.

Reforms for the public health programs include the following: 1) upgradingthe managementinfrastructure of public health programs;2) obtaining securefunding over a period long enough to eliminate certain infectious diseases as public health problems; and 3) investing in critical capacities in providing technical leadershipover local health systems. Annex 3h Page 7 of 10

For the local health system,the reformsinclude: 1) allocation of resources for upgrading local health facilities like health centers, district and provincial hospitals; 2) establishmentof a mechanismfor providing block grants to local government units and use this to leveragefor the establishmentof local health networks; and 3) promotion of cost sharingamong local governmentunits local health networks.

Universal health insurance coverage provides the momentum for the entire reform process. Expansion of health insurance coverage makes the concept of fiscal autonomy in government hospitals viable as the health insurancesystem covers the cost of hospital care. This will free up resourcesfor more investmentsin public health programs.Good public health programswill address those diseasesthat are highly preventable and, in turn, relieve the national health insurance program from the burden of paying for an increasinig number of curative services. Moreover, additional resourceswill improve the capacities for health regulation and improve the performance of local health systemsthereby ensuringbetter quality in health care.

In view of the national government's budget limitations, continuing improvementsin the efficiency of delivering health servicesremains crucial. The major public investmentsthrusts for the sector include: 1) hospital development plan; 2) multi-year budget processfor priority public health programs;3) block grants for establishment of local health networks and upgrading local health facilities; 4) strengthening the national pharmaceutical policy program; 5) increasing the coverage of the National Health Insurance Program (Health Passport); 6) food fortification and promotion; 7) nutrition education and advocacy;8) micronutrient supplementation;and 9) food assistanceto areaswith high malnutrition rates.

StrategicDirections of the Population Program

In responseto these challenges set in the International Conferenceon Population and Development,the Governmentformulated the PPMPDirectional Plan, 2001-2004 which contains strategiesin addressing the needs on the following areas: RH/FP,Adolescent Health and Youth Development,Population and Development Integration,and ResourceMobilization.

Furthermore,the Government is taking the lead in the preparation of the State of the Philippine Population Report which will serve as an information/advocacytool focusing on unmet needsand its social consequences. It should be noted that unmet need for FPremains high at 19.8% as of 1998. To addressthe growing gaps in unmet needs between rural and urban areas,the national government will continue to provide for the cost of contraceptive supplies and make available other forms of contraceptives. Furthermore,it will 1511 Annex 3h Page 8 of 10

continue to mobilize community-basednetworks. Likewise, the Department of Education, Culture and Sports shall continue to implement its population education program to addressthe information needsof adolescents.

The Governmentshall continue to exert efforts in attaining the ICPD goals and the challengesthat remain, and in achieving Philippine goals (decreasein fertility rate, infant and maternal mortality rate; increase in contraceptive prevalence rate). For these goals to be realized, investmentsare needed for projectsthat reflect a concerted drive to promotedevolution in the delivery of FP services, supporting community-based activities, harnessing non-government organizations (NGOs) for hard-to-reachtarget groups and optimizing the role of the private sector for efficient and reasonably-pricedRH/FP services.

New EducationInitiatives

To maintain the gains and addressthe challenges,development thrusts and strategiesin the basic education sector include: (a) improving accessfor the poor and hard to reach areas;(b) raising achievementlevels and reducing drop- outs by focusing on core subjects, enhancing reading comprehension and critical thinking; (c) re-toolingof teachers;(d) increasingrelevance of curriculum; (e) hastening decentralization of education management;(f) modernizing the school system and expanding the use of educational technology; (h) strengthening student assessment;and (I) prioritizing resource provision for primary education and expanding/increasingprovisions under GASTPE.

For middle level manpower development,the thrusts are: (a) refocusing government efforts to policy development and quality control instead of direct training provision; (b) pushing for decentralization;and (c) encouraginggreater public-private partnership.

For higher education, the thrusts are: (a) strengtheningthe structure and management of higher education by promoting performance-basedfinancilig education and rationalizing the SUC system; (b) providing a comprehensive program of student assistance(through scholarshipsand income contingent loan program); (c) promoting faculty development; (d) improving the quality of teaching and research in key disciplines; and (e) improving and expanding the output of university scienceand technology.

Across the three levels, the governmentwill prioritize resource provision for basic education and middle-level manpower development over higher education; establish the National Coordinating Council for Education (NCCE) which will institutionalize educational coordination and assessment;improve equity in access and outcomes; improve educational MIS; strengthen Annex 3h

_ Page 9 of 10 = accreditationand equivalencysystem; and strengthenpartnerships of LGUs, civil society, industry and other stakeholders.

FinancingPro-Poor Social Services and the Roleof Donors

Our strategiesfor poverty reduction and our objectivestoward improving and expanding the accessof social servicesrequire adequatefinancial resources and the political will to useavailable resourcesefficiently and effectively.

From 1995 to 2000, the sectoral allocation of the national government expenditures reflected a substantialshift in favor of social services. While the share of economic serviceswere reduced from 27.5 percent in 1995 to 24.1 percent in 1998 and to 25.4 percent in 2000, the share of social services increasedfrom 27 percent in 1995 to 32.6 percent in 1998 and to 34.1 percent for FY 2000. Among the social sectors,significant increaseswere noted for social welfare from 0.14 percent in 1998 to 1.02 percent in 1999 and to 0.86 percent for 2000. Alongside the increase of social development resources,national government budget allocation for basic social services(basic education, primary health and nutrition, water and sanitation targeted for vulnerable groups) moderately increased over the years. The present level of government expenditures for human development priorities, however, remains below 20 percent of total government budget. Moreover, official development assistance (ODA) resourcesspent for basic social servicesbetween 1993-1998have shown an unstable trend from 14.7 percent in 1995, substantially declining to 9.6 percent in 1996, reaching a peak of 18.45 percent in 1997 and drastically declining to 6.06 percent in 1998.

Following the formation of a Presidential Task Force on the 20/20 Initiative on 6 May 1999, a ComprehensiveAction Agenda was formulated which identified four key results areas for immediate action: (1) building consensus on the operationalization of the definition of the 20/20 initiative including the identification of basic social programs; (2) enhancing political commitment; (3) accessing and mobilizing resources; and (4) provision of adequateand quality basic social servicesfor all Filipinos.

Financing remains a key issuein education. Evenas the sector gets the biggest share of the national budget, and the share of LGUs in financing education increasingly felt in SRA areas,resources are still not enough to solve the critical shortages of teachers, classroomsand desks. This may also be becausethere are only nominal increasesin the education budget. For DECS and most SUCs, the budget is eaten up by PersonnelServices while minimal share is allotted for the MOOE and CO, which are the sourcesof expenditures for improving quality and school facilities. -41 ~~~~~~~~~~~~~~~~~~~~~~~~PageAnnex10 3hof 10 I-I

In terms of health financing, the total health expenditure for 1997 was P88.4 billion or 3.5 percentof GNP. Around 46 percentof total health spending came from out of pocket; 21 percentfrom the national health budget; 18 percent from local health budgets;7 percentfrom the national health insuranceprogram and 8 percent from other sources. In terms of how the money for health was spent, 72 percent was spent on personal health care services; 13 percent on public health care servicesand 15 percenton overheadservices. Analysis of the 1991-1997 National Health Accounts suggeststhat health care spendilig has increasedin real and in per capita terms. However, there are indicatiolis that the country is neither spending enough nor effectively. Expendituresare heavy on hospital or curative care and not enough for preventive care. The subsidiesfor health servicesare poorly targetedwith the large governmenthospitals in Metro Manila getting the biggest shareof the budget to the detriment of primary care servicesat the local level.

The issueremains, however, that not enough resourcesare channeledto social services. The basic challenge is not only reallocating and refocusing within subsectorsand acrosssectors, but pouring more into social servicesso all subsectorscan achieve their respectiveobjectives and goals, and so that each program could achieve its targetswithout compromising other equally relevant programs.

Alongside the efforts to keep resources for basic social services and poverty reduction sufficient at the national and local levels,we need the support from the international community to increaseofficial development assistancefor basic social services to achieve overall social development and poverty eradication goals and targets. We particularly need their assistanceto strengthen our capability building programsfor our local government units to effectively plan, manage, monitor and evaluate anti-poverty programs and projects. Moreover, we need to pour in more resourcesto improve the poor's accessto basic quality social services. And more importantly, we need the donor community to consider our priorities their priorities. And the core priority of this present administration is to reduce poverty and improve the quality of life of all Filipinos, particularly the poor. I KWH Annex 3i

2000 CONSULTATIVE GROUP MEETING FOR THE PHILIPPINES

THE NAPC BASIC SECTOR: Paving the Way to Effective Multi-level Governance'

Ana Maria R. Nemenzo2

Your Excellencies, Ladies & Gentlemen:

I welcome this opportunity to speak in behalf of the National Anti-Poverty Commission-Basic Sector.

Civil society, particularly, in the Philippines is such a huge and complex community. It would be impossible for one person, organization or network to speak for the entire community. There is however within the community, continuous intermingling and interaction, and a constant reaching out to bridge differences and develop better ways of working together towards similar goals.

The National Anti-Poverty Commission, created by Republic Act 8425, is, so far, the most comprehensive embodiment of Basic Sector or Civil Society participation in government in a full scale campaign against poverty. It is not an instant creation of the current administration but it is more correctly viewed as a strategic outcome of previous advocacy efforts of People's Organizations and Non-government Organizations for a stronger and more effective system of governance in Philippine society, particularly, in the planning, implementation, monitoring and evaluation of Anti-Poverty Policies, Programs, and Projects aimed to promote genuine development and to raise the quality of life of the Filipino majority.

Effective Governance via Basic Sector Participation within NAPC

Within the National Anti-Poverty Commission, there are 210 members of civil society organization serving as Basic Sector Representatives in the

' Speechpresented during the Consultative Group Meeting, June 18-19, 2000, Tagaytay Highlands,Cavite. 2 ViceChairperson for theBasic Sector & Commissionerfor the Women Sector g ~~~~~~~~~~~~~~~~~~~~~~Annex3i

Philippine Government. Fourteen (14), including myself serve as Commissioners of disadvantaged sectors such as Farmers & Landless Rural Workers, Artisanal Fisherfolks, Indigenous Peoples, Informal Labor, Formal Labor, Urban Poor, Women, Children, Youth & Students, Senior Citizens, Person with Disabilities, Victims of Disasters & Calamities, Non- Government Organizations, and Cooperatives. From among these 14 Commissioners, and 28 Alternate Commissioners, I was elected to serve as Vice-Chairperson for the Basic Sector. Each Sector then has a Commissioner and two Alternate Commissioners who together with 12 other representatives compose the Sectoral Council. These 210 civil society representatives make up the NAPC-Basic Sector which is basically one-half of the National Anti-Poverty Commission.

The other half is composed of the heads of 13 national government agencies such as the NEDA, DOF, DAR, DA, DOH, DSWD, DENR, DOLE, DILG, DBM, DECS, CDA, PCUP; and the heads of the four (4) Leagues of Local Governments (i.e. Provinces, Cities, Municipalities, and Barangays.)

The NAPC-Basic Sector is dual in character. Basic Sector representatives are partly in government, tasked to perform policy oversight and advisory functions, while they continue to operate in their base POs or NGOs. As such, the NAPC-Basic Sector has a two-fold responsibility. One is the task of organizing and mobilizing civil society to bring grassroots issues, problems and inputs as they happen live on the ground to all possible government arenas of struggle and consideration. The other is to unceasingly move, or even pressure government to manage a pro-poor paradigm shift and to muster enough political will -expressed through policies and programs that will ultimately result in the eradication of poverty.

I wish to underscore however, that Basic Sector participation in governance should not be equated with the presence and involvement of these 210 civil society representatives in the NAPC. We have organized ourselves on the national level but we have to move fast on our localization and constituency building efforts. ] Annex 3i Page 3 of 7

After being sworn into office last March 29, 1999, all our efforts were focused on unifying ourselves through the formulation of the Basic Sector Vision, Mission & Goals, our BS Three-Year Plan, the Basic Sector Organizational Guidelines, and our Sectoral and Cross-Sectoral Agenda. We also invested our time crafting the Basic Sector Framework to Fight Poverty which served as our substantial input to the National Anti-Poverty Action Agenda. Building partnership arrangements with our lead government agencies also took much of our time and efforts. The big challenge for the Basic Sector, given a limited three-year term, is organizing and mobilizing the thousands of POs and NGOs in the different regions, provinces, cities, municipalities and barangays to proactively engage the government on their level and within the territories where they exist and operate. The 210 Basic Sector representatives have to touch base and convince their home POs and NGOs and base networks to lay claim on their right to craft, implement, monitor and evaluate Anti-Poverty Policies, Plans, Programs and Projects (AP- PPPPs). Only when this has been done, can we truly say that the NAPC- Basic Sector has covered substantial ground. It is only through this route that the incumbent Basic Sector representatives can multiply their presence in every province, city, municipality and barangay.

After all, effective governance is not about installing ceremonial PO-NGO figures in government dishing out critiques from time to time. Nor is it about holding token consultations with selected civil society organizations just because it is in vogue to do so.

Genuine and shared governance is about promoting self-organizing of the marginalized sections of the population and empowering them to advance their interests. It also has to do with educating and pressuring government to become responsive and accountable institutions of governance. It is also about the people seeing to it that resources for anti-poverty actually reach the poor. It is about ensuring the poor's sustained access to information, skills, and means for building their organizational capacities. It is also about people and their organizations being able to hold public officials accountable for their policies and actions. It is about opening up government on all levels to civil society participation and fulfilling social contracts with d ~~~~~~~~~~~~~~~~~~~~~~Annex3i Page 4 of 7

the poor that our society can move towards greater transparency and accountability in our programs to fight poverty.

The National Anti-Poverty Agenda which has been the result of painstaking discussions and negotations between Government and the Basic Sector is now in the last stages of refinement. To launch a full-scale anti-poverty program, several crucial steps have to undertaken. One, is to translate this national agenda into local developments plans, programs and projects in a participatory process involving local government agencies, local government units and civil society representatives. It will entail enormous resources and negotiating time to weave in an anti-poverty focus into these provincial, municipal, and barangay development plans

Two, the Basic Sector and its constituent POs and NGOs have to prepare well for this demanding interface engagement with Local Governments. This will require several provincial level assemblies of POs and NGOs to consolidate their ranks. This means that: one, they have to learn enough about NAPC, familiarize themselves with the Basic Sector Cross-Sectoral and Sectoral Agenda and, learn the National Anti-Poverty by heart; two, they have to agree on capability building requirements for Local Anti-Poverty Agenda Building, effective advocacy and engagement; and three, they have go through a democratic process to select their representatives for multi-level engagement with government.

Three, POs and NGOs, have to collectively embark on the following tasks: 1. systematic reading of the economic, political an socio-cultual realities of their localities on which to base their Local Basic Sector Anti- Poverty Agenda and policy recommendations; 2. comprehensive review of existing local development plans to identify gaps and weak points related to poverty reduction and eradication; 3. development of appropriate and grass-roots friendly anti-poverty monitoring tools and reporting mechanisms 4. grassroots trainings on engagement with Local Government Units. | Annex 3i Page 5 of 7

You may ask why NAPC-Basic Sector needs to go into constituency building, localization and capability building

There are several reasons. First, the PO-NGO community in the Philippines is not a homogenous structure. Civil society organizations come from different persuasions across the political spectrum. Many of them have no history of dealing with government on the negotiating table as the parliament of the streets has been the more familiar ground for them. As such, the NAPC-Basic Sector has to reach out to them and persuade them towards also considering the option of public policy advocacy and claim-making to push for social change.

Second, the NAPC Basic Sector believes that it is in the local level that the war against poverty must be won. As such, national anti-poverty policies and programs should not only be translated on the local level through anti- poverty focused local development plans and priority programs and projects. They need, as well, to be closely monitored and evaluated by civil society and government, if indeed the poor get to benefit from such services and resources. Broad, persistent and well-informed civil society participation in local government processes is the only way to promote and realize the anti- poverty agenda of the Basic Sector.

Third, the institutional arrangements for coordinating, monitoring and evaluating the implementation of the National Anti-Poverty Agenda call for strong civil society participation on the regional, provincial, city, municipal and barangay levels. The 210 NAPC Basic Sector representatives must take on the responsibility of adequately preparing their counterparts on these levels.

Indeed, Basic Sector work within the NAPC after only a year, is developing very fast. Before getting lost in the frenzy, it may also be timely to call for an overall performance assessment of the National Anti-Poverty Commission, including the NAPC Secretariat, the Government and the Basic Sector, in the spirit of improving effectiveness and efficiency. IiI~~~~~~~~~~~~I1~~~~~~~~Annex 3i low ~~~~~~~~~~~~~~~~~~~~~~~Page6 of 7

Areas for Policy Advocacy & Enhancement

The key foundations of empowering of the poor still lie in available opportunities for self-organizing, social preparation, values & commitment building, savings mobilization, training of local leaders and organizers, and continuing capability building. These are the basic prerequisites for sustainable livelihood development. Organizations, capabilities, values and commitments cannot be built overnight. The process can definitely not be shortened.

It might be prudent at this point that we are attempting to enhance basic sector involvement in government that we should also assess, sum up and learn from over two decades of civil society participation in governance. This study could give us a picture of the various social movements and organizations, their modes of involvement, problems encountered as well as their unique contributions towards improving governance and promoting social reform.

Another important dimension of the task in combating poverty is microfinance. However, the emergence of various government micro- finance initiatives is causing some concern among civil society organizations.

Microfinance is not simply creating another of those top-down, supply- driven, and credit-focused programs that specifically target the poor and the underprivileged. The poor's microfinance starts with saving for two main reasons: First, to arouse in the consciousness of the poor, through their organizations, the notion of self-help, self-responsibility, and self- administration of their own financial affairs. Second, to concretize and further institutionalize the efforts of the poor in building their financial resources, in spite of their poverty, since we agree with the established fact that the poor do save, have savings, and capitalize on their saving in a development agenda of their own poverty elimination. Without the two prior conditions, credit provisioning for the target poor sectors would be | Annex 3i Page 7 of 7

meaningless and definitely not sustainable. Both donor and government resources could be lost in the process. Microfinance is therefore, basically, saving and eventually credit-- but only as support to what has already been built-up and accumulated at the level of the poor households through self-help initiatives. The role of the donors is to provide support to efforts of the basic sectors through programs that will upgrade their existing financial set-up, practices, customs and policies, no matter how simple and, from the point of view of experts and consultants, primitive these are. The capacity of the poor to further upgrade and systematize their financial systems through provision of necessary financial tools, financial instruments and appropriate financial products has to be supported. The capabilities of the poor, on their own to adopt improved measures, implement effectively, and institutionalize linkages with other players in the field offinance have to be supported as well. The poor need these - and not direct pouring down of credit funds that only kill the initiatives of people to save. We need to be governed by a vision of dynamic, competitive, widespread financial institutions owned, handled and managed by the poor themselves, whose capabilities and capacity are comparable to other players in the field of finance. A strengthened base of savings mobilization and financial intermediation acitivities of the various sectors of the poor when linked up with the formal banking sector can be a potent factor to stimulate a more equitable and sustained growth. And this is what we want to achieve.

We call for support in these policy advocacy initiatives.

Enormous questions and challenges lie ahead. The NAPC together with the Basic Sector needs your support to strengthen civil society participation in the fight against poverty and marginalization.

Thank you very much. Annex 3j

UN Statement for the Consultative Group Meeting Page 1 of 2 19-20 June, Tagaytay City, Philippines

1 REDEFINING AND REFOCUSING THE POVERTY ERADICATION AGENDA

2 Session 1: Recent Socio EconomicDevelopment: Achievements and Chalknges. 3 Povertyeradication is at the centreof the goals set in the MediumTerm DevelopmentPlan, a document 4 that was a major focus of the discussionsat the last CG meeting. As the Philippinesenters the new 5 Millenium,the key challengelies in enhancingand sustainingthe implementationof strategies,reforms 6 and actionplans to realisethe targets set in the Plan. The UnitedNations, in its interventionsat this first 7 CG held in the Philippines,will attemptto identifyspecific opportunities in the four sessionsby which 8 our collectivecommitment to the povertyeradication agenda may be enhanced. 9 The governmentis to be commendedfor sustainingits growthand strucural reform agenda,including 10 progress in many areas discussed last year. A stronger economic managementteam, with multi- 11 stakeholderparticipation, greater effort at convergenceof the work of the variousagencies involved, new 12 initiativesfor governancereform, and concertedattention to improvingperformance in the social sectors 13 and rural developmentreflect the efforts made over the past year. From a donor perspectiveissues 14 relatedto improvingproject implementationand absorptivecapacity, accelerating the pace of reforms, 15 and establishingthe enablingenvironment for developmentin Mindanaoare areas whereprogress has 16 been more limited,and in the case of Mindanaoeven reversed. 17 Despitethe many constraintspresent in implementingan extensiveand complexand importantreform 18 agenda, on balance the governmenthas shown its political will in beginningto tackle many of the 19 challengesset out in the MediumTerm DevelopmentPlan. When viewedthrough the perspectiveof the 20 aim to eradicatepoverty, several opportunitiesmay be identifiedto redefine and refocusthe present 21 effortsin macro-economicreform. 22 23 One opportunityfor governmentto fuither enhanceits commitmentto poverty eradicationwould be to 24 produceand reviewwith congress and other stakeholdersa gender-sensitiveand pro-poor budget.We 25 welcomethe innovativemechanisms being put in place to ensurecloser linkagesbetween planning and 26 budgeting, the creation of a budget dialogue group, the adoption of performance monitoring 27 mechanisms, the multi-year expenditure framework, and ongoing efforts to reform the public 28 expendituremanagement system. We wouldsuggest the followingspecific actions: 29 30 . Subjectingthe budget to a pro-poor and gender analysis, and identifying and tackling 31 obstaclesto wealth creationby the poor; 32 * Specifying how the government plans to realize its commitment to the 20:20 compact for 33 expenditureson basic socialservices ( nominallyat 16%in 1997,and in real terms less than 34 8%) 35 * Ensuringadequate financingfor laws that impingeon poverty, especiallynon-economic 36 poverties; 37 * Reviewingthe impact of the crisis in Mindanaoon the currentand futurebudgets, especially 38 on defense expendituresand their opportunitycost in attacking poverty, as well as the 39 prospects of increasingthe proportion of the budget allocatedto the poorest regions of 40 Mindanao. 41 42 We would be pleasedto cooperatewith governmentand other partnersin buildingon the work of the 43 PresidentialTask Forceon the 20:20 compactand other such initiatives. Annex3j

i UNStatement for the Consultative Group Meeting j Page2 of 1 ~~~~~~19-20 June,Tagaytay City, Philippinesl

I A second opportunity would be in the area of employment policy. Gainful employment, as everyone, no 2 doubt, agrees, is critical to poverty eradication. Income security, integration into the global economy, 3 successful participation in society, and the quantity and quality of employment are all of concern and 4 warrant more attention by the Filipino Government, notably in the informal and rural sectors. 5 Employment, like poverty, can be tackled through growth and by targeted measures; and it needs to be 6 underpinned by an effective social safety net, mechanisms that ensure compliance with labour standards, 7 and measures that assure labour of security of tenure. To raise the profile of employment concerns 8 within the Government, the ILO with support from UNDP will field a mission next month that aims at 9 institutionalizingthese concerns and providing new insights through local studies. 10 11 A third opportunity would be in the area of population management. The Philippines has made only 12 modest progress in moderating population growth, and the country has still one of the fastest growing 13 populations in the region. The high rate of population growth narrows the country's development options 14 because available resources which could otherwise be spent for improving investments on human 15 development and accelerating wealth creation must be used for the provision of basic social services for 16 the yearly additions to the population. It may be opportune to consider the demographic impact of 17 various policy instruments and programme services, and to incorporate population management 18 dimensions into the allocations of resources and the determination of priorities. More specifically we 19 need to build on the fact that government is now investing resources in population and reproductive 20 health, for which it deserves our congratulations. 21 22 A fourth opportunity would be programmes that strengthen the country's capacity to manage 23 globalization that is consistent with the requirements of a national anti-poverty strategy. The country 24 could benefit from an assessment of: 25 26 . the impact of globalization on various elements of Philippine society and the role of WTO 27 and regional formations such as WTO, APEC, AFTA and BIMP-EAGA 28 . current negotiation processes, with emphasis on the extent that a pro-poor policy package is 29 reflected in the formal Philippine position to these regional and sub-regional formations 30 . policy gaps in ensuring a pro-poor agenda, including for example social safety nets, in the 31 context of globalization. 32 33 These assessments could help the country ensure that growth is pro-poor - making growth more broad- 34 based, creating opportunities for large numbers to be productively and gainfully employed, particularly 35 in the rural and informal sectors. More specific research is needed to understand the impact of 36 globalisation on different elements in the society. IRRI is about to initiate primary research on small rice 37 farmers, and we would be pleased to contribute to this and other such efforts. Annex 3k Page I of 12 iL-_ 2000 CONSULTATIVEGROUP MEETING FOR THE PHILIPPINES

(Einbargoutitil Juine19, 2000, 3:30 p.mi.)

EMBRACING GOVERNANCE REFORMSIN THE PHILIPPINES: PROMOTING COMPETITION, ACCOUNTABILITY AND SOCIAL RESPONSIVENESS

Statementof HonorableBenjamin E. Diokno, Secretary,Department of Budgetand Management

Mr. Chairman, SecretaryPardo, DistinguishedParticipants, Ladies and Gentlemnen:

Good afternoon.

Improving governance has been a serious and an ongoing concerin of the Philippine Government. To successfullypursue deeper economic, financial and social reforms and to better allocate resources towards rural development and poverty alleviation, the Government realizes the urgent need to continue urndertaking governancereforms.

Underpinning the governance reform programs is a clear recognition that government'srole is changing from producerto enabler, from provider to regulator. As such, the government is moving towards a more participative form of governancewith heightened devolution of authority and increasedreliance on other partners for the delivery and financing of public services. Within this framework, it has and will continue to pursue reform measures in key governance areas. Its programs are categorized into nine areas: (a) institutional strengthening and streamlininig of the bureaucracy;(b) public expenditure and financial management;(c) revelinuegeneration and administration; (d) local governance;(e) citizen and private sector participation; (f) corporate governance; (g) the rule of law, involving primarily the administration and delivery of justice and the maintenanceof peace and order; (h) graft and corruption; and, (i) information and communicationstechnology (ICT). The first four constitutethe core of public sector managementreforms.

Let me now discussthese measuresin a little more detail, beginning with the public sector managementreforms. -I r1 ~~~~~~~~~~~~~~~~~~~~Annex3k - | 2 Page 2 of 12

Institutional Strengtheningand Streamliningof the Bureaucracy

Various dysfunctionshave beset the bureaucracy.There is proliferation of agenciesand special-taskbodies and considerabledegree of duplicationand overlap in governmentmissions, functions and programs. The skills mix is becomingless relevantto emergingneeds. The latter is further complicatedby the wideninggap betweengovernment and privatesector compensation, which is especiallymarked at manageriallevels.

To addressthese dysfunctionsin a mannerconsistent with Angat Pinoy 2004, the Philippinegovernment is undertakinga two-track approach. The first track advocatesthe passage of a ReengineeringBill, which will grant the President authorityto overhaulthe bureaucracy.The secondtrack, which is generallyreferred to as streamlining,pursues institutional reforms that are possiblewithin the existing legalframeworks.

To ensure the consistencyand congruenceof the two tracks, the Presidential Committeeon EffectiveGovernance (PCEG), which was createdby PresidentJoseph Ejercito-Estradathrough ExecutiveOrder (EO) 165, has been tasked to provide a general framework and to formulate guidelinesthat will govern both tracks. The PCEGis being assistedby six inter-agencyTechnical Teams and their multisectoral counterpartsubcommittees organized along the followinglines: (a) servicedelivery; (b) organizationalstructuring and staffing; (c) financialmanagement; (d) personnel management;(e) change management;and, (f) informationand communications technology(ICT).

The PCEGreports directlyto the President.The reengineering,if it couldnot be pursued bureaucracy-wide,will be undertakenon a sectoralbasis, with priority accordedto the agriculture,social and infrastructuresectors during the initial phases of the plannedreform. The PCEGis currently undertakingstrategic reviews of the priority sectors to serve as groundworkfor the prospectivesectoral reengineering. Thesestrategic reviews are being done with the technicalassistance of foreign and localconsultants, together with the departmentsand agenciesconcerned.

Administrativestreamlining activities have been proceedingin the Department of Health (EO 102), Department of Social Welfare and Development(EO 15), NationalStatistics Office (EO 5), Departmentof Budgetand Management(EO 95), Departmentof NationalDefense (EO 112) and Departmentof Agriculture(EO 162). Evenwithout the ReengineeringLaw, the triggersfor the individualdepartments and agenciesto reenergizethemselves have been their ability to recognizethe need to improve the delivery of services by streamliningtheir internal structures and operations. F'Wgq Annex3k Page 3 of 12

Kelatealy the Presidentissued Administrative Order (AO) 100 on December1, 1999,which limits the filling of vacant positionsin the ExecutiveBranch. The move aims to arrest the escalationof personal servicesexpenditures and to generate funds for the implementationof the salaryadjustment.

Finally,the EstradaAdministration has adoptedthe "scrap-and-build"policy by requiringthat the creation of a new agencyor new positionsmust be matchedby the abolitionof an equivalentorganizational unit and positionsand that increasesin the personnel/staffingcomponent of a departmentor an agencymust be limited to populationsensitive positions such as teaching,medical and policepositions.

PublicExpenditure and FinancialManagement

The streamlining and reengineeringefforts are being complementedby reformsin the areaof publicexpenditure and financialmanagement. These reforms fall into three categories: (a) budgetingand planning; (b) procurement;and, (c) accountingand auditing.

Budqetingand Plannin,

A weak linkage between budgeting and planning has characterizedthe Government'spublic expendituremanagement system. Budgetingand prioritization decisionshave been short-termin nature. Monitoringof budgetexecution has been relatively inadequate. Likewise, mechanismsfor screening and evaluating the feasibility and desirabilityof agency proposalshave not been as effectiveas could be. These deficiencieshave been further complicatedby differencesin spending prioritiesbetween the ExecutiveBranch and Congress.

To addressthese weaknesses,the EstradaAdministration has embarkedon a number of reforms. It has initiated the mainstreamingof a Medium-Term Expenditure Framework (MTEF) to increase discipline over the allocation of government expenditures. The Budget Call for 2001 has required agenciesto provide forward estimatesof baselinebudgets and new proposalsfor three years, i.e., 2001 to 2003. A BudgetDialogue Group, composed of representativesfrom the private sector and the ExecutiveBranch of government,has been establishedas a venue to discuss planned reform measuresand governmentspending priorities. Further, DBM and NEDAhave begun to conduct joint SectoralEffectiveness and EfficiencyReviews (SEERs) to update the rolling 1999-2004 Medium-TermPublic Investment Plan (MTPIP) and to generate program- as well as project-level informationfor use in DBM TechnicalBudget Hearingsand Congressionalbudget reviewmeetings. As a result, agencyexpenditure proposals will now be subjectedto tests for consistencywith governmentpriorities and rankedaccordingly, thus paving the way for the implementationof an ex-anteperformance accountability system. I'gjI Annex 3k Page 4 of 12

However, to close the loop between budgetaryexpenditures and planning priorities, agency programs and activities-which necessarilystem from budgetary allocations-haveto be evaluatedex-post. This requiresthat both effective ex-post programevaluation process and performanceevaluation system be established.To begin to reorient agenciestowards performance-basedbudgets, the 2001 Budget Call has requiredeach agency to establishkey performanceindicators for its priority programsand projects. Further,DBM has initiateddiscussions with the Civil Service Commission(CSC) on the developmentof a processfor linking agencyperformance with personnel performance.For its part, NEDAis preparing to strengthen its monitoringand evaluationcapabilities to enableit to conductin-depth evaluationof key programs and projects. These efforts aim to exact higher levels of accountabilityfrom agenciesin the allocationand useof their budgetaryresources.

To enable agency heads and managersto meet performancetargets, the governmenthas begun to grant them greaterflexibility in the managementof their budgetsand to providemore certaintyin the releaseof funds. The DBMhas lifted the imposition of across-the-boardmandatory reserves on government agency budgets,has adoptedthe policyof "what-you-see-is-what-you-get(WYSIWYG)" and has utilized the banking system in settling accounts payable. As ex-post accountabilityprocesses are mainstreamedand capabilitiesof agenciesfor managing them are strengthened,agency heads and managerswill increasinglybe given more budget autonomy

A tighter and more efficient linkage between budgeting and planning necessarilyrequires integrationof off-budget items into budget deliberations. Off- budget items present significantfiscal risks to the national governmentsince they can potentiallygenerate large budgetaryobligations. Contingentliabilities borne by Build-Operate-Transfer(BOT) projects are a good example. The governmentis now confrontedwith substantialobligations, as somecontingent events have becomea reality. The DOFis currently engagedin estimatingthe magnitudeof the contingent liabilitiesof the National Government. The DBMand the CoordinatingCouncil for PrivateSector Participation (CCPSP) are working with DOFin developinga systemto incorporatethe considerationof contingentliabilities in budgetarydeliberations.

PublicProcurement

Differentand sometimesconflicting laws, rules and regulationstoday govern the procurementprocess in the Philippines. This has led to confusionand delays and ultimatelyin many opportunitiesfor graft and corruption. Sinceprocurement is the front end of any public expendituremanagement system, the governmenthas given high priority to addressingproblems in public procurement. Annex 3k Page 5 of 12

ln Marc this year, the EconomicCoordinating Council (ECC), the primary economicpolicy making body of the government(which is chairedby the President himself),strongly recommended that procurementrules, regulations, and procedures be reviewedand that an action plan for reformsbe preparedfor its consideration. Technicalworking groups havesince prepared a set of amendmentsto relevantEOs and ImplementingRules and Regulations(IRR) which embody three main principles: (a) streamline pre-qualificationto a simple eligibility check and strengthen post- qualification;(b) adopt the lowestcalculated responsive bid (LCRB)as a criterionfor award; and, (c) eliminatethe use of agencyestimates and, in their place,adopt the availablebudget of an agency(for the procurementactivity) as the ceilingon the bid price.' On May 31, 2000, the ECCendorsed these recommendationsand urgedthat the accompanyingproposal for legislatinga streamlinedomnibus procurement bill (which would solidify the procurementreforms) be fast tracked. On the sameday, the Presidentmandated DBM to launch its ElectronicProcurement System (EPS) project. This project will establish: (a) an electronicpublic tender board; (b) an electroniccatalogue; and, (c) a supplierregistry system. Likewise,the EPCproject will help DBMacquire the skillsand capabilitiesto managethe EPS.2

Account/naand Auditing

An agency's accountabilityfor its budget and performance,including in particularthe procurementof goodsand services,is greatly influencedby the public accountingand auditingsystem. The Philippines'public accounting system is unduly complex-thus, not particularly transparent-and is governed by weak internal (departmental)control and audit systems. This has resulted,not only in the lackof an effectivemanagement information system that can aid decision-makingbut also, in many opportunitiesfor graft and corruption.

The governmenthas initiated efforts to strengthenits external and internal audit functions. The Commissionon Audit (COA)is strengtheningits capabilityto undertake program audits-which will include the use of value-for-money(VFM) audits-of agencyactivities. It also has begunemploying an Audit Team Approach (ATA) in various agenciesto promote greater objectivityand to constrainauditors from colludingwith agencypersonnel to perpetratefraudulent and corrupt acts. The COA likewise has taken the lead in exploring the possibility of developing an integratedfinancial managementsystem that will: (a) simplify and rationalizethe

' Shortly after the ECC's recommendations were issued, an inter-agency workshop on procurement reform was organized by DBM. The workshop recommended two sets of principles. The first would govern the procurement of civil works, goods and supplies, and consultant services. The second would govern the BOT process. Two technical working groups were also formed to work out specific recommendations (including specific and detailed amendments to current EOs and IRR) that could be brought to the ECC for endorsement and quick action. DBM is the secretariat for the first TWG, while CCPSP is the secretariat for the second. 2 A soft launching was held on June 1, 2000. The system is expected to be fully mainstreamed within a year. Annex 3k Page 6 of 12 public accountingsystem; (b) promotedata sharing;and, (c) streamlinethe external reportingsystem in government.

RevenueGeneration and Administration

Quality public expendituremanagement goes hand-in-handwith honest and efficient revenue generationand administration. The main problemsin this area includepoor tax collectionand low citizenand companycompliance with tax laws.

Establishingan efficient and effectivetax administrationsystem is a difficult and complextask. Facingup to the challenge,the Bureauof Internal Revenue(BIR) has been gradually reforming its operations and processes. Current strategic elements of the reform and reengineering program of the BIR include: (a) restructuring of its organization; (b) improving BIR's information management system; (c) streamliningthe system of bank remittances;(d) exercisingbetter controlof large taxpayers;and, (e) improvingthe wageand incentivestructure. The BIR has created in its headquartersthe Large TaxpayersService (LTS) and the ExciseTax Service(ETS) to better serve large taxpayers. It is also acceleratingthe full rollout of its tax computerizationprogram while exploringways to improvethe effectivenessof its audits and collections. Finally,it is consideringthe possibilityof outsourcingthe managementof its informationtechnology (IT)-based operations, a consequenceof which will be the openingof new avenuesto improveand maintain data integrity.

LocalGovernance 3

Publicsector reforms would be incompleteif they did not addressproblems in localgovernance. The Philippinesconfronts a numberof pressingissues in this area. Theseare: (a) observeddependence of fourth, fifth and sixth classmunicipalities on national government assistance;(b) continued allocation of funds meant for activitiesdevolved to LGUsto a numberof nationalgovernment institutions; and, (c) general lack of capability of the LGUsto prepare feasibility studies and detailed masterplans for their communities.

Spurred by the increasingneed by LGUsto finance the devolvedservices within the frameworkof the LocalGovernment Code, the InvestmentCoordination Committee (ICC) formulated a policy framework for financing local governments' basic servicesand developmentprojects predicatedon promoting self-reliancefor LGUs. The policyframework aims at: (a) rationalizingLGU availment of ODA; (b) promoting private sector financing of profitable LGU infrastructure projects; (c) encouragingLGUs to raise more locally generatedfunds; (d) building LGU project

3A number of ODA grants have been provided to the government to help LGUs build up their capacities for improving local governance. Annex 3k man gement capacity; and, (e) improving LGU creditworthiness. The ultimate objective is to enablethe LGUsto rely less on nationalgovernment transfers and more on locally generatedresources as well as to increaseLGU access to private sector financing. To assistthe poorer LGUs,the ICC has passeda resolutionthat allowsfor the provisionof selectivegrants to LGUson the basisof equity,social and environmentalexternalities and economiesof scale.

To support LGUs,the national government,through DBM,has spearheaded the developmentof an LGU DevelopmentFacility (LGU-DF).This facility aims to establish a performance-basedallocation of grants and financing to LGUs. This initiative includes: (a) the design of various schemesfor channelingdevelopment funds (includinggrants and loansfrom externaland local sources)to LGUs;(b) the formulationof structures,policies and proceduresthat will govern the facility; and, (c) the harnessingof collaborationamong stakeholders in the implementationof the LGU-DF. Associatedtraining and educationalprograms for institution and capacity buildingof LGUsare expectedto be undertaken.

The CCPSPhas also mounted a complementaryeffort to support capacity buildingof LGUs. With externalassistance, it has establisheda projectdevelopment facility at the Land Bank of the Philippines(LBP), which can providefunds to LGUs for the preparationof feasibility studiesfor BOT projects. The facility is aimed at reducingthe extensiveuse by LGUsof unsolicitedproposals. Considering the lackof funds to prepare feasibility studies, LGUsare usually forced to take proposals, notwithstandingserious questions about the utility and integrity of such proposals. To sustainthe facility, winning biddersare requiredto replenishit with funds by the amountsspent on the associatedfeasibility studies.

Citizen and Private Sector Participation

The government realizes that it cannot do everything for the people. It continues to discover that its citizens are increasinglycommitting themselvesto participate in the developmentprocess. It has, in particular,established over the years the BudgetDialogue Group, the LEDAC,the EconomicMonitoring Group (EMG) and the ECC,including the Councilof SeniorEconomic Advisers (CSEA), to provide avenuesfor private citizens to be actively involved in the formulation of public policies.

The governmenthas also begunto seek assistancefrom civil society in the implementationof projects with significant social and environmentalcomponents and implications. For instance,the PresidentialCommittee on FlagshipPrograms and Projects (PCFPP)has engaged the help of nongovernmentalorganizations (NGOs)in the resolutionof resettlementand right-of-way(ROW) issues involved in a number of large infrastructureprojects and in the implementationof an ambitious waste recyclingand compostingprogram as part of the Solid Waste Management Annex 3k Page 8 of12

Programtor Metro Manilaand surroundingprovinces. The PCFPPalso intends to contract NGOsto monitor the performanceof select ODAprojects and to heighten the accountabilityof line agenciesin the implementationof these projects. Given its changing role, the government has recognizedthe need to encouragegreater private sector participationin the delivery of public services. Although sources of private capital have increasedtremendously over the last decade,actual private sectorinvestments in public sectorfacilities and serviceshave been limited to (a) power generation,(b) large-scalewater supply and (c) mass transit and rail transportation projects. Within this limited set, problems have emerged that highlight the importance of revisiting the BOT law and its amendments. The government is currently engaged in an effort to push amendmentsto the law and its IRR.

The governmentcontinues to grapplewith complexcompetition policy issues whose resolution will lead to a more level playing field. In particular, it has promotedthe cross-ownershipof power generationand transmissionfacilities and the introductionof open accessmechanisms. It continuesto push aggressivelyfor the passageof Power Sector Restructuringbills that will make the power sector more competitiveand efficient.

CorporateGovernance

Private sector investmentsare unlikely to increasesignificantly unless the laws governingcorporate behavior are revisedto copewith the ever-increasingtrend towards globalizationof businessand liberalizationof trade and finance. The Corporation Code has laid the legal and institutional foundations for corporate governance. However, the Code has become inadequate to cope with the implicationsof the said trends and its enforcement(as well as those of related laws) has left much to be desired. This has led to a numberof pathologies,which, if left unattended, will continue to undermine the efforts of government to attract productive,long-term private investments. Theseinclude: (a) recklesslending by commercialbanks; (b) risky investmentsby managers;(c) limited recourseto equity finance; (d) connectedlending; (e) insider trading; (f) expropriationand misuseof funds by companies;and, (g) highly concentratedcorporate ownership. To address these problems,the ECChas recommendedthat the governmentpursue reforms in the managementof securities,including, in particular, revision of the laws and arrangementsgoverning the stockexchange as well as centraland generalbanking.

The Securities and ExchangeCommission (SEC) has implemented new measuressuch as the issuanceof the New Rulesof Procedureof the SECand the promulgation of the Rules on Corporate Recovery. It also has drafted the BankruptcyRules that would effectivelyreduce the volume of assetsleft idle when companieshave to closedue to financialdifficulties. Further,Philippine Congress is workingtowards the passageof the RevisedSecurities Bill, whichaims to strengthen - ~~~~~~~~~~~~~~~~~~~~Annex3k Page 9 of 12 the gulatory and supervisoryframework of the SECover the securitiesmarket. The expectedpassage of the RevisedSecurities Bill within the year will enhancethe protectionof minority rights, increasetransparency and facilitateenforcement. However,there remainsa glaringneed to improvethe corporategovernance framework for non-listed firms. The governmentshould consider reviewing all existing studies concerningthe performanceof the current legal and institutional framework for corporate governance in the Philippines,examining alternative approachesand institutional arrangementsfor dealing with corporate governance and designingnew and innovativemeasures that would be more applicableto the country.

In the area of banking,the BangkoSentral ng Pilipinas(BSP) is undertaking measures in four areas: (a) increasingcapital adequacy; (b) improving the framework for bank supervision;(c) requiring additional disclosurerequirements; and, (d) easingup various rulesto improveflows of credit. All of these are intended to enhancethe stability and credibilityof the bankingsector, which, in turn, would encouragemore investments.

The Rule of Law

Reformsin public sector managementand corporategovernance can go a long way to improvingthe ability of governmentto deliverpublic servicesefficiently, effectively and equitably. However, these reforms must be grounded in an environment where the rule of law is steadfastlyupheld and honored. In this context, perhapsthe most critical and fundamentalis the administrationof justice. Where the justice system is weak, citizens become indifferent to laws and regulations,thus making it very difficult to enforcethem. This naturally leadsto high crime rates and, in somecases, to deteriorationin peaceand order.

The country today facesdifficult challengesto its judicial and police systems. Amongother things, crime rates are high; resolutionof casesis slow and sluggish; Temporary RestrainingOrders (TROs) are issued capriciously;double standards seem to applyto the detrimentof the lessfortunate. The upshotof all these is the emergenceof a deeplyrooted cultureof graft and corruption.

The SupremeCourt has recognizedthe urgencyof reforming the Judiciary. Under the stewardshipof Chief Justice Hilarion Davide, it has embarked on a program called the Davide Watch. In line with the vision and mission of this program,the SupremeCourt has issuedAdministrative Circular 1-99, which exacts from court officials and employees the highest ethical standards in the administration of justice. It has also taken the initiative to secure technical assistancesupport from donor agenciesto preparea road map for vital institutional reforms. With donor support, it has completed a "Blueprint of Action for the Judiciary", a document that identifies the various gaps and correspondingbroad I Jx1 Annex 3k Page 10 of 12 policyand programactions neededto establisha well functioningjudiciary, and has commissionedin-depth studiesdesigned to providea detailedplan for strengthening the competence,integrity, efficiencyand effectivenessof the Judiciary. Oncethese studies are completed,the recommendedinstitutional reforms will be undertaken with the expectationthat the major efforts will be completedbefore the end of the term of the current ChiefJustice. Other improvementefforts being lookedinto are: (a) adoption of two-way television arraignmentsand witness examinations;(b) conductof legal researchesat benchand counseltables; (c) playingof recordedor real-timetelevised evidence display built in videodeposition playback facilities; and, (d) automatic video recording and translation to foreign languages of case proceedings.

To complementthe efforts of the SupremeCourt, the governmenthas begun reforms in the police serviceas mandatedby the PNPReform and Reorganization Act. Initial actions have primarily addressedthe compensationissue as the police are underpaid. A new salarystructure has been implementedand allowanceshave been increased significantly. The government intends to continue the professionalizationof the police and to initiate reforms in related services-jail managementand fire protection.

In the area of prosecution,the nationalgovernment is exploringpossibilities for further developing and strengthening community-basedalternative dispute settlementmechanisms and establishingalternative arbitration recourses.

On the peace and order situation in Mindanao,renewed efforts are being undertakento sustainthe initial gains achievedin restoring normalcythrough the work of the SouthernPhilippines Council for Peaceand Development(SPCPD) and to pursue the recovery and developmentthat have already been bearing fruit in Mindanao until the recent escalation of hostilities between the Moro Islamic LiberationFront (MILF)and the government.

Graft and Corruption

Institutional reformsthat improvepublic sectormanagement and the rule of law go a long way in fighting graft and corruption. In fact, they are a necessityif any progress is to be achievedon this front. However,they are not sufficient. These efforts must go hand-in-hand with significant improvements in the identification and successfulprosecution of persons who are engaged in these activities. There is certainlymuch to do in this context. The governmenthas begun to undertakesome initiatives.

The Office of the Ombudsman(OMB) is currently keepinga tight watch over graft- and corruption-proneagencies. It has installedResident Ombudsmen in some departmentsand agenciesof the governmentto monitortheir official performance Page 11 of 12 and ransactions. It also has organizedand accreditedNGOs, such as Corruption PreventionUnits or CPUsto assistin the fight againstgraft and corruption. PresidentEstrada recently commissionedthe DevelopmentAcademy of the Philippines(DAP) to preparean anti-corruptionaction plan for the government. In response,the DAPhas drawn up a Ten-PointJumpstart Anti-Corruption Program.

The componentsof the Programare: (a) the establishmentof a transparent participatory process for generating nominees for Presidentialappointments in critical government offices; (b) conduct of random checks on the lifestyles and compensationpackages of government officials; (c) publication by government agenciesof citizen guidebookson how to accesspublic goods and serviceswith time tables; (d) full disclosureof public documents,including government contracts, proceedingsof public hearings,budget documents,financial reports, among other things; (e) identificationand pursuitof anti-graft and -corruptionlegislative agenda; (f) mobilizationof investigativeand prosecutorialresources for pursuinggraft and corruptioncases; (g) simplificationand streamliningof processesand proceduresfor availing public goods and services;(h) periodicmeasurement of public satisfaction with the delivery and availmentof public goods and services;(i) utilizationof civil society organizations as partners of government agencies in advocating for improvements in organizational and individual integrity, as well as ensuring transparency;and, (j) entry into "integrity pacts" betweenpublic officesand private firms to eliminateenvironments conducive to and courting bribery, price-fixingand nontransparentprocurement practices.

As part of the Program,DAP will soon be piloting report card surveysof the quality of public services at the local level. The objective is to enhance accountabilityof local public officialsfor budgetaryexpenditures and to improvethe performanceof publiclyfunded programsand projects.

Information and CommunicationsTechnology (ICT)

The governmentaims to utilize ICT as a productivitytool for improvingthe speed and quality of public servicedelivery and for reducinggraft and corruption. The core strategyfor the ICT sector,as defined in IT21, is to strengthenand widen the ICT manpower base and the physical infrastructuresneeded for the highly competitivedigital economy.

The efforts that are being undertakenby the government to harnessthe efficiency gains from ICT include: (a) the adoption of the National Information TechnologyPlan for the 21st Century(IT 21); (b) the formulationof the medium- term GovernmentInformation Systems Plan (GISP), 1999-2004 that will containthe frameworkfor electronicgovernance in the Philippines;and, (c) the implementation of ICT-related projects, such as (i) Vehicle Registration and Licensing Computerization;(ii) NationalCrime InformationSystem; (iii) Civil RegistrySystem; _yg Annex 3k *___- ~~~~~~~~~~~~~~~~~~~~~Page12 of 12

(iv) Customs Computerization; (v) Tax Computerization;and, (vi) Electronic ProcurementSystem.

ConcludingRemarks

I have tried to cover the wide range of issues on governance and, systematically,to outline the government'sefforts to addressthese issues. I hope that I havebeen able to demonstratethat our efforts, while seeminglydisparate, are actually being undertakenwithin an overarching(though, sometimes,not explicit) framework.

Thankyou. Annex 31 Page 1 of 2 CONSULTATIVE GROUP MEETING FOR THE PHILIPPINES l .3J|Tagaytay City, Philippines June 19-20, 2000 SESSION III: DISCUSSION ON PROGRESS ANDPLANS ON STRUCTURALAND PUBLIC SECTOR REFORMS

World Bank Statementon Governancefor Growth: The ImmediateAgenda by Mr. BernardFunck, PrincipalEconomist, World Bank

Mr. Chairman,Excellencies, Ladies and Gentlemen: Over the past 10-15 years, the Philippineshas taken giant steps toward establishinga governanceframework more conduciveto transparency,participation and poverty reduction. The reports we have tabled to this conferenceon "Growthwith Equity" and on "Combating Corruption"recount some the major achievements.We are not alone in this assessment. Internationalsurveys talk of a secular improvementin the rule of law, reductionin corruption and the likes, while internationaltrade statisticsshow the Philippineswinning world market's shares. These achievements,in turn, have paved the way for the accelerationof growth and poverty reduction which the country experiencedup to the Asia crisis.

More recently, however, concernshave arisen from various cornersthat the governance framework in both the private and public sectorsmight be weakening. This is turn has limited the government's capacity to rekindlegrowth and to deliver on its povertyreduction agenda.

The recent months have shown the governmentbeginning to measure up to the challenge. The ECC has been created. Tax erosionappears to have been curtailed. Three important pieces of economiclegislation have been passed into law (I have in mind the partial liberalizationof retail trade, e-commercelaw, and revised generalbanking act). A Presidential Commissionon Effective Governancehas been formedto draw up future public sector reform plans. And the DevelopmentAcademy of the Philippineshas put forward an ambitious anticorruptionstrategy, accompaniedwith a 10 point jumpstartprogram.

A minute ago, SecretaryDiokno has presentedus with a rich and worthy agenda of going forward. The questionnow is where to start.

Here are, in our views, some of the priorities:

The first one, as everybodywill agree, is to regain confidence. A few visiblemeasures are now overdue. Acting on them would go a long way towards bolstering confidence. One would be finally to pass a Revised SecuritiesAct, enshriningthe rights of minorityshareholders and the independenceand authorityof the Securitiesand ExchangeCommission. Anotherone would be to bring afew, high visibilitycorruption cases to book and to try them conclusively.

Once the immediate is addressed,it will be importantto show the government's steady hand by maintainingor regainingthe momentumof ongoingreform, such as on tariff reduction, banking sector reform,fiscal consolidationand final completionof the Annex 31 Page 2 of 2 comprehensivetax reform process in the areas of financial taxation and rationalizationof tax incentives.

On this basis, the country could move on to a few, well-targetednew challenges. In public sector reforms, the governmentwill be well advised to heed Secretary Diokno's precept, and "get the basics first." Here are some areas, where the authorities may seek to make a critical difference.

(a) Intensifying anti-corruptionefforts under a strong leadership from government and with active civil society involvement. The recently completed studies by the World Bank and the DAP, which I mentioned a moment ago, offer plenty of useful ideas on how to proceed.

(b) Taking steps towards creating a meritocraticcivil service.

(c) Revamping governmentfinancial managementsystems to make if a more effective tool for program and fiscal management.

(d) Developing a morefoolproofprocurement system.

The rapidly evolving field of e-government affords numerous opportunities for innovative approaches in the latter two areas.

Let me also point out a few opportunitiesto advanceprivate sector participation, competition and transparency into new areas. Power sector reform is obviously one area where everybody - executive, legislativebranch, donors - has been working hard to put together a workable package. Let us hope that these reflections and debates will come to fruition shortly.

I would like to direct attention also to two other areas where opportunitiesexist to improve both the growth prospects and the distributionof income. One of them isfood trade liberalization. As the draft Poverty Assessmentreport which we shared with you makes clear, gradually bringing that part of the trade regime in line with progress achieved on the rest of the trade front would therefore help on growth AND equity grounds. There is no doubt that the political forces involved in this area are quite formidable. Providing effective safeguard measures for the poorest to face the transition may help tip the balance.

A second area is housing. We have presented to you evidence that recent housing policies, adopted in response to legitimate clamors for shelter, have been, not only financially ruinous, but also hugely regressive. The Medium-TermPhilippine Development Plan for Shelter (MTPDP-S) seeks to break this record. Allow us to endorse it to the new leadership in this area.

Let me conclude by noting that, in many areas of reform, however, little will have been accomplished until the rules which are on the books are more deliberatelyenforced. For citizens and market participants alike, this will be the litmus test that the rules of business are indeed changing. Hence the importanceof the judiciary reform undertaken under the leadership of Chief Justice Davide, as well as strengtheningthe independence and diligence of regulatory bodies, more generally, as Chairman Bautista is attemptingto do at the Securities and Exchange Commission. But I am sure my friend Vipul Prakash from IFC will have more to say on this particular score. Annex3m Page 1 of 2 PHILIPPINES CONSULTATIVE GROUP MEETING Manila, June 19-20, 2000

Progress and Plans on Structural and Public Sector Reforms Discussion on Corporate Governance By Vipul C. Prakash Country Manager IFC-Philippines

Mr. Chairmanand HonorableDelegates:

1. I would like to start by congratulatingand commendingthe Governmentof the Philippinesfor embracing good governanceand putting it as the centerpieceof their reform agenda. More importantly,we are encouragedby the government'seffort to forma public-privatepartnership in this area and defining a clear agenda for addressing weaknesses in corporate governancein the Philippines. In the World BankGroup, we are pleasedto be workingwith the governmentin this importanteffort as we believethis is oneof the bestvalue propositionsto win investorconfidence.

2. We supportthe government'sefforts to adopt an enhancedcompetition policy, which wouldusher in an open, transparentand enablingenvironment and allow market forcesto hasten the adoptionof good governance. This approach runs parallel with other governmentprograms to strengthen financial,regulatory and judicial institutions that are so importantfor layingthe foundationsfor good corporategovernance. The recentpassage of the RevisedGeneral Banking Act would also strengthen the centralbank's regulatory powers, raise prudentialstandards and foster greatercompetition in the banking sector. Our work with Bangko Sentral complementsthese efforts to improvecorporate governanceamong the corporateclients of commercialbanks, by encouragingthe banks to take a more active role in insistingon client adoptionof good governancethrough their creditreview and loan risk classificationprocedures.

3. We would also like to thank the governmentfor endorsingthe effortsof the Instituteof Corporate Directors,to which the World Bank group has extendedtechnical and financialassistance. The Institute,which was foundedin 1999 by formersecretary of financeDr. Jesus Estanislao,has as its primary objectivethe educationof Philippinecorporate directors, management and shareholdersin the appropriateactivities and responsibilitiesof the board of directorsto the various stakeholders. Despite its brief history, the Institute has become a high-profileadvocate for good corporate governancethrough a series of conferencesand workshopsit has held, several with the supportof World Bank and Asian DevelopmentBank (ADB). The IFC has also taken an active role by Annex3m Page2 of 2

encouraging the participation of the directors of its investee companies in the programs offered by the Institute. Also, in the aftermath of the Asian crisis, all of IFC's investments focus on institution building and introduction of measures for better risk management and improved corporate governance.

4. In the area of Capital Markets, we are pleased to be working with the government, the US Agency for International Development (USAID) and ADB, to establish a taskforce of the Capital Market Development Council on corporate governance, which would spearhead efforts of the securities regulators, stock exchange and the private sector to improve corporate governance among listed companies. This work supports the objectives of the draft Revised Securities Bill, which aims to strengthen the regulatory and supervisory capacity of the SEC to enhance the protection of minority shareholder rights, transparency and enforcement. We hope that this bill will be passed in the next session of the legislature.

5. Over the next year, we expect to continue working with the government, its partners and the private sector in the Philippines to address the weaknesses in corporate governance. Our work would include: A) Supporting initiatives in accounting reform, to adopt a standardized system and to train practitioners in its use along with a program to upgrade the capacity of auditors. B) Assisting the government in strengthening its competition policy. C) Helping SMEs address specific governance issues common to small, family-owned businesses including, designing a public education program which would engage the media in dissemination of information on good corporate governance to businesses, investors and the general public. D) Collaborating closely with the World Bank Institute, our training arm, to create a core course in corporate governance, which could be launched in the Philippines, as well as throughout the East Asia region. E) Complementing the World Bank Group's other initiatives in governance. For instance, we expect to continue to participate in the Bank's anti-corruption efforts, by focusing on the benefits that good corporate governance can have on reducing the opportunities for corrupt behavior.

6. We look forward to our continued collaboration with the Philippine government, private sector, civil society and the multi-lateral and bilateral donors in these initiatives. Thank You Annex 3n Page l of5

jqFqp|S| 2000 CONSULTATIVE GROUP MEETING FOR THE PHILIPPINES

(Embargountil June 20, 2000,12:00 p.m.)

MOBILIZING ODA FOR SUSTAINABLE GROWTH AND POVERTY REDUCTION

Statement of Honorable Felipe M. Medalla Secretary of Socio-EconomicPlanning

Mr. Chairman, DistinguishedDelegates, Ladies and Gentlemen:

The past two decadessaw dramaticchanges in the structureof the Philippine economybrought about by reformsthat supportthe growth of a competitiveprivate sector. The ODAcommunity has played a facilitative role in the process. ODAhas beencrucial in financingthe government'sbudget deficit and shoringup the country's internationalreserves particularly during our balance-of-paymentscrisis in 1992. This supporthas been highlightedanew duringthe Asiancrisis. Financialassistance from multilateral and bilateral sourcesfunded 34 percent of the national government's deficit in 1998 and 1999, thus forestalling pressuresfor governmentto borrow domesticallyand raiseinterest rates. ODAhas alsobeen a key sourceof financingfor lumpy investmentssuch as infrastructure,freeing up governmentresources for the deliveryof socialservices. As we facethe challengeof nurturingthe economyback to its potential growth path, we expect ODA to continue supporting the country's development.

ODAand the Pro-poor Agenda

The fight againstpoverty, which underliesthe Estradaadministration's Angat Pinoy 2004, the government'ssix-year development plan, hues closely with the new developmentparadigm of the donor community. Furthermore,the formulation of Angat Pinoy 2004 follows closelythe principlesof partnershipand ownershipthat underliethis new developmentagenda for ODA.The PhilippinePlan, for instance,was prepared not by government alone but by a multi-sectoralgroup composedof government,civil society,business, academe and labor.

But the reform in the ODAframework is alsobased on two other principles:(a) that limited ODA be channeledto countrieswhich implementgood policies;and (b) that assistancebe effectivelyand efficientlyutilized. The first principleis premisedon the belief that the kind of policiesthat create a good environmentfor broad-based growth are the samepolicies that create a good environmentfor the effective use of donor assistance.These policies include private property rights, low level of corruption, opennessto foreign trade, macroeconomicstability, all of which are consistentwith the strategiesin Angat Pinoy 2004. X Annex 3n Page 2 of 5

RP ODA profile

Admittedly,the Philippineshas to do moreto improveproject implementation and ODA utilization. As of the first quarter, the country'stotal ongoing ODA loans portfolio reachedUS$11.4 billion involving 178 projectsmostly in infrastructure.Japan remainsthe biggest sourceof ODA,accounting for 52 percentof the portfolio,while the AsianDevelopment Bank (ADB) and the World Bankaccount for 22 percentand 21 percent,respectively. However, the availmentrate for ODAloans has been declining, reaching62 percentin 1999from 74 percentin 1997.1

Basedon the recent 8th Annual ODA Portfolio Review,about one third of ongoingprojects experienced an averagedelay of abouttwo yearsfrom their original timeframe.As a result, the disbursementbacklog reached some US$2.8billion of the total undisbursedbalance of US$7.7billion. To reducethe burden of commitment fees, we have cancelledsome US$378million from on-going loans as a result of "savings" from the peso depreciationand the discontinuanceof some project components.

Bridgingthe Gapsin ODA Utilization

Immediatesteps have alreadybeen taken to addresspoor aid absorption.A Joint ODA Portfolio Reviewwas held in December1999 with Japan,ADB, and the World Bank where all partners committed specific actions for improving ODA performance.Since the joint review,no lessthan the Presidenthimself took a direct hand in speedingup projectimplementation by putting ODAin the agendaof almost all meetingsof the Cabinetand the EconomicCoordinating Council (ECC). At the same time, a Cabinet-levelinter-agency workshop organized early this year resolvedmajor implementationissues in 27 projectsand formulatedtime-bound action plansfor 11 others.

The problemscausing the low availmentrate for ODAloans, however, are not entirely new. These includeright-of-way (ROW) acquisition; resettlement and social acceptabilityproblems; procurement issues; lack of projectpreparedness; poor project design; weak implementationcapacity; poor contractorperformance and long court litigation. Moreover,some new problemswere encounteredas we expandedthe role of localgovernments in socialsector projects.

On the other hand, the performanceof ODA grants which reachedsome US$1.1billion remains satisfactory.These grants have largely benefitedthe social sector, the peace processin Mindanaoand capabilitybuilding of Local Government units (LGUs).

A major reason for low disbursementis poor project design and selection, which eventuallydistort our prioritiesand create institutionalenclaves. To address this, the followingmeasures will be instituted.First, we will be highlyselective not only

' The availment rate is the percentage of the amount disbursed cumulativelyto the corresponding scheduled disbursement. -~~1 Annex 3n

Page 3 of 5

in the kinds of projects that will be implementedbut also in the choice of implementingagencies.

Second,we will strictly adoptthe readinesscriteria in the prioritizationof new ODA.The governmenthas identifiedspecific filters for readinesssuch as advanced Investment Coordination Committee (ICC) processing,firm commitment and ownershipof implementingagencies, minimal ROW and relocationissues, established implementationstructures, among others. To clean-upthe pipeline,we will continueto dropprojects that do not meetthese criteria.

Third, we will seriouslyimbibe the lessonslearned from projectimplementation by trying well-provenapproaches instead of inventingnew programs. For instance, we endorse:(a) the use of adaptableprogram loans for "difficult" projectsand long gestatinginterventions; and (b) the useof augmentationfund for devolvedprograms in the socialsector which provide direct services.

Fourth,ROW and resettlementproblems will be immediatelyresolved prior to projectimplementation thru the ECCand the FlagshipCommittee and by the setting- up of a ROW fund in the 2001 budget. Through these measures,we almost completedaction on ROWand resettlement issues long beforeloan negotiationsfor at least two major developmentprojects: the MindanaoContainer Terminal and the KAMANAVAFlood Control Projects.

Fifth, we will enhancethe cost sharingarrangement between the national governmentand the LGUsas a way to effectivelydecentralize project identification and ensureproject sustainability.

The governmenthas also streamlinedprocedures to fast track the project approvalprocess. For instance,the MonetaryBoard is closelyworking with the ICCin monitoringeffective complianceby implementingagencies of ICC conditionsfor projectapproval. The PhilippineCouncil for SustainableDevelopment has alsobeen tapped to expedite the issuance of environmental compliance certificates. Furthermore,the Departmentof Budgetand Managementhas set up a one-stopshop bureauto handlethe budget-relatedrequirements of foreign-assistedprojects.

To address implementationbottlenecks, the coverage of the Flagship Committeehas been expandedto includeall foreign-assistedprojects. The cut-off amountof contractsrequiring approval by the Officeof the Presidenthas also been increasedto P200million, with processingtime reducedto 3-5 days. We introduceda setof procurementreforms to makeit expeditious,fair andtransparent.

Even as we work harder to improve the efficiencyof ODA use, we have reoriented our investment and budgeting processesto achieve the expected developmentoutcomes. Multi-yearexpenditure planning estimates were introduced as part of the 2001 budget preparationto facilitatethe programmingof investment requirementsby the ICC. At the sametime, performanceindicators focusing on developmenteffectiveness have been incorporatedboth in the ICC approvalprocess andin budgetpreparation. Annex 3n Page 4 of 5

However,it will take time before these measureswill lead to a dramatic increasein ODAdisbursement. But the declinein ODAdisbursement rate may have alreadybeen arrested, as last year'savailment rate of 60 percentwas maintainedin the first quarterODA performance for this year.

StrengtheningODA Ownership and Commitment

While governmentplays a major role in ensuringthe effective use of ODA money, many of the problems cited above could be avoided with improved coordinationwith the donor community. Allow me to highlight some crosscutting concernsthat we think are importantfor successfulprograms and projects.

First, ownership is critical in ensuring that projects will be successfully implemented. It is for this reason that governmentwill continue to undertake programmingexercises which adopt a consultativeapproach. Consultationswill be held with key Governmentagencies to discusssectoral priorities and projects to ensurecommitment of agencies.Priority projects for donorassistance shall be based on Angat Pinoy 2004 and jointly- craftedcountry assistance strategies. In these exercises,government will take the lead in directingmulti-donor assistance to the country,particularly in identifyingareas needing greater collaboration among donors. In this way, unnecessaryduplication of efforts in interventionssuch as in poverty reductionwill be avoided.

The principle of ownershipalso recognizesthe intrinsic characteristicsof countriesand the need to respecttheir culturesand practices.We enjoin the donor communityto understandwhy we would prefer to "unbundle" the provisionof programloans with legislativemeasures because of the uniquerelationship between the Executiveand Legislativebranches of our government. In most instances, anyway,the Executivealways tries to facilitateresolution of issuesin the appropriate forum (e.g., ECC,LEDAC, DBCC). We likewiseask for the donors'patience as we act on policy issuesidentified during projectformulation (e.g., conduitingarrangements for two-steploans, institutionalrestructuring) and not to make these conditionsfor loaneffectiveness.

Together with the donor community, we need to evolve innovative mechanismsfor effectivepartnership both with the LGUsand the civil society. The involvementof the stakeholdersincluding the communityand civil society in the designand implementationof projectswill ensuresustainability and reducerisk of projectfailure.

Lastly,we recognizethe need to be accountableto the taxpayers,both our own andyours. Hence,to addressthis, we will pay moreattention to the governance aspectsof projectmanagement. An effectivemonitoring system will haveto be put in placewhere civil societycan participateand to someextent, rate how governmentis doing. From the donors, we would welcomethe appointmentof independent monitoringadvisers, particularly for tied ODAfacilities. F1 ~~~~~~~~~~~~~~~~~~~~Annex3 -d~I Page 5 of 5

ODAin Mindanao

Finally,let me talk aboutMindanao.

The ongoingconflict in Mindanaohighlights the naggingproblems of poverty and accessto basic servicesand the need to considerpeace and development initiativesin the area. The government'soverall development efforts in Mindanaowill be guided by the Angat Pinoy 2004 framework, giving importanceto food productionand the deliveryof basicsocial services.While we fully understandthe need for a comprehensiveplan for Mindanaoto ensure the sustainablelong-term developmentin the area, what we needto do for immediateresults is to accelerate the implementationof existingongoing programs. Thus,we are lookingat projects readyto take off rather than new projects. Moreover,our priority is to immediately implementor acceleratethe implementationof projectsthat would improve and expandthe deliveryof basicsocial services.

Accordingto our reports, as of March2000, there are about 18 ongoing foreign-assistedprojects solely for Mindanaowith total loan commitmentsof US$678 million. In addition,73 projectswhich are multi-regionalor nationwidein scopewith net commitmentof US$5billion havecomponents in Mindanao. Despitehow other quartersmay haveportrayed the situationin Mindanao,there hasbeen no casualtyor damageto any facilitycurrently funded by ODA.

We remainconfident that the situationwill improve.

ConcludingRemarks

We urge the donor communityto continueits unwaveringsupport in these timeswhen it is neededmost. Developmentefforts should not only preventand settle conflicts but should sow the seedsfor lasting peace. For peace is a necessary conditionto developmentand is the responsibilityof everyone,including the donor community.

Restassured that whilewe focuson Mindanao,we reaffirmour commitmentto reformsneeded for effectiveand efficientODA utilization. Everyproject that is badly implementedentails not only higher commitmentfees but also reducedand delayed benefitsto society,especially the poorand the vulnerable.We realizethat our system of checks and balancesoften get in the way of speedy and effective project implementation. But this is only much a part of our developingdemocracy. By workingtogether, we can provethat the democraticprocess is not inconsistentwith better projectimplementation and is still the bestway to resolvethe problemswe are presentlyencountering.

Thankyou and Mabuhay! Annex 3o Page 1 of3

l - | CONSULTATIVE GROUP MEETING FOR THE PHILIPPINES Tagaytay City, Philippines June 19-20, 2000

Closing Remarks by the Co-Chairman Mr. Vinay Bhargava, Country Director, Philippines, World Bank

Mr. Chairman, Excellencies, Ladies and Gentlemen:

My remarks will try to capture the views expressed by the donors in this meeting. This is not a comprehensive summary. Rather, it is an attempt to capture the main points of a very rich discussion. I request the honorable delegates to feel free to add any salient points that I may have missed.

First of all, the donors expressed their gratitude to H.E. President Estrada for hosting Sunday night's Heads of Delegations dinner and for his personal interest in fostering the close partnership with the donor community and in a peaceful solution to the conflict in Mindanao. On behalf of the donors, I would also like to greatly thank our host, the Government of the Philippines and particularly the Department of Finance, for organizing and chairing this meeting for the first time, and also for the warm hospitality you extended to all of us.

Mr. Chairman, during the discussions, the donors expressed their support to the government's development program and welcomed the encouraging macroeconomic developments experienced since the last CG meeting. While stressing the need for growth to pick up further to meet the administration's poverty reduction objectives, donors noted that economic recovery was underway, inflation under control, and the balance of payments and reserve positions strong.

They welcomed the steps that the government has taken to improve investor confidence. To start with, the government has clearly shown its commitment to cut back the fiscal deficit in 2000, and indicated to this group that the additional fiscal burden caused by the Mindanao situation would be met without endangering key expenditure programs in the social and rural sectors. There was also a general agreement that, over the medium term, enhancing revenue performance should be the main avenue to achieve fiscal consolidation, as well as to generate funding for the country's development priorities.

As importantly, donors commended the government for reinvigorating the structural reform process. This has largely been facilitated by the Economic Coordinating Council created earlier this year, which has been instrumental in moving important reform measures forward. They were also encouraged that a Presidential Commission on Effective Governance had been formed to develop future public sector reform plans. Moreover, they welcomed the initiative to commission the Development Academy of the Philippines to formulate an action program to combat corruption. The donors much appreciated the candor and openness which the government was showing in this difficult area.

During the discussions, donors noted concerns in a number of areas and identified several priority areas for government action. These are: Annex 3o Page 2 of 3

*: Implement key measures to enhance resource mobilization, in particular improve tax administration, complete the comprehensive tax reform process and enhance contractual savings; this should allow to maintain social expenditures, and to target better public expenditures towards the poor; *: Boost investor confidence by addressing, in particular, governance at the stock exchange, by moving ahead expeditiously with the outstanding agenda for power sector reform and for Central Bank and Securities legislation, and by proceeding with privatization efforts; *: Continue the focus on rural development and the implementation of the Comprehensive Agrarian Reform Program and other asset reform programs; * Support family planning programs to reduce birth rates; *: Finalize and implement the National Anti-Poverty Action Agenda in a timely manner; *. Implement efforts initiated on Judicial Reform to improve the country's overall governance framework; * Announce and implement specific anti-corruption measures based on the reports of the Development Academy of the Philippines and the World Bank; *. Set up a CG Working Group to have regular GOP-donor dialogue with regard to the comprehensive governance improvement program outlined by the government; and -: Implement commitments made during the December 1999 ODA portfolio review, in particular, apply the "project readiness filter" for new projects, involve stakeholders in the design, implementation, and results monitoring of projects, and pay closer attention to governance aspects of project management.

Donors also suggested that, at the next CG meeting, the government provide a progress report on actual accomplishments with regard to these areas.

The peace and economic development situation in Muslim Mindanao was discussed extensively. The government's briefings on the peace and development plan and the insurgency situation were much appreciated by the donors. H.E. President Estrada assured donors that the government is committed to creating the basis for sustainable peace in Mindanao and asked the donors to join in this effort. Several cabinet members provided details of on-going work to prepare relief, rehabilitation and development plans for the Muslim Mindanao.

The donors welcomed these briefings and assurances that the government is proactively seeking a peaceful, political settlement of the on-going conflict. The donors also expressed deep concerns about the human suffering of the displaced persons and the adverse economic impact of the conflict on the overall economy. The donors underscored the urgency of resolving the conflict. The donors emphasized that stable peace and order is an essential prerequisite for economic aid from the donors. They urged the government to brief them periodically on the peace and order situation in conflict affected areas of Mindanao so that they can factor it into their operational activities.

As regards economic aid for people and areas affected by the conflict, the donors expressed the following views: Annex 3o Page 3 of 3

First, providing relief to displaced persons is urgent and donors would consider this if the government can assure the necessary conditions for a needs assessment to take place and allow delivery of assistance;

Second, concluding a peace agreement quickly and addressing the socio-economic needs of the large number of poor in Mindanao, particularly within its Muslim community, are essential to a permanent and lasting solution to the conflict;

Third, significant amounts of ODA financed projects are already approved for Mindanao and their accelerated implementation is the most effective way to deliver assistance in the near term. However, this requires stable peace and security conditions and resolution of procurement and governance bottlenecks. Donors expressed concern that the current security is disrupting their operations; and

Fourth, new projects for Mindanao can be considered in the framework of a medium- term development plan prepared with the extensive participation of local communities, particularly Muslim communities.

The donors urged the government to consider these ideas and showed interest in a continuing dialogue on peace and development issues in Mindanao. They welcomed the government's suggestion to hold a post-CG meeting specifically on Mindanao. Mr. Chairman, as co-chair of the CG meeting, the World Bank is committed to help you in this meeting when the peace and order situation is appropriate.

Mr. Chairnan, in the session this morning on the aid utilization, it was noted by Secretary Medalla that about US$7.7 billion of ongoing ODA is still undisbursed. Of this, about $700 million is exclusively for Mindanao. During the ensuring discussions, the Government and donors agreed to fast track the utilization of these funds. Beyond that, I am pleased to announce that the donors present here today have pledged an amount of $2.6 billion equivalent of which about $361 million is for Mindanao.

Mr. Chairman, it is worth noting that the new pledges of $2.6 billion taken together with the $7.7 billion in undisbursed funds under the existing ODA commitments will put more than $10.3 billion in ODA assistance at the disposal of the government. Of this, more than $1 billion will be for Mindanao. Fast tracking implementation of this sizeable assistance package is a challenge but it provides also a huge opportunity to produce concrete results for the Filipino people. The donors requested the government to meet this challenge fully and expeditiously.

Before closing, let me also thank all delegations for completing the survey form on the format of the CG meeting. Your comments and suggestions will be noted and considered in planning with the Govermnent on the next CG meeting.

In conclusion, I would like to note that the government has been extraordinarily responsive in a frank and substantive dialogue with donors in a true spirit of partnership. This was exemplified most recently by the joint-portfolio review, the Pre-CG meetings and the briefings on Mindanao at the HOD dinner. On behalf of the donors, I would like to express the hope that this spirit and partnership approach will only get better to help improve the lives of Filipino people. Mr. Chairman, Maraming Salamat po and Mabuhay. Annex 3p PagelI of 4

2 3RD CONSULTATIVE GROUP MEETING ConcludingSession

STATEMENTBY THE GOVERNMENT OF THE PHILIPPINES Hon.Jose Trinidad Pardo Secretaryof Finance Republicof the Philippines We have just concludedthis 23rd ConsultativeGroup Meeting for the Philippines, another milestonein the government'spartnership with the donor community. More importantly,I believethat this Meetinghas heightenedthe level of awarenessand appreciationof donorson the evolvingdevelopment challenges which face the country today. We, in Government,have learnedgreatly aboutthe current concernsand views of donors on the developmentissues affectingthe Philippines. We do appreciatethe opennessand candidnessin the expressionof concernsand we do recognizethat all that havebeen said of concernsand remain faithful to our commondesire to addressthe needsof the country. On behalfof my colleaguesin Government,may I expressour sinceregratitude to all of you who have engaged yourselvesduring the past two days for the purpose of understandingbetter our developmentcircumstances and sharingyour ideas on how developmentwork can put forwarda betterPhilippines. In responseto the statementof the Co-chairpersonof this Meeting,allow me now to present the position of Governmentvis-a-vis the action agenda presentedas the synthesisof issuesraised by donorsin this Meeting: 1. Enhance Resource Mobilization.Recognizing the importanceof boosting governmentrevenues, the Govemmenthas institutedeffective reform measures in its revenue collecting agencies. These measures include the full computerizationof the Bureau of InternalRevenue (BIR) and the Bureau of Customs(BOC) and the improvementof their informationsystems. At the BIR, we havestrengthened the LargeTaxpayers Service and the ExciseTax Service (ETS). Likewise,the system of bank remittancesis being streamlined.The restructuringof the BIR's organizationand the improvementof its wage and incentivestructure are now beingreviewed as part of a reengineeringprogram being implemented. As a matterof strategy,the Governmentis committedto rationalizethe systemof incentivesand subsidiesin BOT schemesand to fast trackthe privatizationof its remaining"big-ticket" items. To addressthe country'slow savingslevels, strong measures are beingpursued to increasethe country'ssavings levels. The Presidentrecently amended the mandateof the NationalCommission on Savingsto focus on policy advocacy and increased private sector representation in the Commission. A Annex 3p Page 2 of 4

comprehensive review of the contractual savings and housing system is now underway to lay the groundwork for the extensive reform program for raising savings levels. Government is likewise embarking on the development of the capital markets and expanding the institution of market-oriented policy which would provide avenues through which savings can be encouraged.

2. Investor and Business Confidence. The deterioration of investor perception of the Philippines is largely caused by misperception resulting from heightened and relatively sustained local and international media coverage of negative developments in the country. More often than not, negative events have been overblownthereby giving the impression of the problems being more pervasive than the fact. Nonetheless,Government is endeavoringto correct this perception by addressing the problemssquarely.

In the case of the poor stock market performancecited by the donor community, reviving investor and business confidenceis being pursued through the passage of the Revised Securities and Exchange Act. This proposed legislation imposes stiffer penalties against insider trading, contains provisionfor the demutualization of the stock exchange and allows more non-broker participation in the stock exchange, among others. To recover investor trust, Government is committedto the strict enforcementof the proposed legislationwhen passed into law.

Major progress has been attained by Government in promulgating economic legislation which shall have significant impact on economicefficiency and activity, and boost investor confidence. A number of these laws are those which liberalizes the retail trade industry to foreign ownership, enables business transactions to be carried out through electronic commerce and strengthens the banking system including further opening foreign ownership in banking. The proposed legislation for a comprehensiverestructuring and privatization of the power sector is currently in the final process of passagein Congress. This power sector reform bill, which have been passed by the House of Representativesand the Senate, shall improve the sector's efficiency, bring down the cost of power which is key to long-term global competitive ness as well as provide a level playing field and market oriented-system for private sector participants. Both chambers of Congress have likewise passed the their respective versions of the Securities Act of 2000. The two versions are now being reconciled by the bicameral committee and we expect passage of this important legislation soon.

3. Focusing on Rural Developmentand the ComprehensiveAgrarian Reform Program. Rural development and agrarian reform remain as a principal thrust of Administration in its continuing campaign against poverty. Breakthroughs in GOP's rural development strategy have recently been achieved through the enactment of the landmark legislation on agriculture and fisheries modernization. The Agrarian Fisheries and Modernization Act (AFMA) currently supports enhancing productivity and competitiveness,access to land and other productive resources, sustainable use of natural resources and protection of the Annex 3p Page 3 of 4

environmentand the empowermentof stakeholders.On the other hand, the ComprehensiveAgrarian ReformProgram (CARP) continues to a centerpiece programof the Governmentfor land reform. To date,Government has acquired and distributedaround 5.3 million hectares,65% of the total programscope. To assure sustainabilityof the program and in order to strengthenthe economic viabilityof agrarianreform beneficiaries (ARBs) and agrarianreform communities (ARCs), GOP has launched the MAGKASAKAProgram under which joint venture agreementsbetween agrarian reform beneficiaries(ARBs) and private sectorentrepreneurs are pursued.

4. Population Management.Population managementis key to accelerating development,a shared vision of all sectorsof Philippinessociety. Given the complexsocial and culturalmilieu of the Philippines,Government will haveto be flexiblein addressingthe issueof populationmanagement. Resource constraints limit the ability of the PopulationCommission and FamilyPlanning Service of the Departmentof Health in bringing down the targeted total fertility rate of the Philippines. An advocacyprogram is being implementedto generateresources and gettingsupport of LGUs,the legislatureand you, the donor community. To improve reproductivehealth (RH) indicators,guidelines are being finalizedto operationalizereproductive health interventions particularly in local communities. Govemmentwill continue to support the delivery of family planningservices, particularlyin shoulderingthe cost of supplies.It is official policy to enjoin all sectorsto contributein and integratedapproach to populationmanagement such as to include education and training, health care programs and providing economicopportunities.

5. Finalizing the NationalAnti-Poverty Action Agenda. The National Anti- Poverty Action Agenda which is a result of extensive discussions and negotiationsbetween Government and the BasicSector is now in the last stages of refinement. It is expectedthat the holding of the Anti-PovertySummit in Augustwill formalizethe adoptionof the ActionAgenda.

6. Effortson JudicialReform. The Governmentsupports efforts by the Judiciary for judicial reform. Initiativesby the Judiciaryfor institutionalstrengthening have been assisted by the World Bank, UNDP and USAID which the Executive welcomes. Shouldthe Judiciarydecide to seekfurther financial assistance for its reformefforts, the Governmentwill be supportive.

7. Anti-CorruptionMeasures. The Ten-PointJumpstart Anti-Corruption Program drawn up from a governmentstudy commissionedby the Presidentwill be boosted by expectedearly signing of the ExecutiveOrder for strengtheningof existing anti-corruptionentities. Twenty namesof candidatemembers to the anti-corruptioncouncil have already been submitted to the President.

8. CG WorkingGrouP. We welcome the donors' suggestionof a regular GOP- donor dialogue with regard to the Government'scomprehensive governance improvementprogram, with DBMas Chair. Annex 3p Page 4 of 4

9. Commitmentson the December1999 ODA Portfolio Review. We reaffirmthe commitmentswe made duringthe Joint ODA review,as well as in succeeding meetings,to improveODA performance.As we improveon disbursements,we will focus on achievingthe expecteddevelopment outcome, or the measurable results.

10. The MindanaoSituation. The Govemmentis fully committedto implementing comprehensiveand sustainableprograms to promotepeace and developmentin Mindanao..

In this regard, DOF and NEDA will again organizea forum to put together a concrete action plan for relief and rehabilitationprojects and acceleratethe implementation of ongoing projects. Necessarily, this will involve the stakeholdersfrom Mindanao.

The Government is strongly supporting the localization of peace and developmentinitiatives and will heavily rely on the trisectoral approach as advocatedby the PhilippineCivil Society,Government and BusinessConference at the nationallevel.

We would, however,like to emphasizein no uncertainterms that never in the country'shistory has Mindanaoreceived a higher per capita appropriationthan duringthe Estradaadministration. Contrary to some media reports,the military agendais not the Govemment'soverriding goal for Mindanao. Socio-economic developmenttakes precedence,but we must recognizethat it is very hard to undertakedevelopment projects in areascontrolled by armedgroups engaged in banditryor committedto secession.

Governmenthas ascertainedthat actualfigures reflecting the additionalfunding for military operations in Mindanao is not significant to cut into social expenditures.

This joint effort will hopefullybe the largest buildingblock to attaining lasting peaceand far-reachingdevelopment in Mindanao.

On the suggestionof the Co-chairperson,we will providea progressreport on identified priority areas for Governmentaction even beforethe next CG Meeting through our regulardialogues with you.

With this response,the agendaof the 23rd ConsultativeGroup Meeting is complete.May I acknowledgewith deep gratitudethe expressionsof financialcommitments made by our developmentpartners in the amountof US$2.6 billion.

May I againthank you all for your participationand commitments of support.

The Meetingis adjourned. Annex 4 Annex 4a Page I of 2

CONSULTATIVE GROUP MEETING FOR THE PHILIPPINES [l±J)J TagaytayCity, Philippines June 19-20, 2000

Session IV: Discussion on Aid Utilization and Indications of Donor Assistance

Statement by the World Bank on ODA Portfolio Mobilizing ODA Flows for Poverty Reduction throughBetter Performance

By: Mr. Aloysius Ordu, Principal OperationsOfficer, World Bank

Mr. Chairman, Distinguished Guests, Ladies and Gentlemen:

In his presentation, Secretary Medalla capturedthe impact that the Asian financial crisis and weak implementation capacity had on the performance of the Philippine portfolio and the commendable measures the Government is adopting to address the identified problems. I would like to briefly share our experience with you as it has lessons for others. Despite strong efforts of the Government and the World Bank, the Bank's portfolio performance deteriorated sharply in 1999 vis-A-vis 1998. The number of problem projects and under-performing projects increased from 16% to 34%; commitments at risk rose from $417 million to $1.1 billion and disbursement dropped sharply from $310 million to $152 million.

In response, the Government and the World Bank scaled up their "spring cleaning" efforts designed to turn around portfolio performance and to increase development impact: 9 under-performing or old loans were closed; 4 problem projects were restructured; $300 million was cancelled from 12 projects; and 5 projects were reassessed to work out the operational impact of the crisis-induced peso devaluation. And consistentwith the Government's poverty reductionobjective, the Bank increased its financing share from around 75% to over 90%, in some cases, for poverty alleviation projects. These measures have streamlined the portfolio and the disbursements have improved.

Going beyond the World Bank financedportfolio, the Government spearheadeda joint portfolio review in December 1999 in partnership with Japan Bank for International Cooperation, the Asian Development Bank and the World Bank. In this landmarkjoint review, concrete agreements were reached to reduce the number of problem projects, to improve disbursements and to ensure better project preparedness for effective implementation. Other noteworthy efforts by the Government were the cabinet level inter-agency workshop that was held to resolve the identified problem projects; strengthening of the role of the Office of the President's Flagship Committee in the oversight of all foreign assisted projects; and the increased threshold for Office of the President's approval of contracts from Pesos 50 million to Pesos 200 million.

7// o6, Annex 4a Page 2 of 2

Additionally, the Government has adopted a "project readiness filter" designed to improve quality at entry.

While congratulatingthe Governmenton these actions, we would like to note that we are not completely out of the woods yet. Secretary Medalla rightly confirmed in his presentation that we have not seen or felt any dramatic increase in disbursement. Indeed, the evidence of the last 6 months indicate that some progress has been made on a number of areas but these fall short of agreed targets. About US$ 1.4 billion or 71% of the World Bank's outstandingcommitments remained undisbursedas of end May 2000.

These outcomes emphasize that there are clearly no quick fixes to the portfolio problems. To enhance development effectiveness and reduce poverty will require a deliberate effort by all concerned-the implementing agencies, the oversight agencies, donors and other stakeholders-to take the necessary measures expeditiously to implement these projects.

Accordingly, we would like to urge the governmentto steadfastly implementfour of its expressed commitmentswhich we believe are particularly important for improving portfolio performance. These are:

o focus on portfolio improvementand exerciserestraint with new borrowing o rigorously apply the "projectreadiness filter" to ensure better quality at entry o involve stakeholders and civil society in the design, implementation, and results monitoring of projects to ensure sustainability u pay closer attention to the governanceaspects of project management.

In closing, let me reiterate the World Bank's commitment to support Angat Pinoy 2004. We pledge $264 million in the next 12 months for the following poverty alleviation projects:

o Land Administration & Management($4 million) o Second Local GovernmentUrban Water Supply ($100 million) o Metro Manila Urban Transport Improvement($60 million) o Second Social Expenditure ManagementProject ($100 million).

This modest lending program reflects the Government's desire to exercise restraint on new borrowing and to approve projects only when they are ready for implementation. We respect this and remain committedto scale up our assistance should the Government need it and if the portfolio and macroeconomic performance remain satisfactory.

Maraming salamat po! Annex4b Page 1 of 7 ADB-PhilippinePartnership in Developmentand Poverty Reduction Paperprepared for the ConsultativeGroup Meeting for Philippines,19-20 June 2000

1. Being headquarteredin Manila,the Asian DevelopmentBarnk has a special relationshipwith the Philippines.Currently, the Philippinesis ADB's secondlargest borrowerin termsof numberof ongoingloans. ADB has beena consistentpartner of the Governmentin its developmentefforts since it was establishedin 1967.ADB assistance so far to the Philippinesexceeds $7.5 billion in loansthrough 175 projects and over $110 million in technicalassistance grants through 260 projects.ADB has also responded swiftlyto specialneeds of the Governmentat varioustimes. ADB assisted, for example, the Govemmentin mitigatingthe effectsof the Pinatubodisaster. During the financial crisis,ADB quickly responded to Govemment'srequest for assistancefor fast disbursing assistance,in additionto its normalprogram, to meetthe country'sbalance of payments andbudgetary needs. In linewith Govemment'semphasis on developmentof Mindanao, ADB has alsobeen closely involved in developmentefforts in the island.

2. In 1999ADB adoptedthe visionof Asia and the Pacificfree from poverty,and made poverty reductionas its overarchingobjective to guide all its operations. Henceforth,all its instrumentsof assistanceto its developingmember countries will be assessedon the basisof their impacton povertyreduction. This will apply to loans, technicalassistance grants, its cofinancingand privatesector operations.Within this overallframework, ADB is alsostrengthening its effortsto promotegood govemancein its developingmember countries and to promoteeffective public-private partnership. In the Philippines,where poverty remains a majorsocioeconomic problem, ADB operations with their sharperfocus on povertyalleviation will help addressthis significantmalady. As in other areasof support,ADB's newemphasis on povertyreduction will thus assist Governmentin an area it has placed very high priority on, in its mediumterm developmentstrategy.

3. ADB's lendinglevels have been rising steadily in the Philippineswith 1998 seeing the highestlending level so far of $858 million. In 1999, however,although severalloans had beenunder process for approvalduring the year,only one loan was Annex 4b Page 2 of 7

approved.The high lendinglevels of recentyears, however, have not beenmatched by increaseddisbursement levels, resulting in a high undisbursedbalance of $1.7 billion, and representingpostponed benefits on critical projectsincluding those for poverty alleviation.Faster implementation is necessaryto resolvethis problem.

4. An importantreason for slow disbursementis delaysin disbursementsunder programloans to supportpolicy reformsand institutionalchanges. Of late, such loans have becomeimportant in ADB's portfolioin the Philippines.It is hopedthat with the emphasisrecently being placed by Govemmenton passageof pendinglegislation and concerted efforts to undertake necessary administrative actions, speedier implementationof programloans will occur.

5. In addition,implementation performance of projectloans has also not been very satisfactory.There are often significantimplementation delays, particularly at the start up, resultingin poordisbursement. As a responseto Govemment'sown concerns in this area, Governmentinitiated a joint portfolioreview exercise with JBIC,World Bank and ADB,in December1999. Immediately following this, in early2000 Government identified a numberof measuresthat are necessaryfor bringingabout a generalimprovement in projectimplementation. A processof quarterlyreviews was begunby Governmentin 2000 to monitorprogress on the implementationof such measures.It is hearteningto notethat somemeasures have already been implemented such as strengtheningof the PresidentialCommittee on Flagship Projectsand Programs,to better monitorand effectivelycoordinate ODA project implementation.It is hoped that the rest of the measureswould also be implementedearly.

6. TheADB programfor 2000 andthe forwardprogram for 2001-2003responds to the mediumterm developmentpriorities identified by Govemment.The programplaces very high emphasison povertyreduction with severalinitiatives planned in this area. WithADB's newemphasis on povertyreduction, all the projectsin the forwardprogram will directlyor indirectlyassist in reducingpoverty in the Philippines.In additionto loan projectsdirectly benefiting the poor, the programhas technicalassistance grants for supportinga numberof Governmentinitiatives. These include assistance to align the Annual Poverty Indicators Survey (APIS) with the tr-annual Family Income and ExpenditureSurvey (FIES) and for the Govemment'sintemal participatory consultation Annex 4b Page 3 of 7

process to sharpen its anti-poverty strategy. ADB looks forward to a smooth and early finalization of this process.

7. Promotinghuman developmentthrough better provision of basic social services, such as education, health,sanitation, and housing for the poor, is essentialfor achieving the Government'sand ADB's goal of poverty reduction. This is emphasized,therefore, in the lending program. Advisory technical assistance grants are also being offered to advance human developmentin the country through strengtheningthe policy framework for and institutional capacity of agencies involved in social infrastructuredevelopment. Focusing on areas of high poverty concentration,many of these projectswill also assist in maximizingthe poverty reductionimpact.

8. Good governance is a high priority of the Govemment. It is well recognizedthat much development impact of public programs is lost if leakagesthrough corruption and poor public performanceoccur. The ADB program has therefore respondedsignificantly to the Govemment's serious concerns in this area. ADB's program includes support for sector restructuring and improved regulatory practices in such vital sectors as power, grains production and trade, and civil aviation and railways. Another important area of support is strengthening decentralizationby assisting in the capacity building of local governments. Assisting Government in its anti-corruptionefforts is also an important part of ADB's program. Strengtheningaudit and improving procurement practices are important areas being supported in this context. Other areas that will be assisted are judicial reform and Government'svital project implementationefforts.

9. ADB is placing considerable emphasis on environmental improvement. In addition to an ongoing project to improve air quality in Metro Manila, another major initiative for Metro Manila is planned for 2000. This is the Pasig River Environmental Management and Rehabilitation Sector Development Program for environmental regenerationof the Pasig river system. The forward program also includes assistancefor promoting sustainablemanagement of forestry and coastal resources and development of upland communities. In addition, many of the urban development projects are expected to yield positive impacts on environment, particularly through improved sanitation, and cleaner and environmentfriendly technologies for solid waste disposal, and water supply services. Annex 4b Page 4 of 7

10. ADB is committedthrough its operationsto assistingthe Govemment'speace and developmentefforts in Mindanao.ADB's operationsin Mindanaobegan right from its inception,and with 37 completedand 12 ongoingprojects focusing on Mindanao, ADB's involvementin Mindanaodevelopment has been immense. In the forward program,in addition,five moreprojects will focus on Mindanao.These include projects in rural development,basic education,urban infrastructure,power transmission,and airportdevelopment. The successfulimplementation these projectswill, however,need progressin the climateof peaceand order in the island.

11. For 2000,ADB's lendingpipeline contains five firm projectsfor a total of $495 million.In addition,three standbyloans for another$215 million have been proposed. ADB also intendsto providetechnical assistance grants of $8.7million in 2000 from its regularresources. Additional grants are also beingsought and may be availablefrom the Asian CurrencyCrisis SupportFacility. For the period 2001-2003,the program includes16 firm loanswith a lendinglevel of about$300 million annually, with technical assistancegrants of about$8 millionper year.

12. With the concertedefforts that have been initiatedby Govemmentto improve projectimplementation, it is expectedthat ADB's pro-poorprogram will be successfully delivered. Buildingon lessonsof the past,ADB looksforward to a periodof stronger cooperationwith the Governmentto reducepoverty and betterthe lives of all Filipino people.

SC'abc/speech.doc Annex 4b Page 5 of 7 AsianDevelopment Bank Interventionon Poverty

1. Povertyreduction is the overarchingobjective of the Asian DevelopmentBank. We are thereforeparticularly concerned with povertyreduction in the Philippines,our institutionalhome.

2. ADB is in the processof completinga study of povertyin the Philippinesusing the 1998 Annual Poverty IndicatorSurvey (APIS).The study is titled Povertyand Wellbeingin the Philippineswith a focuson Mindanao.It has been made availablein draftform for today'smeeting for yourfeedback and comments.

3. The studyreveals much of whatis alreadyknown: the poorare disproportionately locatedin Mindanao,the childrenof the poorare lesslikely to be in school,particularly in high school,the poorhave less access to safewater supply and sanitationfacilities, less accessto electricity,and lessaccess to credit.

4. We wouldlike to drawthe attentionof this Group,however, to someof the new findingsthat haveemerged: while ARMM is by far the poorestregion in the country,it is closely followedby Caraga,and WesternMindanao. Furthermore Western Mindanao and Caragaare by far the poorestin termsof the povertygap ratio and the severityof poverty.Extreme poverty is not confinedto Mindanao;Central Visayas follows Caraga andMindanao in termsof the povertygap and severity of poverty.This meansthat most of the poor in these regionsare well belowthe povertyline. Concertedemphasis on investmentsin socialservices, health and education, and attention to incomegeneration, land reform, extensionservices, infrastructure, and microfinancewill be neededto providethe poorwith the meansto lift themselvesout of poverty.

5. Other findings from our study show that being poor has inter-generational implications.While the gap betweenchildren of the poor and non-poorin elementary school participationrate is relativelymodest, the gap widensat the high schoollevel. This condemnsa large portionof the childrenof the poorto a lifetimeof low eamings and self-perpetuatingpoverty. It is crucialthat Govemmentfind waysto promotegreater Annex 4b Page 6 of 7

consciousnessregarding the importance of a high school education and find improved methods to attract and retain the children of the poor in the classroom.

6. Although a shortage of infrastructure is unquestionably a factor in limiting children's access to school, poor quality is an equally important constraint. Lack of interest was cited as the single largest reason for non-attendancein school given by, poor and non-poorparents in the APIS, ahead of the high cost of education, distance to schools, and needingto work. This suggeststhat far greater attentionneeds to be paid to teacher trainingand incentives as well as to the relevanceof the curriculumtaught.

7. Public health facilities are enjoyed proportionallymore by the poor than the non- poor who are more likely to use private clinics and private hospitals. The Rural Health Units are the most popular choice for treatment for the poor but the Barangay Health Stations are under-utilized.This implies that spending more on expanding the former and improving services in the latter will have very favorable impact on the health of the poor.

8. The MediumTerm Philippine Development Plan notes Government'ssuccess in reducing povertyfrom 35.5 percent to 31.8 percent between 1994to 1997. However, it is noteworthy that subsistencepoverty fell only by 2 percent during the same period. This means that even before the crisis and the economic slowdown, the plight of the ultra- poor, one out of 5 Filipinos, who do not earn enough to meet basic food needs, remained virtually unchanged. The Medium Term Philippine Development Plan also provides targets for overall poverty reduction to 2004. As poverty by all indications increased in 1998 over 1997, however, these targets will require massive efforts if they are to be attainedin the remaining period.

9. To this end, the ADB, together with the UNDP and World Bank, is supporting the National Anti-Poverty Commission to develop a National Anti-Poverty Action Agenda. We have been very impressed by the experience and commitmentbrought to this effort by both the Governmentand the Basic Sectors and look forward to the results as these will be crucial to the formulation of our own investmentprogram in the Philippines. We would like to note here as we have noted to NAPC in the past that such a plan must have detailed targets for outputs as well as the inputs requiredto achieve the outputs. Annex 4b Page 7 of 7 As we all recognizethat poverty needs to be measured using more than just the income criterion, other targets such as enrollment in school, immunization coverage, etc. will give a broader indicationof success.

10. The cost of the National Anti-Poverty Agenda must be assessed together with the sources of funds. Only in this way can the Govemment be sure it has mobilized adequate resources to implement the plan. We are aware that the LGUs are expected to fund a large share of poverty reduction. It is necessary to ensure that they have adequate support to enablethem to carry their share. ADB has assistedthe Department of Budget and Management develop the concept of a Local Govemment Support DevelopmentFund to enable LGUs better undertake their developmentrole devolvedto them. Government may consider further examination of this concept to put it into operation.

11. ADB is committed to promoting poverty reduction. Although it has several ongoing projects that will help reduce poverty, it is concerned that implementationhas not been on schedule. ADB has 17 ongoing projects with poverty interventions in agriculture, natural resources, urban development, education and health. All these projects are designed to benefit the poor by helping them improve the productivity of their occupations and gain better access to basic social services. However, over 70 percent of these loans, remain undisbursed. It is necessary that the implementationof these projects be expedited to avoid further erosion of their potential development impact and to ensure that the intendedbenefits reach the poor in time.

12. With its overarchingpolicy objective of poverty alleviation in Asia and the Paoific, ADB will continue to support Government's own initiatives in this vital area. We are confident that with our joint efforts towards this goal a major impact on povertyreduction will be achievedwithin the mediumterm. Annex4c Page I of2

UN Statement for the Consultative Group Meeting 19-20 June, Tagaytay City, Philippines

I Session 3: Progress and Plans on Structural and Public Sector Reform 2 3 The United Nations welcomes the governments more concerted efforts to address critical elements of 4 governancereform, particularlybecause of their potential impact on reaching poverty eradicationgoals. 5 We recognise that such efforts require long-term sustainable interventionson the part of a variety of 6 stakeholders and we therefore encourage government to bring together interested parties in the 7 formulation of such strategies, to ensure commitment and the application of adequate resources. The 8 United Nations gives priority to three of the eight elements of governance presented at the pre-CG 9 meeting, as follows: 10 11 Decentralizationand Convergence. 12 13 The envisaged revision to the Local Government Code and the expectedNational Anti-PovertyAction 14 Agendapresents an opportunityto localizethrough legislationthe national anti-povertyprogramme, and 15 to build local capacities for its implementation.It becomes opportunethus to 16 17 . Build the capabilities of LGUs to assess, prioritise and implement anti-poverty and 18 localized services, and developmentassistance. 19 . Reform NGA policies and procedures,towards streamlinedmandates that focus primarilyon 20 providing policy guidelines and setting technical standards, with resources allocated 21 accordingto agreed poverty monitoringindices. 22 . Ensure that local governmentsput in place participatorymechanisms for private sector and 23 civil society involvement 24 . Develop ODA strategies for decentralization by exploring mechanisms where local 25 governments are able to mobilize counterpart funds and benefit from incentives for good 26 performance. 27 28 The present informal coordination group on local governance should be expanded to include all 29 stakeholders and its work institutionalised in various ways. UNDP would be pleased to support such an 30 effort. 31 32 Enhanced Oversight of Public sector management reform 33 34 The important initiative of re-engineering government deserves full support from the international 35 community, which should also recognise the importance of sustained commitment to what is a long-term 36 process. It is also important to build from the beginning strong elements of ownership within the 37 bureaucracy through effective change management processes, while at the same time providing 38 opportunities for strategic guidance and oversight from other stakeholders,including the trade unions. 39 The goals of poverty eradication and giving priority to devolution should guide the process of reform. 40 41 Effectiveoversight and internal commitmentwould provide also the capacityto build islandsof integrity 42 within the government for anti-corruption interventions. We welcome the governments intention to 43 finalise and implement an anti-corruption action programme to address this important aspect of 44 governance, not least because of the impact it would have on eliminatinganother cause of poverty and 45 marginalisation. We support the citizens as customer, indeed as owner, movement to enhance 46 accountability at all levels and to improve performance. Tri-sectoral plans to localise this agenda deserve 47 support. Annex4c Page2 of 2

UN Statementfor the ConsultativeGroup Meeting 19-20June, TagaytayCity, Philippines

I Within the machinery of government it is important also to focus on the oversight agencies and 2 strengthen their capacity to guide change and provide incentivesfor good performance.For the United 3 Nations the following interventionsdeserve priorityand will be supported: 4 5 . Congressional oversight: work with NEDA/PIDS and policy institutes to strengthen the 6 oversight role and effectiveness of congress members and staff in reviewing budget 7 documents, the anti-poverty agenda and governance init;qtives, including appropriate 8 monitoring systems for assessinggovernance performance 9 . Strengthened audit systems: by building the capacity of COA to conduct performanceaudit 10 for anti-poverty programmes and to involve civil society in monitoring implementationof 11 programmes and projects. Audit systems can benefit from innovationssuch as participatory 12 audit and investigative journalism cum dialogue with local governments. The rights of 13 volunteers and others involved in such activities should be suitably protected from negative 14 influenceson their work. 15 . Justice system reform: with the publicationof the Blueprint of Action for the Judiciarv, a 16 framework is now available to guide interventionsto improve important elements of the 17 justice system. Special efforts are needed to ensure that changes in the system promote 18 equity and social justice. Effective leadershipof donor support for reform is necessary to 19 avoid duplication and inconsistenciesand gaps in the reform process. 20 . Coordinationof ODA: given the priority of governancein donor programmes,it is important 21 to put in place a government led mechanismfor informationsharing and dialogue,to ensure 22 policy consistency and programmaticcoherence with government and other initiatives.The 23 pre-CG meeting providedevidence of the demandfor such a practical mechanism 24 Annex4d PageI of 2 UN Statement for the Consultative Group Meeting 19-20 June, Tagaytay City, Philippines

I UN STATEMENTON PEACE and DEVELOPMENT in MINDANAO

2 3 Peace and Development in Mindanao. 4 5 The issue of Muslim Mindanao has been a critical area for governance for decades. The inherent 6 complexity of working in that region is reinforced today by noting that all phases and aspects of the 7 conflict to developmentcontinuum are in operation at one and the same time. It is also recognisedthat 8 dealing with these issues internationallyis a very sensitive matter, and requires close consultation 9 between the government and its partners. In the interest of finding appropriate avenues to rebuild 10 confidencein peace and developmentin the region, the followingaction agendais suggested: 11 12 1. The hostage crises. It is importantin the context of rebuildingconfidence in the peace process to 13 clearly distinguish between the parties involved in the Sulu and Basilan incidents and the other 14 aspects of the crisis on the main island of Mindanao. A developmentsolution to avoiding similar 15 incidentsin the future is necessaryand feasible with sufficientfocus, resourcesand time recognising 16 that these are two of the poorestprovinces in the Philippines. 17 18 2. The military offensives: In the current intensive series of clashes betweengovernment and MILF 19 military forces, justified as necessaryto restore public order on the highways and to reduce the 20 militarycapacity and territorialreach of the MILF, the govemment has demonstratedits capacityto 21 win battles in the field and to takecontrol of territory. The governmentcould considerat this point 22 to declare a cease-fire, or limit hostilities,and agree on zones of peace, both to give impetus to 23 meaningfulpeace talks and to quickly solve the problem of some half a million evacuees from the 24 Mindanao landscape. Involving reputable national third parties in the peace talks would be a 25 confidencebuilding initiativeand improvethe transparencyof the process. 26 27 3. The evacuees and relief & rehabilitationneeds: Although there may be some uncertaintyabout 28 numbersthere are certainlyan uncomfortablylarge numberof people in central Mindanaowho have 29 been forcedto leavehome as a result of the military offensives.What informationis availableat this 30 time indicates a worsening of conditions in some centres and the need for a more focused and 31 intensiveeffort to meet the needsof the displaced.The governmentmay wish to clarify its approach 32 to the internationalcommunitv on the questionof support for relief and rehabilitation. 33 34 Any sensible plan for rehabilitation should be put in the context of a cease-fire or similar 35 arrangementto halt or limit hostilities.Declaring zones of peace in areas cleared of conflict,without 36 involvingeither the other partiesto the conflict or the intendedbeneficiaries may not be productive. 37 It may be appropriatefor governmentto rethink its approachif communitiesare to be confidentthat 38 it is safe to return home and to begin to rebuildtheir lives. 39 40 Anotherreason to put in place the conditions for a return to normalcyis the impactof the fighting on 41 communityrelations. The dangersof inciting communityconflict will heighten, shouldthe conflict 42 continuefor much longer and shouldthe media continue to portraythe conflict as a strugglebetween 43 different cultures. A positive governmenteffort to provide evidence of the success of the peace 44 process with the MNLF and the capacities shown by communities to live in harmony would be 45 importantat this time. 46 47 4. Peace and development initiatives: Another important role for the internationalcommunity lies in 48 supportingpeace and developmentactivities, to rebuild confidenceand to tackle the root causes of 49 the conflict, the poverty eradication and good governance agenda. There are three windows of Annex4d Page2 of2 UN Statement for the Consultative Group Meeting 19-20 June, Tagaytay City, Philippines

I opportunity in the peace and developmentprocess that collectivelythe national and international 2 partnersmay pursue in the immediateterm. 3 4 Meaningfulautonomy. The solution to the conflict in MuslimMindanao is recognised 5 to involve meaningfulautonomy for the areas involvedand the governmenthas been 6 positive in pursuing such autonomy. The experience since 1997 is reflected in the 7 frustrations within the MNLF, while for the MILF some form of more meaningful 8 autonomyis a possiblesatisfactory outcome to the peace process.Concerted efforts are 9 required therefore to review the draft revised organic law and to identify with the 10 interested parties elements of more meaningfulautonomy, including where necessary 11 the revision of other laws under the present constitution. An inclusive think tank or 12 similar bodycould be charged with revisingthe law in consultationwith all partners. 13 14 Transparencyin governance.Serious concerns exist in Muslim Mindanao with the 15 transparencyand accountabilityof governanceinstitutions. Suitable opportunities should 16 be identifiedto correctthis situation, includingthe electionsnow less than a year away. 17 Donor partnersmay be effective interlocutorsand supportersof these efforts. 18 19 Developmentframework for ARMM and SZOPAD. The core areas of conflict match 20 provinces characterisedas the poorest in the nation. Current government efforts to 21 formulate a developmentframework for Mindanaoare laudableand necessary,but it is 22 importantto also focu§national efforts on transformingthe ARMMprovinces and other 23 areas in SZOPAD.A specificcapacity to conclude and implementa new development 24 strategy for these areas would likely encourage higher levels of donor support being 25 called for by government.In the meantime,we agree that such a capacity could also 26 focus on fast-trackingthe implementationof existingdonor commitmentswithin a more 27 coordinatedand better-manaaedstructure. The proposedforum mentionedyesterday by 28 Sec. Angara wouldbe a useful first stage. 29 Annex4e PageI of2 UN Statement for the Consultative Group Meeting 19-20 June, Tagaytay City, Philippines

I Session 4 Report on UN Indication of Assistancefor 2000 and 2001 2 3 Aid Coordination 4 The governmentand World Bankare to be congratulatedon organisingthe CG in the Philippinesand for 5 doing so also by responding to the findingsof the survey last year on how to improvethe effectiveness 6 of this meeting. The holding of four pre-CG workshops has improved understandingand dialogue 7 between the governmentand the donor community.We would like to express our appreciationto the 8 governmentfor the leadershipprovided in the process, for the presentationof useful documentationand 9 for the substantiveand candid exchangeof views that took place. 10 11 The effectivenessof the pre-CG workshopsand the lessons from other coordinationefforts over the past 12 year, especiallyrelated to Mindanao,poverty alleviation, the environment,and agrarianreform, provide 13 substance for a discussionof how to further enhancethe partnershipbetween government and the donor 14 community.The benefits of regulardialogues include: is 16 . exchanginguseful informationfor programmingand establishingpermanent data bases and 17 informationrepositories 18 . addressingoverlaps and ensuringefficiency in the use of donor resources 19 a developing areas for complementation,as in the case of Mindanao. In spite of adverse 20 political conditions,no dqnor has decided to leave Mindanao.The experienceof working 21 together since 1997, has provided us with lessons that can be useful in enhancing further 22 efforts by government,the church, civil society, businessand combatantsto build peace. 23 . jointly assessing problemareas and developing solutions, in partnershipwith govemment. 24 Under the leadershipof DAR, the working group has establishedthe foundationfor a frank 25 and objectiveassessment of the bottlenecksinhibiting progress in agrarianreform. 26 27 Regarding specific mechanismsfor enhancingthe dialogue between donors and government,we could 28 considerthe following: 29 30 Strategicallylink the multi-yearexpenditure framework to the way donors respondto countryneeds. An 31 agenda for the future would be to explore sector wide approaches that take into account resources 32 mobilized by national government,local government and the ODA community.Also identify cross- 33 cutting issuesto do with developmentcooperation that could be the focus of consultation. 34 35 Regularize under government leadership the dialogues on agrarian reform, governance, poverty 36 alleviation, and the various elements of basic social services. Perhaps, one can envision semi-annual 37 meetingsto ascertainprogress on the measuresagreed upon by governmentand the donor community. 38 39 Adopt a variety of approaches in other areas of development cooperation. building upon existing 40 informalmechanisms, in such areas as local governance,food securitv and nutrition,gender, indigenous 41 peoples,child labour, and HIV-AIDS. 42 43 Explore the use of internet technology to enhance coordination.Perhaps, we could combine the web 44 page of NEDA. with the planned developmentinformation portal of the UN CountryTeam, and the 45 video conferencinafacilities of the World Bank. Posting donor programmesgeographically can help. 46 Listing implementationrates would also be useful. In support of government. U-NDPwould be happyto 47 convene a steeringgroup aroundthe ideaof a developmentinformation portal to give impetusto meeting 48 this need. 49 Annex 4e Page 2 of 2

UN Statement for the Consultative Group Meetincg i , Lft_2yv19-20 June, Tagaytay City, Philippines

I Report on Assistance for 2000 and 2001from trle United Nations 2 3 We are pleased to report that through their regular resources the UNDP, UNICEF, UNFPA, ILO, FAO, 4 WHO and UNAIDS will be providing US$15M for 2000 and $12M for 2001 in support of government 5 programmes related to human development, basic social services, environmental regeneration, rural 6 development and governance. The reductions in regular resource's allocated to the Philippines are a result 7 of global shortfalls in donor contributions to the funds and programmes. 8 9 Please note that these figures only reflect the allocation of our regular or core resource to the Philippines. 10 To avoid double counting, we have not reported the contributions that UN agencies receive for specific II projects and which we manage on behalf of bilateral and other multilateral institutions. 12 13 We are pleased to announce that the ratio of core resources from the UN vis-a-vis trust funds or 14 cost-sharing mobilized from bilateral and multilateral institutions is approximately 1:1. UN 15 agencies are managing close to 16M of cost-shared or trust fund resources put at the disposal of 16 the UN by governments and multilateral institutions For last year's post-conflict programmes in 17 Mindanao, the ratio was close to 1:2. This year, we hope to increase the ratio to 1:4, in preparing 18 a US$12 million programme for peace and development, in support of government and the 19 SPCPD. 20 2 1 We would like to use this opportunity to express our appreciation to bilateral and multilateral 22 governments for their continued trust in the capacities of the UN to manage their resources effectively 23 through various programmes and activities led by government. 24 25 . In support of UN-government programmes on peace and development in Mindanao, we wish to 26 thank Australia, Canada, Netherlands, New Zealand, Norway, Finland, Spain, Switzerland, Belgium, 27 Turkey and Sweden. 28 . In promoting the rights of children, we are grateful for the support of AUSAID; the Canadian, 29 German, Spanish, UK and Japan Committees for UNICEF; the Netherlands and Norway 30 . In the area of reproductive health, we wish to acknowledge the support of Netherlands and Spain 31 . In the area of agriculture, rural development and agrarian reform, we are grateful for the support of 32 Netherlands, Belgium, Italy and Australia 33 . In the area of child labour, Germany, USA, Japan and Finland 34 . For indigenous peoples, Denmark, Netherlands and the AGFUND 35 . For governance related programmes including the Integrated Rural Accessibilitv Planning the 36 Netherlands and AUSAID 37 . For specific environmental programmes, Netherlands, Switzerland, Japan, World Bank, ADB, EU, 38 USAID and OPEC 39 . For microfinance, AUSAID and GTZ 40 . For poverty monitoring, the EU through ASEM and the World Bank 41 . For technology-transfer related projects, Japan 42 . For HIV-AIDS, Australia 43 44 45 We look forward to further collaboration in support of the government's anti-poverty agenda. 46 47 48 Annex4f PageI of 4

PHILIPPINES CONSULTATIVEGROUP MEETING 19-20 JUNE 2000 MANILA

STATEMENTBY MR DAVID SWAN ACTING ASSISTANT DIRECTOR GENERAL EAST ASIA BRANCH AUSTRALIANAGENCY FOR INTERNATIONALDEVELOPMENT

THE GOVERNMENT OF THE PHILIPPINESDESERVES PRAISE FOR THE MANNER IN WHICH IT HAS SUCCESSFULLYWEATHERED THE ASIAN FINANCIAL CRISIS AND RETURNOF THE ECONOMYTO POSITIVE GROWTH. THE BANKING SECTORIS IN RELATIVELYGOOD SHAPE, FISCAL IMBALANCESARE UNDER CONTROL,EXPORTS ARE PERFORMING WELL AND TRADE REFORMSHAVE CONTINUED THROUGHOUTTHE 1990S.

ONE NOTABLE MAJOR MACROECONOMICPOLICY ACHIEVEMENTIS THE TRANSFORMATIONOF THE CENTRALBANK INTO A MORE COMPETENT AND INDEPENDENTINSTITUTION, OPERATING WITHIN THE CONTEXT OF AN OPEN CAPITAL ACCOUNT AND PERFORMINGMUCH BETTER IN ACHIEVING ITS GOAL OF LOW INFLATION.

WITH THE ASIAN FINANCIAL CRISIS AND EL-NINO INDUCED AGRICULTURALCONTRACTION NOW BEHIND IT, THE PHILIPPINE ECONOMY MIGHT HAVE BEEN EXPECTEDTO RECOVER STRONGLYIN 1999 AND THIS YEAR. WHILE THERE ARE SIGNS OF RECOVERY, GROWTH IS LITTLE FASTER THAN POPULATIONEXPANSION. IN REAL PER CAPITA TERMS,THE PHILIPPINE ECONOMYIS HAVING TROUBLE IN RAISING PER CAPITA INCOME. ACHIEVINGA SUFFICIENTLEVEL OF ECONOMIC GROWTH BEYOND THAT REQUIREDTO KEEP PACE WITH POPULATION GROWTH REMAINS A MAJOR CHALLENGEFOR THE GOVERNMENT.

AUSTRALIARECOGNISES THAT ECONOMICREFORM IS NOT WITHOUT ITS SOCIAL COSTS. THE PHILIPPINES-AUSTRALIAVULNERABLE GROUPS FACILITY ASSISTS MAINTAIN AND EXTEND KEY PHILIPPINE GOVERNMENTSOCIAL SERVICEPROGRAMS FOR VULNERABLE GROUPS MOST AFFECTED BY STRUCTURALAND ECONOMIC CHANGE, WHERE THE PROGRAMSARE IN JEOPARDYTHROUGH BUDGET CONSTRAINTS. AUSTRALIAHAS COMMITTED$30.0 MILLION OVER 3 YEARS FOR THIS PURPOSE.

MUCH HAS BEEN ACHIEVED BUT EFFORT IS STILL REQUIRED ON A NUMBER OF FRONTS. FOR EXAMPLE,THE SAVINGS RATE CONTINUES TO BE LOW. THIS INEVITABLYHOLDS BACK GROWTH. THE GOVERNMENT'SFISCAL POSITION CONTINUES TO CAUSE CONCERN. WHILE DEFICIT LEVELS ARE JUST MANAGEABLE,THE TAX COLLECTION EFFORT IS VERY POOR. THIS, COMBINEDWITH THE CONTINUINGDEBT OVERHANG,RESULTS IN A CONTINUINGSQUEEZE ON VITAL PUBLIC Annex 4f Page 2 of 4

SECTOR GOODS - INFRASTRUCTURE,EDUCATION AND HEALTH SERVICES, FOR EXAMPLE.

GOVERNMENTAT THE LOCAL LEVEL CONTINUES TO BE HIGHLY DEPENDENT ON REVENUESTRANSFERRED UNDER THE INTERNAL REVENUE ALLOTMENT.AUSTRALIA HAS OFFEREDTO ASSIST WITH THE REVIEW OF THE IRA TRANSFERFORMULA IN AN EFFORTTO ENSURE THAT THE POORER LOCAL GOVERNMENTSRECEIVE THEIR FAIR SHARE OF NATIONAL REVENUES. LOCAL GOVERNMENTSTOO CAN TAKE ADVANTAGEOF THE REVENUE RAISING POWERS GRANTEDTHEM UNDER THE LOCAL GOVERNMENTCODE OF 1991. AUSTRALIATHROUGH THE PHILIPPINESREGIONAL MUNICIPALDEVELOPMENT PROJECT HAS BEEN ASSISTING SEVERAL CITIES TO IMPROVETHEIR REVENUE RAISING CAPABILITY.

REGIONAL DYNAMICS AND DECENTRALISATIONHAVE BECOME A CRITICAL ISSUE FOR DEVELOPMENTIN THE PHILIPPINES.IN AUSTRALIA'S CASE THIS HAS MEANT THAT, FOR THE FIRST TIME, A LOCAL GOVERNMENTUNIT IS THE PHILIPPINE COUNTERPARTAGENCY FOR A MAJOR AUSTRALIANAID INITIATIVE.THE PHILIPPINES- AUSTRALIA LOCAL SUSTAINABILITYPROGRAM AIMS TO HELP THE PROVINCIAL GOVERNMENTOF MISAMIS OCCIDENTALIN REGION X BETTER PLAN FOR, AND MORE EFFECTIVELY,DISCHARGE ITS RESPONSIBILITIESUNDER DEVOLUTION.THE PROJECT IS EXPECTEDTO PROVIDE AUSTRALIA WITH A PROTOTYPEFOR WORKINGAT THE LOCAL LEVEL IN THE PHILIPPINES.

BECAUSE ANECDOTAL EVIDENCE SUGGESTSA HIGHLY VARIED PATTERN AND EXPERIENCEBETWEEN AND WITHIN REGIONS IN THE PHILIPPINES, AUSTRALIA AGREES THAT IT WOULD BE TIMELY TO COMMISSIONAN INDEPENDENTEVALUATION OF EXPERIENCEWITH IMPLEMENTATIONOF THE CODE. SUCH AN EVALUATIONWOULD BE A USEFUL INPUT INTO INFORMINGDONORS ABOUT WORKING WITH LOCAL GOVERNMENTUNITS.

AGRICULTURE'SPERFORMANCE REMAINS THE KEY TO IMPROVING THE LIVING STANDARDSOF POOR FILIPINOS. ASSISTINGPHILIPPINE EFFORTS TO RAISE RURAL INCOMESWAS THE SUBJECT OF A RECENT JOINT AUSTRALIA-PHILIPPINESSTUDY. THE STUDY PROPOSES: ASSISTANCE IN STATISTICS, INFORMATIONAND ANALYSIS;AND ASSISTANCE THAT ADDRESS THE "SYSTEMIC"CAUSES OF LOW PRODUCTIVITYIN THE RURAL SECTORS, ESPECIALLYAS THEY AFFECT THE POOR. SOME AREAS IDENTIFIEDFOR POSSIBLE ASSISTANCE INCLUDE: RURAL FINANCIAL SERVICES;RURAL ENTERPRISE DEVELOPMENT;MARKET AND TECHNOLOGYINFORMATION FLOWS; RESEARCH, DEVELOPMENTAND EXTENSION;IRRIGATION WATER USE EFFICIENCY; LINKAGES BETWEEN ENVIRONMENTMANAGEMENT AND PRODUCTION;AND LOCAL INSTITUTIONSTRENGTHENING. Annex 4f Page 3 of 4

PEACE IS A NECESSARY PRECONDITIONFOR DEVELOPMENTIN MINDANAO,THE GEOGRAPHICFOCUS OF AUSTRALIA'SAID EFFORT IN THE PHILIPPINES SINCE 1996. AUSTRALIA'SCURRENT ASSISTANCE TO MINDANAO TOTALS SOME $A60.0 MILLION. IN ADDITIONTO SEVERAL SIGNIFICANTPROJECTS, AUSTRALIA HAS PROVIDEDDIRECT SUPPORT FOR THE PEACE PROCESS IN THE FORM OF A CONTRIBUTIONTO THE UNDP EMERGENCY PROGRAMFOR MINDANAOAND THE ESTABLISHMENTOF PASCATS, THE PHILIPPINES-AUSTRALIASPECIAL COMMUNITYASSISTANCE TO THE SPECIAL ZONE OF PEACE AND DEVELOPMENT (SZOPAD).UNDER PASCATS, AUSTRALIAHAS PROVIDED SOME $2.0 MILLION IN SUPPORT OF COMMUNITY-BASEDLIVELIHOOD INITIATIVES.

THE SECURITY SITUATIONIN MINDANAO IS A CONCERN.IT IS HOPED THAT THE PRESENTDIFFICULT SITUATION CAN BE OVERCOMESO THAT THE EFFORTS MADE SO FAR TO ACHIEVE A LASTINGPEACE, SUPPORTED BY THE INTERNATIONALDONOR COMMUNITY,ARE NOT LOST.

AUSTRALIA SHARES THE PHILIPPINE GOVERNMENT'S CONCERNABOUT THE EFFECTS OF GRAFT AND CORRUPTION.GENERAL ECONOMIC REFORMS CAN DO MUCH TO COMBAT THE PROBLEM. FOR EXAMPLE, THE DISAPPEARANCEOF THE BLACK MARKET IN FOREIGN CURRENCY AS A RESULT OF THE OPENING OF THE INTERNATIONALCAPITAL ACCOUNT, AND THE REMOVAL OF MOST NON-TARIFFBARRIERS AND SUBSIDIZED CREDIT SCHEMES,CAN BE CREDITEDWITH BRINGING ABOUT AN APPRECIABLEREDUCTION IN CORRUPTIONIN THE PHILIPPINES. THE EXISTENCEOF A FREE PRESS ALSO PLAYS AN IMPORTANT ROLE.

THE PHILIPPINE GOVERNMENT'SEFFORTS TO MAKE THE GOVERNMENT SERVICE MORE CREDITABLEAND EFFECTIVEARE APPLAUDED.WHILE REFORMS SUCH AS THE RE-ENGINEERINGOF THE BUREAUCRACY,THE MOVE TO RESULTS-BASEDMANAGEMENT, AND AN INCREASING EMPHASIS ON SERVICEPROVISION, ARE MOVING AHEAD, REFORMS LIKE THESE WILL TAKE SOME TIME AND EFFORT TO BE FULLY INSTITUTIONALISED.TRANSPARENCY AND PUBLIC ACCOUNTABILITY ARE ALSO IMPORTANT FEATURES OF ANY ADMINISTRATIVEREFORM PROCESS.

A KEY ROLE IN THE GOVERNMENT'SEFFORTS AGAINST GRAFT AND CORRUPTIONIS PLAYED BY AGENCIES SUCH AS THE COMMISSIONON AUDIT. AUSTRALIA HAS BEEN ASKED TO ASSIST THE COMMISSION STRENGTHENTHE PUBLIC ACCOUNTABILITYSYSTEM IN THE PHILIPPINESUNDER THE PHILIPPINES-AUSTRALIAGOVERNANCE FACILITY. AUSTRALIA, THROUGHTHIS JOINTLY MANAGEDFACILITY, SEEKS TO SUPPORT PHILIPPINE EFFORTS TO PROMOTE GOVERNANCEIN THE PHILIPPINES BY EXTENDINGASSISTANCE TO GOVERNMENTAT ALL LEVELS AND TO CIVIL SOCIETY, INCLUDING BUSINESS, WHERE THEY ARE THE DEVELOPMENTPARTNERS OF GOVERNMENT. Annex 4f Page4 of 4

WHEN THERE IS A TURNOVEROF ADMINISTRATIONS,WHETHER NATIONAL OR LOCAL, LOSS OF INSTITUTIONALMEMORY (AND THEREFORE POLICY CONTINUITY)CAN OCCUR. IT IS IMPORTANTTHAT CHANGES IN ADMINISTRATIONARE MANAGEDTO PROVIDE FOR GREATER CONTINUITY, PARTICULARLYWHERE DONOR ASSISTED PROJECTS ARE INVOLVED.

REFORM OF THE PUBLIC SECTORIN THE PHILIPPINESREMAINS AN IMPORTANT LONG-TERMGOAL. AN EFFICIENT AND EFFECTIVEPUBLIC SECTOR REQUIRES COMPETENTAND COMMITTEDSTAFF WHOSE EXPERTISEAND EXPERIENCEARE SUITABLYRECOGNISED AND REMUNERATED.AUSTRALIA PROVIDES SCHOLARSHIPSIN SUPPORT OF THIS REFORM AGENDA. SOME 224 FILIPINO SCHOLARSHIPHOLDERS, PREDOMINANTLYSERVING PHILIPPINE GOVERNMENTOFFICIALS, ARE CURRENTLY UNDERTAKINGPOST-GRADUATE ACADEMIC STUDIES AT AUSTRALIANTERTIARY INSTITUTIONS. ASSISTANCETO MEET PUBLIC SECTOR SHORT-TERMTRAINING NEEDS IS ALSO BEING PROVIDED UNDER THE PHILIPPINES-AUSTRALIASHORT-TERM TRAINING PROJECT.

THIS IS A CRUCIAL TIME FOR THE PHILIPPINES.IN A COUNTRY TEEMING WITH TALENT, AND GIVEN THE RIGHT MIX OF REFORMS,IT IS POSSIBLE TO LIFT FURTHER THE COUNTRY'SECONOMIC FORTUNES.AUSTRALIA HAS BEEN A LONG-TERM DEVELOPMENTPARTNER IN THE PHILIPPINES. AUSTRALIA'SAID PROGRAM WILL CONTINUETO ASSISTPHILIPPINE EFFORTS TO IMPROVE THE LIVING STANDARDS OF THE POOR, PARTICULARLYIN RURAL AREAS, AND TO PROMOTE SUSTAINABLE AND ECONOMIC DEVELOPMENT. Annex 4g Page 1 of2

CONSULTATIVEGROUP MEETING PHILIPPINES Tagaytay City, June 18-20,2000

STATEMENTBY THEGOVERNMENT OF THE KINGDOMOF BELGIUM

The Governmentof the Kingdom of Belgium extends its gratitude to the Governmentof the Republic of the Philippines for its invitation to this Consultative Group Meeting and would like to commend the Governmentof the Philippinesfor the excellent organization of this meeting in this beautiful setting of Tagaytay City and for the presentations made to the Consultative Group. .

Although the Philippines was recently deleted from the list of 25 privileged partner countries for direct bilateral development assistance by the Belgian Government, a substantial aid package from Belgium will continue to be extended to the Philippines. The on-going programmes and projects will be implemented as committed. The total budget still available for this direct bilateral assistance amounts to about 775 mio BEF, while the implementation of this aid programme could last for another five years or so. The bulk of this amount will be earmarkedfor the further implementationof the Belgian Integrated Agrarian Reform Support Programme (BIARSP) in Region VIl (Central Visayas ) and Region IX (Western Mindanao). This programme is directed at the integrated development of ARCs and the population of the surrounding areas, encompassingagricultural developmentand food security, social infrastructurebuilding, basic rural infrastructure, primary health care, water and sanitation, basic education and small enterprise development. In this way, the programme comes in full support to the poverty alleviation programme of the Philippine Government. In connection with this, the Government of Belgium reiterates its willingness to continue the implementation of BIARSP in the provinces of Basilan, Zamboanga del Norte and Zamboanga del Sur.

The indirect development assistance to this country will continue as in the past, mainly through long-term programmes initiated by Belgian NGOs and implementedjointly with local NGOs/POs. The on-going NGO programmes and projects, with a total budget of 320 mio BEF, are mainly focused on poverty alleviation both in rural and urban areas and on capacity building of the civic society. Annex 4g Page 2 of 2 Also on-going is a programme on institutionalcooperation between the Flemisch InteruniversityCouncil and the BenguetState Universityin La Trinidadand the Saint Louis Universityin Baguio City. Both universitiesare targeting the students of the Cordillera.This interuniversityinstitutional cooperation is programmedfor four years and has a total budgetof 120 mio BEF.

Regarding the multilateral cooperation,the Belgian Governmentwill continue its support to the Philippines indirectly through internationalorganizations like IRRI, ICLARM,the Belgian Technical AssistanceGrant Fund at the Asian Development Bank,IOM and the like.

The programme SZOPAD - NEDA - UNDP / Multidonor will remain a priority for the Belgian Governmentas it aims at the promotion of Peace and Developmentin Mindanao.

It might be worthto note that all the abovementioned direct and indirectdevelopment assistanceis givenon a untiedgrant basis.

The Governmentof Belgiumhas equallycontributed to the economicdevelopment of the Philippinesby granting several state-to-stateloans in the past, and is willing to continueto do so in the future.This, however,can only be achievedby full cooperation of the PhilippineGovernment through a timely identificationof projects,acceleration of the appraisalprocess and early implementationof the approvedprojects. All too often bureaucratic proceduresand lack of inter-departmentalconsultation has lead to unnecessarydelays and often outrightcancellation of worthwhileprojects. It is sad to note that since 1996 no new state-to-stateloan could be grantedto the Philippines, while from 1970to 1996 loansworth BEF 1,5 billionin total have been grantedfor 14 projects. Another windowfor assistingin the economicdevelopment of the Philippinesis the financing facility through providing Supersubsidiesfor developmentprojects. This window will also remainavailable in the future. Such a packageof Supersubsidyhas been made available for the project "Cleaning and deepening of the Pasig River throughdredging", for the amountof BEF 345 mio,while another one for the installation of CentralSolar Electrification systems in remoteareas is underdiscussion.

Finally,the Governmentof Belgiumshares the concernof the donorcommunity on the peaceand ordersituation, a prerequisitefor a sustainablesocio-economic development of the country.Therefore, Belgium calls with insistencefor all effortstowards peace in the entirecountry. Annex 4h Page I of 4 STATEMENT OF THE CANADIAN DELEGATION CONSULTATIVE GROUP MEETING FOR THE PHILIPPINES JUNE 19-20,2000, TAGAYTAY CITY, PHILIPPINES

Mr. Chairman, distinguished delegates, ladies and gentlemen, on behalf of the Government of Canada, I join others in thanking the Government of the Philippines and the World Bank for coordinating this annual dialogue between the governmentand donors.

Canada is pleased that this year's annual meeting is being held for the first time in the recipient country. It brings us closer to reality. In particular, it provides us with a better understandingand exposure to the development challenges we are all working towards addressing.

At last year's CG meeting, we listened to the key elements of the newly-crafted Philippines' medium-term development plan. We hailed the government's plans to reduce poverty, pursue market-friendly reforms, and improve governance. It is very fitting that this meeting focuses on progress achieved on implementation and future plans and directions.

Canada notes the economic recovery begun in 1999, with GNP growth of 3.6 percent and GDP growth of 3.2 percent. However, recent developmentssuggest that the Philippinescould end up as Southeast Asia's underachiever this year. Indeed, sustaining the growth momentum is a critical challenge for this administration. In this regard, there is a need to restore confidencein the economy by ensuring a stable environment, conducive to development.

In early February this year, CIDA's President, Mr. Leonard Good, had the opportunityto travel to western Mindanao. He was generally impressedby the developmentthat was taking place in many areas, in particular in the small town of Datu Paglas where a combination of leadership, commitment, and investment has brought development to the area.

Canada's comments at this meeting will focus on three key areas of real concern to us. We believe that addressing these issues will be central to the governnent's success in reducing poverty and accelerating growth.

Private sector development

The success of any poverty reduction initiative lies in the government's capacity to provide an enabling environment for greater private sector participation. The private sector, as the engine of growth, can provide capital, develop skills, use appropriate technology,and manage information to raise productive capacity, generate employment opportunitiesand increase family incomes. Annex 4h Page 2 of 4 Statement of the CanadianDelegation, CG Meetingfor the Philippines, 19-20 June 2000, Philippines

To expand private sector participation, Canada will continue to work with viable institutions and organizations that can address the constraints faced by small and medium enterprises (SMEs) and cooperatives in their effort to add value to the national economy. We believe that SMEs have tremendous potential to create jobs and contribute to growth.

Effective, transparent and accountablegovernment

We commend the Government of the Philippines for commissioning the World Bank study, "Combatting Corruption in the Philippines". The government recognizes that inadequate governance, lack of transparency and corruption divert scarce resources from productiveactivities and pro-poor programs. The public sector is faced with serious problems of overlappingmandates of departments/agencies,low employee morale, relativelylow client satisfaction,slow passage of key legislation, and slow application and enforcement of existing policies. Affirmative action by government in these areas will inspire confidence and create an enabling environmentfor sustained growth.

There remain arbitrarymeasures in Philippine statutebooks, dating back to the Marcos dictatorship, which limit growth and yet are entirely within the power of the Philippine government to remove. We urge the governmentto move towards the speedy passageand implementationof key legislation to eliminate uncertainty, influence peddling and potential for corruption which collectively undermine confidence and discourage private sector participation. The recent passage of the E- commerce bill is a step in the right direction.

Graft and corruption remain major constraints to equitable development in the Philippines. They divert scarce resources, disadvantage the poorer groups within society and deny the benefits of development to a large portion of the population. Graft is not only an issue of governmentbut also of the private sector, as it is often a partner in bribery.

Canada is pleased to note that a national anti-corruption framework and strategy have been developed. We call on the political leadership to translate the framework and strategy into time- bound and performance-based actions, make available the necessary resources for its effective implementation and put in place a reporting and monitoring system that allows the participation of civil society and interest groups.

We are also pleased to note the heightened commitment and interest of the judiciary at the highest level to pursue judicial reform. Upholding the rule of law and ensuring that justice is served expeditiously and fairly are fundamental principles that should guide the reform process.

The Government of the Philippinescould do so much to raise public confidence if it were to show resolve in dealing with some high-level cases of corruption and theft of state assets. As noted in the Annex 4h

Statement of the Canadian Delegation, CG Meetingfor the Philippines,19-20 June 2000, Philippines Page 3 of 4

World Bank study, only by "flying some big fish" will the Philippines convince foreign and domestic investors that progress is being made.

We are encouraged by the measures being taken by government to strengthen expenditure management, particularly the installation of a performance-basedbudgeting system as these will ensure greater transparency, accountability and optimumuse of resources.

We likewise call for a comprehensive,strategic and decisiveapproach to governmentreorganization and reform of the civil service. New institutional arrangements and practices to pro-actively deal with a new and changing environment are required.

With reorganization, there is a critical need to meet the needs of government personnel for knowledge and skills, to deal with new paradigms. Consolidationand mergers in the banking and finance sector, for example, pose new challenges for regulatory policies and practices. Lack of exposure to technological advancementhas blocked initiatives for innovationand the upgrading of public services.

The success of the medium-term plan rests on an expressed recognition of the daunting responsibilities bestowed on LGUs in bringing about meaningful development. This requires not only a willingness by the LGUs to assume these responsibilitiesand increased resources from the national government but also and, more importantly, a tremendous change in mind-set that will allow the transition to a more effective devolution.

In this respect, we believe there is a need to invest in massive capabilitybuilding to achieve renewed agency mandates and allow devolution to take place. We also urge government to adopt an integrated approach to development at the local level in step with decentralizationand devolution. This will enable government to feel the pulse and be more sensitive to the communities' needs and priorities. We are prepared to collaboratewith governmentand other donors to bring this integrated approach to fruition.

Of course, as lower levels of government assume greater responsibility,they too are feeling the crushing burden brought on by an unsustainable rate of population growth. All services, but especially health and education, are falling behind. The number of poor is increasing as those least able to afford more children are denied - through cost, inadequate supply and lack of proper education - the means to control their family sizes.

Canada is pleased to note that we will continue to support good governanceby working closely with national government agencies, LGUs, and civil society organizations, facilitating dialogue and encouraging greater coordination and collaboration among them. We expect our assistance in this area to lead to more effective social and economic planning, policymaking and implementationin a number of sectors and a more participatory decision-makingprocess. Annex 4h Statement of the Canadian Delegation, CG Meetingfor the Philippines, 19-20June 2000, Philippines Page 4 of 4

Peace and order in Mindanao

The problem of peace and order in Mindanao is impacting upon the national economy and thus all parts of the country. It has stalled development activities in the area and has undoubtedly discouraged some investment in the country. We are concernedwith the consequentdestruction and waste the conflict has brought to the lives and property of many families, especially women and children.

We support the quest for a peaceful solution to the decades-longconflict in Mindanao. The 1996 Peace Agreement,which has opened the doors to increaseddonor support and investment, must be implemented. Peace is a pre-requisite to development. And, with development is the promise of a more lasting and sustaining peace.

Canada reiteratesits long-term commitmentto developmentin Mindanao,where poverty is prevalent and the need for increased and better basic social services and rural development is greatest and where more than 60 percent of CIDA's resources to the country are invested.

In closing, we would like to confirmonce again our support to the Philippines' development agenda. We will continue to make every effort, in partnership with government,business, other donors and civil society, to provide a positive contribution to the realization of its agenda. Annex 4i Page 1 of 4

Consultative Group Meeting for the Philippines Tagaytay City, June 19-20, 2000

Statement by the French delegation

Mr Chairman, distinguished delegates, ladies and gentlemen,

When we met last year in Tokyo, in March 1999, the Philippine economy was just emerging from a period of turbulence, caused by the economic and financial crisis in the region and the effects of the El Nino phenomenon. We then commended the efforts made by the Government to curb the effects of this crisis, and underlined the resiliency shown by the Philippine economy in the face of this shock. However, the donor community made it clear that there was no room yet for complacency, and urged the Philippine Government to speed up the implementation of the reforms in order to consolidate the recovery and meet the medium-term growth targets of the Development Plan. Several areas of reform were listed as vital for the success of the growth strategy of the Government, in particular the improvement of revenue performance and the consolidation of public finance, the fight against corruption in the administration and the private sector, the development of an efficient and competitive environment for foreign direct investments and the improvement of basic social infrastructure to support poverty reduction.

What has been done since then ?

1. The macroeconomic performance of the Philippines has been mixed.

* GDP growth has strongly recovered in 1999, from 0,7 % in the first quarter to 4,9 % in December 1999, thanks to a strong agricultural recovery, the buoyancy of exports, and some fiscal pump priming. However, a slowdown has been registered in the first quarter of 2000 (3,4 %), domestic demand is still sluggish, and the country is now lagging behind many of its Asian neighbors in terms of growth. The conflict in Mindanao, and its impact on agricultural production and investor confidence, as well as the ongoing consolidation of public finance will make it difficult to meet the growth target of 4-5% for this year. Annex 4i Page 2 of 4

* Notwithstanding a recent acceleration (4,1 % in May 2000, compared to a historical low 2,6 % in January), consumer price inflation has remained remarkably under control, in spite of the economic recovery, the surge in oil prices and the rise in wages. With the recent rise of 125 bp in BSP interest rates, it should remain within the target of 5-6 % this year.

* The fiscal performance has been rather disappointing in 1999. The national government deficit target was increased several times to take into account shortfalls in tax revenues, but none of the revised targets has been met. The deficit finally reached 3.6 % of GNP, more than 1 /2 point of GNP than the initial target, and government revenue has declined from 18.5 % of GNP in 1997 to 15.2 % in 1999. These developments damaged the credibility of the Government, and weakened market sentiment. In this respect, the method chosen for the preparation of the 2000 Budget (i.e. disbursements of public expenditure conditional to revenue performance) seems appropriate, and we strongly applaud to the commitment by the Government to stick to its deficit target of 62.5 billion pesos (1.8 % of GNP) for 2000, and to reach a budget balance by 2003. The results on the first four months of this year were encouraging, but this effort needs to be sustained, as shown by the disappointing results of May. In particular, once again, we encourage the Philippine Government to press ahead with the reform of tax administration, in order to improve revenue collection: some progress has undoubtedly been achieved since last year, but the BIR clearly needs more to become more efficient and be cleared of remaining suspicions about the quality of its governance.

+ Vibrant export growth and weak domestic demand have provided for a strong improvement in the country's external position: the current account surplus reached 9 % of GNP in 1999, compared with 2,3 % in 1998, and the balance of payments registered last year a surplus of USD 3.8 bn. Gross external reserves are now close to USD 16 bn, or 4.8 months of imports. The local banking system has shown a better resiliency to the crisis than in other countries and is being strengthened by the central bank, through a consolidation process and regulatory reforms we strongly support. However, this situation is still vulnerable, because of the very low domestic savings rates of the Philippines: as soon as the recovery strengthens, the trade surplus will vanish; moreover, as shown by the net outflows of portfolio and direct investments in January- February 2000, the decline by 37 % of FDI in 1999, the weak performnanceof the Philippine stock exchange or the depreciation of the peso in the last few months, foreign investors seem to be losing confidence in the prospects for the Philippine economy. Annex 4i Page 3 of 4

2. Are they right ? We do not think so: the Philippine economy has undergone large-scale structural changes since the mid-1980ies and it is now a relatively competitive economy. There is no compelling reason why its long-term growth prospects should remain below those of its Asian emerging neighbors. However, the problems that account for the sluggishness of the Philippine economy in the last few months need to be addressed as soon as possible.

First, weaknesses in governance need to be dealt with very quickly: the allegation of stock price manipulations on the local stock market have taken a heavy toll on investor perceptions, and raised concerns about the authority of market regulators and transparency. The Government has strongly emphasized the need to address the issue of governance, and asked the World Bank to make recommendations with a view to devise a comprehensive strategy against corruption. The Bank submitted a very useful report on this issue, but it is now urgent for the Government to draw up its own strategy and implement it with determination. The more the rules of the game will appear clear, stable, resolutely and independently enforced, the more the country will be able to draw foreign savings to finance its development.

Second, the pace of structural reforms needed to open the economy and create an investor-friendly environment needs to be accelerated. Many delays have been registered in the implementation of major economic reforms, due to slow enactment of legislation. If the Retail Trade law and the New General Banking Act have finally been signed, several key measures are still awaiting the approval of the Congress, among which the Securities Regulation and Enforcement Act, and the Omnibus Power Sector Bill, that will allow for the privatization of the National Power Corporation. Creditor protection remains low, in spite of the new rules for SEC-administered process for suspension of payments.

Finally, with a growing public sector debt, a depreciating peso and declining government revenues, too many resources are now devoted to debt service, at the expense of more useful social expenditure. As pointed out by the World Bank, there are some weaknesses in the provision of public goods: in particular, there is still a lot to be done to enhance the access of the poor to education and basic health care services, and to improve the quality of urban infrastructure. Therefore, on the medium term, priority should be given at enhancing internal revenue rather than cutting social and investment expenditure in the fiscal consolidation process. Much could also be done to improve the efficiency of the delivery of public services, by reforming the civil service and rationalizing procurement. Annex 4i Page 4 of 4

To conclude, Mr Chairman, France is confident in the ability of the Philippine economyto rebound and get back on a path of strong and sustainableeconomic growth. A lot has already been done, but more efforts are still needed to regain the confidence of foreign investors. We strongly support the efforts of the Filipino Government to implement its program of reforms.

Thank you Mr Chairman. Annex 4j Page 1 of 4

ConsultativeGroup Meetingfor the Philippines Manila, June 19-20, 2000 Statement by the Representativeof the GermanGovernment Mr. Lothar Zimmer Director South-East Asia Division Federal Ministryfor Economic Cooperationand Development(BMZ)

Ladies and Gentlemen,

The Philippines was within the group of those five countries heavily affected by the Asian crisis. However the initially less negative economic impact was due to the relatively its quite stable financial sector and to the more reform-oriented policies of the past years. Consequently, it seemed that these favourable for economic recovery. But unfortunately,the positive ingredients for an accelerated normalisation are far from being effective. Most macro-economicdata - except from exports of electronic and software goods - are currently developing rather disappointing. One of the main concerns in our view is the weak propensity to invest of domestic and foreign companies and remarkable problems regarding public revenues and deficit spending. Tendencies of weakness within the domestic financial markets and losses on the Peso exchange rate are reflecting the growing domestic and foreign concerns on the economic and political development of the Philippines.

Another concern is that the process of structuralreforms is nearly coming to a standstill.The opening statement for the pre-CG workshop on economic and corporate governance by Secretary Diokno gives a detailed account on all those key areas where performance falls short of expectations. Similarly the World Bank report "Philippines- Growth and Equity: The Remaining Agenda" draws a rather gloomy picture if the following will not be dealt with vigour:

* Increasing of public revenues, particularly by improving the tax administration- a very critical issue which was already raised at previous CG meetings. * Reform of public administration, including administration and timely absorption of foreign assistance where problems seem to increase. * Improvingthe efficiency and predictability of justice. Annex 4j Page 2 of 4

Without an active response to these areas, the Philippinesrisks falling short in comparisonto its neighboring countries. Markets inspite of good potentials will be lost with all the consequencesfor the labour market and social peace.

There are some critical issues on the bilateral project levelwhich I need to raise briefly:

* procedural issues still lead to significant delays in a number lot of projects especially regarding financial cooperation * budgetary constraints have led to considerable delays and even to the cancellation of bilateraldevelopment projects * approvalprocedures, in particular ICC approvalneed streamliningand shortening

Mr. Chairman,there are encouragingdevelopments since the last CG meeting in Tokyo which I would like to mention.

First, a most difficult issue affecting a large part of our Co-operationProgramme has been solved in a very co-operativeand responsiveway. I am referring to the system of Community Based Forest Management, as introduced some years ago by the DENR. A constant, constructive dialogue with the Government and representatives of DENR contributed substantiallyto define acceptablesolutions to the problemof sustainableforest management.I would like to particularly to thank Secretary Cerilles and his staff for having provided the possibility to pursue a policy, which seems acceptable was by all international partners involved. This is a good example of how a constructive dialogue and early co-ordination among donors and the govermnent can contribute to identify viable solutions. I do hope that this avenue will serve for comparablesolutions.

Secondly, our endeavors to improve impact, significanceand efficiency of our cooperation received last year an important boost. Our two governments met for an intensive, cordial review of the overall bilateral DevelopmentCo-operation Programme. We discussed ways to improve planning and preparation of projects as well as resource management.Furthermore we succeededin agreeing on focal areas for future Financialand TechnicalCo-operation. Annex 4j Page 3 of 4 Hence we will concentratein future on:

* basic health (includingreproductive health), * urban and industrialenvironment protection, * water supplyand sanitation, * vocationaltraining * natural resourcesmanagement and * rural development

We also agreed to strive for a better interrelationshipand complementarityof the two main instrumentsof bilateral co-operation,i.e. technicaland financial co-operation.

During the same venue with NEDA we also met our major co-operation partners in various line agencies and ministries which contributedto a better understandingof NEDA's role in the Government structure. I am particularlygrateful to SecretaryMedalla for having provided this useful forum and also for having personally moderatedits proceedings.

Similar venues do bear good opportunities to open new perspectives on potentials and problems in our co-operation.They also provide for [ ], true ownership. We do know that this process will even be more arduous in times of rapidly changing personnel, of reduced government "plantillas" and severe competition between the private sector and the public service to successfully attract the best and the "brightest". The early preparations of potentiallynew project within the scope of agreed focal areas and taking into accountspecific comparable advantagesof certain aid investments- and also their limitations- create a good starting point when it comes to allocate funds amongst recipient partner countries.

In many ways it will take not less than the best and the brightest, to overcome existing or remaining problems especially real poverty alleviation and social stability. This includes also our commitmentto contribute to the peace process in Mindanao. We feel that the efforts of the donor communitiesand GOP so far have gone in the right direction, but the political and social gaps within and with the rest of the country remain immense and need active attention by all. This includes also the gradual building up of a functioningcivil society as a defense mechanism against mischeckeduse of power. This can, only be done in a joint effort with the Philippine Governmentand its legitimate local co-operationpartners. Needlessto say that this Annex 4j Page 4 of 4 is only possible in an environment that will, at any time and in any place, guarantee the security of external and local personnel alike.

Last, but not least and for some of us more important than all other contents of the speeches held, the pledging figures:

Subject to parliamentaryapproval, it is foreseen that my government will negotiate with the Philippine Government next year for a 2 year period an ODA amount of 73 million DM (51 million DM for Financial Cooperation, 22 million DM for Technical Cooperation)which is nearly the same level as for the period 1999/2000.

Thank you. Annex4k Page1 of 4 Remarks by Ambassador of Japan Yoshihisa Ara on the Occasion of The ConsultativeGroup Meetingfor the Philippines

DistinguishedDelegates, Ladiesand Gentlemen...

Magandangumaga po sa inyong lahat. (Good morning to you all.)

I would like to begin by saying that it is my great pleasure to be able to participate in the first Consultative Group Meeting held in the Philippines, and speak on the subject of aid utilization and indicationsof donor assistance.

AID UTILIZATIONAND INDICATIONSOF DONORASSISTANCE

1. BASIC POLICYOF JAPANESE COOPERATIONWITH THE PHILIPPINES

Japan has long regarded the Philippines as one of the top priority countries in terms of ODA assistance, and has actively provided assistance to the Philippines to promote its sustainable economic development. Recently, since the beginning of the Asian currency crisis, Japan has initiated its New Miyazawa Initiative and Special Yen Loans Facility to support the recovery of the Philippines.

On the other hand, given Japan's difficult economic situation and budgetary austerity, the Japanese people are becoming less generous with Japan's Official Development Assistance (ODA) budget. To convince the Japanese public on the necessity and importanceof ODA, it is indispensablethat our ODA must be implemented effectivelyand efficiently, with transparency and accountability. In this regard, I would appreciate the continuation of the recent efforts undertaken by the Philippine government to improve ODA disbursement. It is understoodthat ODA disbursementproblems cannot be resolved over a short period of time, and that they need to be followed-upin the longer term.

11.INDICATIONS OF ASSISTANCE

Japan considers it important to not only work out and implementsound macroeconomicpolicy, but also to take measures in favor of the general public, in particular, the socially vulnerable,in order to attain sustainable economic growth in the Philippines. From this point of view, Japan will continue to carry out well-balanced assistance efforts to contribute to the social and economicdevelopment of the Philippines.

The emphasis of our assistance will be put on the following four priority issues and areas set out in the recent High-Level Consultation on Economic and Technical Cooperation between Japan and the Philippines; (I) strengthening of the economic structure for sustainable growth; (2) mitigationof disparities, including poverty alleviation and mitigation of regionaldisparities; (3) environmental protection and disaster management; (4) human resources development and institutionbuilding as a cross-cutting area.

The assistance efforts that follow reflect these priority issues and areas: Annex 4k Page 2 of 4 A. Loan Aid

For the 24'h Yen Loan, Japan is prepared to give prior notification of pledges totaling 59.987 billion yen to 10 projects in the previously mentioned4 fields (sustainable economic growth; mitigation of disparities, including poverty alleviation and mitigation of regional disparities; environmentalprotection and prevention of disasters; and human development and institution building).

First, to assist in strengthening the economic structure for sustainable growth, we are going to extend yen loans to three projects: the Arterial Road Links Project (Phase V), the Metro Manila InterchangesProject (Phase V), and the SelectedAirports DevelopmentProject (Phase 11).These projects will strengthen the economic infrastructurefor the transportation sector, and make economicactivities in rural areas more efficientand productive.

Second, to assist in mitigating disparities, yen loans will be extended to the following three projects: the Rural Road Network Development Project (Phase III), the Help for Catubig Agricultural Advancement Project, and the Sustainable ARC Settlements Agricultural DevelopmentProject in Mindanao. These projects will contribute to the mitigationof regional disparitiesand poverty alleviation by assisting in the developmentof rural areas.

Third, we are also financing three projects designed to assist environmental protection and disaster prevention. The first project is the Northern Palawan Sustainable Environmental Protection Project, which will cope with the urgent need to prevent the destruction of the environment,particularly the destruction of coral reefs in the Philippines. This project will contribute to not only the preservation of the environment, but also to the creation of new employment,and, as a side effect, increased regional development. The other two projects are the Agno River Integrated Irrigation Project (Phase II-B) and the Laoag River Basin Flood Control and Sabo Project. These projects will improve living conditions by reducing flood damage in rural areas.

Fourth,to assist human development and institution building, we are undertakinga project: the Expansion of the National Maritime Polytechnic Institute and the Upgrading of Tacloban Training and Facilities Project. This project will expand and construct training centers in response to the 1995 revision of the STCW treaty (the convention on the Standardsof Training, Certification, and Watchkeeping). We expect that this project will improve the abilities of Filipino seamen by improving training systems, which will lead to a reduction in maritime accidents,as well as contribute to the preventionof ocean pollution.

With all of these new commitments for the 24"' Yen Loan, and together with the Special Yen Loan alreadycommitted since the last year's CG meeting,the Governmentof Japan is extendinga total of 134.1billion yen to the Philippines.

B. Grant Aid

Now I wish to explain to you the grant aid disbursed by the Government of Japan to the Philippines in fiscal year 1999. The grant aid extended in fiscal year 1999, which included technical cooperaton and development study programs is expected to amount to about 16 billion yen. The details of the projects involvedare as follows: Annex 4k Page 3 of 4 1. Grant-AidProjects

Grant-aid projects are carried out to improve the medical-care system, educational facilities, regional medical services, and they also cover non-project grant aid, projects to increasefood production,and projects for flood management.

2. Technical Cooperationand DevelopmentStudy Programs

In regard to technical cooperation,in fiscal year 1999, Japan accepted more than 400 trainees and has dispatchedabout 125 experts. In addition, more than 15 projects under project-typetechnical cooperation are now underway.

Specifically,we have been implementingprojects for health care, including AIDS prevention, projects for the improvement of living conditions in rural areas, and project-type technical cooperation for agricultural development. Moreover, we have recently started projects to improve the administrative capacity of the province of Cebu, as one of the implementationof "Obuchi Plan," aimed at human resourcesdevelopment in Asia.

With respect to 1999'sdevelopment study programs, 15 projects are now being implemented,of which seven have just begun. These new projects are being conductedto improve transportation, flood management, agricultural production, general waste processing, mining industry, natural gas processing,and urban drainage systems.

Lastly, I would like to draw once again your attention to the problems surroundingthe VAT in the implementationof grant-aid projects. I will appreciategreatly the early and positive response to this problem of the PhilippineGovernment, as on its solution dependsthe further and smoother continuationof grant-aid projects.

III. , Conclusion

As conclusion, I reiterate that the Government of Japan will continue to support the Philippine government'sefforts to achieve sustainable social and economic development,as in the past, in view of the importance of the Philippines not only for Japan but also for the development and stabilityof this region.

Thank you. Maraming salamat po. Annex 4k Page 4 of 4 CORRECTION

In the Remarks by Ambassadorof Japan YoshihisaAra on the Occasion of The Consultative Group Meeting for the Philippines, "The Agno River Integrated IrrigationProject" shall be read as "The Agno River Integrated Flood Control Project." Annex 41 Page I of 4 SpeakingNotes CG. Meetiig 19-20 June 2000 NetlherlandsDelegation

I. As this is the first time I take the floor, let me join other delegations in comnplimentingthe Govermnent of the Philippines and the World Bank for organising the C.G. in the Philippines, and thank the Government of the Philippines for the excellent arrangements and hospitality.

7. I would also like to compliment the Govermnent of the Philippines and the World Bank for the excellent documentation and last but not least for organising the pre-C.G. neetings, which provided an excellent opportunity to exchange views in depth on the various topics on the agenda today and have therefore greatly facilitated the preparations for this meeting.

1. Recent Socio-Economic Developments, Achievements and Challenges

1. The good news is that the presentations made this morning on socio-economic developments present a picture of fairly sound economic fundamentals.

2. The bad news is that the picture is much more complicated and alarming due to the security situation in Mindanao and other parts of the country, even Manila, and its consequences for tourism, agricultural output as well as business and investor confidence. One may add to these the perception of cronyism, corruption, a weak judiciary system and a slow process of structural reforms and privatisation. One of the greatest challenges the Government is facing is how to repair the damaged image of the Philippines, which has completely neutralised the positive developments since we met in Tokyo last year.

3. These efforts should not only be based on sound policies and good intentions, a general characteristic of the C.G. meetings, but also on measurable objectives and results. If policy objectives are not met by budget provisions and transparencyon resource allocation and as a result lack quantifiable results, no government can be successful on the road to sustainable development.

4. This is in particular valid for the Philippines where the incidence of poverty is relatively high and the lack of political will to implement an effective population policy is hampering development efforts with serious consequences for the quality of basic services, such as housing, education and health, now and in the future. The military operations in Mindanao will put even extra pressure on the budget.

5. This underscores the need for income generation through privatisation and tax reform, a matter, which, although the need is recognized by this and previous governments, does also not receive sufficient political support. There is also a need for maldng the Philippines more attractive for foreign investors by expanding the scope for incentives and by reducing the limitations on foreign ownership.

J. Under these circumstances the need for donor support from international financial institutions as well as bilateral donors is of even greater importance for implementing governmental policies. The increasing awareness by the donor community of the imnportanceof good governance as a prerequisite for successful development efforts, presents the Philippine Government an additional challeihge. Annex 41 Page 2 of 4

7. We recognizegovernment's efforts to furtheropen up the economythrough liberalization, enhancingcompetition and easingbarriers for the entry of more participantsto the economic sectors (e.g. bankingact, retail liberalizationact,), however,there is a need to continuously ensure minimaldislocation and adverseeffects of economicreforms to the poor and other vulnerablesectors of society.Further adequate information on the backgroundand objectivesof liberalizationare requiredto limit the growingresistance towards globalization.

8. The role of the Local GovernmentUnits in developmentis of crucialinportance. Strengthening the institutional capacity and increasing income generation capacity of LGUs will be essential to utilize these decentralizedagents of developmentto the fullest extent.The weaknessof the institutionalcapacity in the AutonomousRegion for MuslimMindanao (ARMN) is one of the main reasons for the slow deliveryof tangibleresults in the ARMM

9. The Netherlandswould like to supportthe observationsmade by the UN on the challengesthe Governnent of the Philippinesis facing in the implementationand coordinationof the National Anti-PovertyAction Agenda and in particularmonitoring progress in poverty reduction.The UN-systemand the World Bankcould play an importantrole in assistingthe govemrnmentin developinguseful tools to track progresson povertyalleviation and decidewith greater transparencyon resourceallocation.

H. Progressand Planson PovertyReduction Policies and Programs

1. We concur with the Government'sfocus to directpoverty programs to basic social services which will enable the vulnerablesectors to participatein the economyand improvetheir living conditions:enabling the poor to help themselves

2. One of the most pressingissues in implementingpoverty reduction policies and programmesis the inadequatelevel of resources,and thereforethe high dependencyon donor support as long as improvedincome generation by the Governmentis no reality.In fact the many departments responsiblefor basic social servicescompete with each other for funding.

3. What I miss is an analysisabout the allocationsand actual disbursementfigures to these basic servicesover the past 10 years, for instancein the World Bank report.Is the pro-poorapproach of the Estrada administrationindeed reflected in the budget allocationsand actual disbursements?

4. In this context, greater private sector participation in addressing poverty goals should be encouragedthrough an enablingenvironment conducive to investmentsgeared towards employmentand incomegeneration.

5. Whilewe agree with DAR'scommitment to strengthenits supportservices to the agrarian reforn communities(ARCs), continuing concem to land transferactivities should be cornplementedby exploringother approachesto fast track the CARPprogram Annex 41 Page 3 of 4

III. Progressand Planson Structuraland PublicSector Reforms

1. What the WB report Combatingcorruption in the Philippinesclearly shows is that there is a widespreadperception that corruptionin the public and privatesectors is pervasiveand deeprooted.

2. In additionthere is perceptionthat the "big fishes" are not fried and can escapeprosecution. It remainsa low-risk,high rewardactivity in which even the legislativeand judiciaryare involved.A societyeven a democraticone, which allowsthis to continue;is doomedto disintegratefrom within with seriousrisks for democracy.

3. Againstthe backgroundof this rathergloomy picture, it is hearteningto note that the EstradaAdministration has taken initiativesto fight corruption.However, we agreewith the WBthat these initiativesmust now be unified underone concertedprogram with a strong leadership and managementstructure. Indeed how do the variousinstitutions such as the Office of the Ombudsman,the Civil ServiceCommission, the PresidentialCommissions on GoodGovernment and againstGraft and Corruptionand the Inter-AgencyAnti-Graft Coordinating Council, how do they coordinatetheir interventionsand policies.One personin chargeof spearheadingthe Governmentefforts, as recommendedby the WB may give more direction.As the documentprovided by the Government"A snapshotof PhilippineGovernance" rightly states unless initiativesto combat graft and corruptionare effectivelyimplemented, they will remain meaningless.The documentdoes not comment howeveron the issueraised by the WB on coordinationand leadership.

4. Last but not least, my delegationwould like to suggestthat Good Governancebe placedas a permanentsubject on the agendaof the CG,allowing donors to assessthe effectivenessof the Government's anti graft and corruptionefforts, as an importantelement in assessing the effectivenessof their ODAto the Philippines,as well as Foreign DirectInvestments. At the end of the day it is not talk but actionthat sets the standard. Annex 41 Page 4 of 4 IV. Aid Utilizationand Indicationsof DonorAssistance

1. The discussionsover the past 2 days have clearlyindicated the need for continuingODA to meet the developmentpriorities of the PhilippineGovernment. I agree with the WorldBank that for assistanceto be forthcoming,however, there is a need to restore the record of aid utilization,which has deterioratedsharply in recentyears, a concernthat has been expressed over and over again duringthe past C.G. meetings.

2. I mentionedthe other day the importanceof 'good govemance'as a prerequisitefor effective developmentprograms, and increasingtherefore e.g. a conditionfor sectoralsupport.

3. It is clear that the securitysituation in someparts of Mindanaohas an impact on the progress of implementationof ongoingprojects, in particularin ARMM A delay of the peaceprocess and continuationof militaryoperations against certain muslim factions will create a situation whichwill require in the first place humanitarianassistance for the hundredsof thousands displacedpersons. Requests for donor supportfor new projectsin Mindanaoand especially ARMMwill thereforemeet some reluctance,although the lack of developmentin ARMMis one of the imnportantcauses of the present unrestin the area.

4. Duringone of the pre-C.G.sessions the questionwas raisedhow donorfundsshould be channelledto ARMM It seems to me that autonomymeans first and foremosta say in the allocationof resources,which does not necessarilymean a blank cheque.In view of the weak institutionalcapacity, the assistanceof for instancethe UN familycould be soughtto assistin implementingdevelopment programs with the full participationof the target groupsand local NGO's and specialemphasis on institutionbuilding through HRD. This is actuallythe approach the Netherlandshas been following.UNDP, UNFPA and ILO have receivedfinancial contributionsfrom the NetherlandsGovernment for this purpose.

5. In general,there is a shift from a project-basedto the Moreprogrammatic/strategic approach. With plans for a gradual phasing out of ongoing activities in the other sectors, possibilities will be exploredfor the adoptionof a sectoralapproach in the environment(with biodiversity/ protectedarea managementand integratedwater managementas priority subsectors)and Private Sector Developmnent.Future comrnmitrnents of the Netherlandsaid programmein the Philippines will focus on the environmentsector, with emphasison biodiversityand watem-anagernent.The level of our financialcommitments will dependon conditionsconducive to sustainable development,such as aid utilizationand good governance.

6. I shouldalso mentionthe considerablevoluntary contributions to UN and specializedagencies and funds, as well as throughthe EuropeanUnion, the BrettonWoods Institutions, the Asian DevelopmentBank etc. Furthernore,I shouldlike to mentionthe successfulNetherlands FellowshipsProgramne, which is alreadyfor more than twentyyears open to post-graduate studentsfrom the Philippinesand of which more than 2,000 Filipinoprofessionals have availed. I also refer to the considerablesupport that has been given by NetherlandsNGCYs in strengtheningand cooperatingwith counterpartorganizations, helping to create a strong civil society,which is an importantelernent of any democracy.Total disbursementlevels of the NetherlandsGovemrnent and DutchNGO's in the Philippineswill reach a level of at least USD 15 mnl in 2001. Annex 4m Page 1 of 2

STATEMENT BY HE GRAEME WATERS. NEW ZEALAND AMBASSADOR

CONSULTATIVE GROUP MEETING: TAGAYTAY: JUNE 18-20. 2000

New Zealand is pleased to participate in this meeting of the Consultative Group for the Philippines. I wish to add our thanks to the World Bank and the Government of the Philippines for the excellent preparations and arrangements for the meeting. I would also like to say I am very pleased to see it taking place here in the Philippines.

New Zealand is celebrating the 25th year since it first opened an Embassy in the Philippines. During those 25 years our bilateral Overseas Development Assistance (ODA) programme has been an important part of our relationship and we remain a committed donor.

We are also a relatively small donor, but are very pleased to be able to announce an increase for the next financial year to $3.3 million or US$ 1.6 million. We like to focus our assistance in areas where we have particular expertise, and of course we want to ensure our programme is consistent with the Philippine Government's objectives. We are pleased to note that the Govermnenthas made some progress since we last met on its economic reform agenda. A number of key items of legislation in the Governmient's reform programme have recently been passed. We appreciate this process is often difficult, but believe maintaining the momentum of reform is important to keeping the Philippines on a sustainable growth path.

We also commend the strong statements of commitmentby the Philippines Government to the elimination of poverty, the peaceful development of Mindanao and the combating of corruption. We look forward to seeing tangible progress towards achieving these goals.

I have said New Zealand is a committeddonor. Our largest project in the Philippines is the Bukidnon Forests Inc (BPI), a commercial sustainable plantation forest in Mindanao. In New Zealand ODA terms this is not only a large, but a very long-term project. The plantation is an impressive sight. It was intended to be a model based on the premise that, if the Philippines wishes to reverse the process of deforestation, it needs to attract private investors to plant trees for commercialbenefit.

BFI has illustrated some issues relating to forestry in this country and donor-assisted projects more generally. Most of the problems we have faced with BFI have not been technical ones - we have shown that trees can be grown on a commercial scale here - but regulatory and political. It is important to have a strong commitment and political will from Philippines Government agencies. But even more importantly,there needs to be a regulatory environment that provides a helpful framework to operate in, rather than a hindrance. There also needs to be quick disbursement of counterpart funds and a commitment to solving problems as they arise.

In that context we were very pleased to see President Estrada endorse the outcomes of a Forestry Forum sponsored by New Zealand, the Finnish Embassy, the ADB and DENR Annex 4m Page 2 of 2 earlier this year, which outlined an action plan for sustainable forestry in the Philippines. We hope this will translate into a practical effort to ensure the policy environment for forestry is one that attracts investors and new plantings. We also need to confront the reality that a rapidly growing populationplaces new strains each year on forests and other natural resources.

Over the past 25 years we have had a longstanding commitment in the Geothermal Sector, and will continue to provide HRD assistancein this area. Looking ahead we are focussing on a few other areas where we believe we can provide effective assistance. One is in the area of Governance. We are hoping to work with the Department of Budget and Management to set up a facility to help them carry out streamlining of the public sector. We believe increasingcapacity in the public sector, and ensuring it is run efficientlyand without corruption, is as critical in the Philippines as it is elsewhere.

Governance issues have come to the fore in many donor strategies. Combating corruption, undue influence and lack of transparencyin decision making is a concern for all of us. Failure to do so not only undermines investor confidence, but also that of donors. It translates into project delays and ineffective disbursement, and can be a deterrent to outside involvement. There needs to be assurance that assistance is reaching and benefiting the people at whom it is targeted.

We are also now in the beginning stages of a project on coastal resource management on Camaguin island and are looking at helping the Department of Tourism with its goal of producing a strategy for eco-tourism. We will be hoping to coordinate with the other donors who we know are already working in these areas.

A large percentage of our ODA programme goes towards human resource development and education and training. We recently completed a five year In-Country Training Programme (ICTP) to build up planning and project preparation skills of local government units. Traditionally our tertiary study awards scheme has concentrated on scholarshipsto New Zealand Universities, but we are now offering a much wider choice of courses. This includes not only University courses, but also a wide variety of subjects on offer at our Polytechnics. Filipino scholarship students travelled to New Zealand to study a range of subjects including Environmentaland Development studies, Nutrition, Applied Science, Business and Administration, Journalism, Animal Science, public healtlh, plus others. This is an important part of the programme and we are continuing our commitment to it.

A statement that does not mention Mindanaowould not be complete. Like most donors, much of our bilateral programme is focussed there. Two of our larger projects are in the Mindanao region. We contribute to developmentefforts in support of the peace process through contributions to UN agencies. We have also provided a number of one-off grants under our Head of Mission and Small Projects funds to people in the region. We strongly believe that this is a region with much potential, which should be the food basket of the Philippines. We look forvard to the restoration of a peaceful environment there, and to working with the Government and local communities to enable Mindanao to realise its full potential. Annex 4n Page I of 4

CONSULTATIVEGROUP MEETING SPANISHSTATEMENT

Thank you Mr. Chairman:

First of all p ease allow me to commend the Government of the Philippines and the World Bank for organizing the 23Id Consultative Group Meeting and the excellent organization, documentationand hospitality extended.

Spain, in the recent years, has experienced a close partnership with the governmentof the Philippines to undertake the challenging task of addressingpoverty and providing quality of life to the Filipino people. Consistent with both countries' priorities and due to this promising ccoperation, the Philippines has become the main beneficiary of the Government c(f Spain's Official non-refundableDevelopment Assistance (ODA) in Asia.

Our cooperation and development assistance is now a substantial part of the bilateral relations between the Philippines and Spain, and during the most recent years there has been a constaat tendency to expand the scope and increase the number of programs. In 1999 alone, g:ants extended to the Philippines amountedto approximatelyten millionUS Dollars, 580/c of which was directed to our main focus of intervention, Poverty Alleviation. The rest of the mentioned amount was allocated mainly to the modernization and assistance to institutions related to our common historical heritage (18%), technology transfer (10%>and to educational cooperation (14%).

This year we expect to conduct a joint review of our development cooperation results and define future directions and sectoral priorities to generate Spain's future country strategy for the Philippines which we hope to conclude before the end of this year and to have approved dur.ng the Fourth Joint Commission 2001-2004.

We have idertified the following sectoral priorities: Basic Social Needs for the Poor, Improvement of Private Sector/Strengtheningof Economic Structure, Modernization of Institutions ead Support to the Peace Process in Mindanao. Each of these priorities is reinforced by the following horizontal principles: the fight against poverty, equal rights and opportunfties,sustainable environment, human development and good governance.

It goes witho it saying that those sectoral priorities are closely related to the socio- economic agenda of the Government of the Philippines. Annex 4n Page 2 of 4

1. Poverty alleviation is constantly highlighted in President Estrada's government program as a major goal and Spain takes note of the efforts by the present Administration to fight poverty as well as its macroeconomicreforms. NTevertheless, the magnitude and high incidence of poverty continue to prevail in the country affecting the urban and rural population and allowing inequalities in the distribution of income. We believe that continued acceleration of the main socio-economic reforms is considered indispensablefor the success of this joint effort.

2. We commend the Philippine government for its commitments to fig-t graft and corruption in order to achieve the necessary environment for the desi-e economic development of the country.

3. We are please to see the emphasis placed by the government in improving access to affordable family planning service to the Philippine people.

4. We are encouraged by the action undertaken by the National Government to carry out the necessary devolution and decentralization of its departments 03 the local governments. We are also helping some of those local govermnents.

5. The Government of Spain considers a successful peace process in MAindanaoas fundamental for a sustainable economic and social development not only in the area but also for the rest of the country. In this endeavor, the Government o Philippines has also Spain's support.

6. We are in line with other delegations in the emphasis for the need of mrodernization within the Bureau of Internal Revenue.

And now I would like to give the floor to my colleague from the D:partment of Economy.

Thank you Mr. Chairman:

Over a year has now passed since the last CG meeting was held in Tokyo, and where all the delegations pledged their official support to the Philippinegovernment and praised its economic team on how they managed to minimize the negative effects of the Asian financial crisis. Today we can clearly observe which countries, among those which were seriously affected by the financial crisis, are finally on track to full recover,. Hopefully we can learn from their experience, especially on how they are moving forward towards economic, and in certain cases, political stability.

In the case of the Philippines, it is clear from the economic standpointthat it has not been a bad year. Annex 4n Page 3 of 4

On the other hand, it is only fair to state that it should have been a better one. It is true that the economic fundamentals are moving in the right direction, GDP is within the targets set by the medium and long term economic program showing a real growth rate during the first quarter of the year of over 3%. Inflation is lower than predict2d, with the Central Bank (BSP) playing a major role in securing a stable financial system. And the export performance, principally from the special economic zones, has proven quite impressive with some help from the strength of the US dollar.

In addition to the economic fundamentals,another key factor which all donors consider prior to designating funds for development assistance is the level of confidence. In this respect, we would like to stress that Spain is confident in the future of t-2is country. However, if we wish to spread this confidence to reach not only the policy makers, but also our foreign businessmen, then we believe that certain issues have to be addressed, and we should learn from our experiencesin the past.

Confidence is a critical component which is difficult to erect, but can very easily be destroyed, even if the causes may be somewhat unfortunate circumstances. It is our humble opinion that the best way to sell the country overseas is by giving clez;rsignals to the economic agents in this globalized world. We know that the Philippine gcvernment is moving in the right direction, but it is a matter of concern that some incidents in the recent past, especially in the financial and capital markets sector, could erode :he constant efforts made by the Government to achieve its goal of giving all the Filipino people a better quality of life. In addition, allow me to indicate some other specific i:sues which have proven to be of a concern to us.

The first is related to the (electric bill act) Power Privatization Act. All t e countries involvedwere informed by mid May that the act would be signed. We all uncerstand that the delays are due to important factors and circumstances, but in this respect we urge the Philippine government to speed up the approval process. We believe that this law will, in the long run, pave the way to a more level playing field among companies. benefit the Philippine citizens and the corporate users through lower power rates, and is likewise expected to fuel more confidence in the country by showing that the go ;ernment is sincere in pushing through with the structural reforms that the country needs in order to improve the economic environment and, as an ultimate goal, to reduce poverte.

Furthermore, we applaud the efforts being made by the World Bank tc encourage structural reforms as a conditionality in their development programs. We stroniglybelieve that only if the appropriate conditionswithin the appropriate environment are created can this country be in a position to tackle the much needed economic developr.ient agenda which is based on the goal of poverty alleviation.

In this context, we fully endorsed the conclusions made by Secretary Diokn- at the pre Consultative Group Workshop on economic and corporate governance last June 5. It was stated very clearly where the problems lie. We offer all our support to assist in finding solutions to these problems. Annex 4n Page 4 of 4

Finally Mr. Chairman, on the bilateral side, allow me to commend the collaboration provided by NEDA in the development of the Spanish assistance program. We concur with NEDA's goals of pursuing transparency,fairness and the best project value through a bidding process. Recent pronouncementsfrom the Economic Coordinating Councilthat they are studying ways to improve the current process proves that the top Government policy makers are cognizant of the problems and are moving in the right direction towards resolving these concerns. In line with this effort, we would like to stress that we are ready to collaborate with the Philippine government in identifying and reducing the bottlenecks experienced with some executing agencies in the implementation of the selection process: bottlenecks that, if left unremedied, may eventually influence on the disbursementsof finds in certain projects.

May I likewise state that we are also ready to participate in the development of specific areas of the country, especially in Mindanao. At the same time, we urge the government to find ways to stabilize the political situation in this rich but underdevelopedregion so as to create the appropriate conditions for the ec'onomicsustainability of the area .

To conclude, I wish to announce that the Spanish pledge for the year 2001 is divided in two parts: one is related to development cooperation where Spain is going to provide grant assistance for an amount of 10 million dollars and the second portion is a pledge for disbursement of soft loans of 50 MUSI) for 2001.

Thank you very much and good day. Annex 4o EMBASSYOF SWEDEN Page I of 3

MANILA 2000-06-15

Remarks by the Swedish Delegation at the ConsultativeGroup Meetirn for the Philippines19-20 June 2000

I would like to join those congratulating the Government of the Philippines for the very solid preparatory work being done for this CG meeting. The preparations have been characterised by a high degree of co-operative spirit on the part of the Government as well as commendable frankness in a continuous dialogue with donors on how to strengthen the pace of reforms and to address remaining structural obstacles in the Philippine economy.

I will limit my remarks to a few observations of interest to my Government based on the excellent background material prepared by the World Bank

Economic policies pursued over the last decade have shown positive results and recovery after the financial crisis seems to be under way. But this has not yet in any substantial way translated into development which benefits the poor. Official statistics indicate that poverty incidence remains high, particularly in rural areas. Sweden would like to see the stated intentions by the administration being translated into concrete action and the obstacles to successful implementation of the poverty reduction programs, not least at local government level, overcome.

Closely linked to the poverty reduction is the management of natural resources and the protection of the environment For Sweden this is an area of high priority in the development co-operation with the Philippines. Poverty in rural areas and increasing population pressure has accelerated the degradation of forests, watersheds and marine resources. This in turn has accelerated urbanisation and thus also contributed to growing urban health hazards such as air and water pollution, the risk of infectious diseases etc. To enhance the capacity at both central and local level to protect the environment and to ensure compliance with the environmental laws seems to us to be of urgent priority. Annex4o Page2 of 3 2000-06-15

To secure successful implementation of these policies a strong commitment by the Government to create an environment that will breed good governance is essentiaL The continuous strengthening of institutions and effective law enforcement are necessary measures. The Government also needs to take the lead in changing the political culture and the perception at different levels of society of what constitutes good governance. The report by the World Bank on corruption gives an excellent overview of the situation and the measures that need to be taken to address the problem. The strong commitment of the administration to carry out in fil World Bank recommendations is encouraging.

Mindanao I would like to voice my concem over the extremely difficult humanitarian situation presently experienced by the civilian population of the conflict- ridden parts of Mindanao.

The recent resumption of peace talks between govemment officials and those of the Muslim groups involved will hopefuLy lead to a lasting improvement of the current situation on Mindanao.

The Swedish Govemment hopes that the recent escalation of violence in Mindanao as well as on the neighbouting islands can be resolved peacefully. We support the Philippine Government in its endeavours to reach a peaceful solution of the conffict in Mindanao which is a prerequisite for development and economic growth in the region.

Together with her partners within the European Union, Sweden is ready to continue the current co-operation with the Philippine Govemment in its efforts to create conditions to carry out necessary reforms and combat widespread poverty in the Mindanao region. Bilaterally,Sweden has supported the first phase of the SPCPD-NEDA-UN multi-donor program and will assess the possibilities for future engagements within the current country programming exercise.

Sweden's development co-operation

Sweden's development co-operation with the Philippines is not based on any annual allocation, but each project is judged on its own merits. Consequently, Annex4o Page3 of 3 2000-06-15

the disbursement figures have tended to vary considerably during recent years, from a high of 24 million USD to a low of 4 million USD in 1998. For the calendar year 1999, development co-operation disbursements amounted to some 32 million SEK (1 USD = 8,70 SEK/April 2000).

Swedish assistance comprises contract-financed technical co-operation, concessionary credits and support through NGO's. Within the technical co- operation program, priority is currently given to projects supporting processes and institutions which are essential for a continued positive economic and social development, consolidation of democracy and ecologically sustainable development. The current projects aim at broadening of relations between Sweden and the Philippines transfer Swedish know-how and technology to the Philippines. An increasing share of the co-operation programme has been devoted to environmental projects. Assistance has so far been given in fields such as Water Resources assessments, Civil Aviation, Air Quality Control, Support for the Agrarian reform programme, environmental management programmes, national statistical information systems etc. Sweden is presently assessing its future development co- operation with the Philippines. Annex 4p Page I of 3 United States Delegation Statement Consultative Group Meeting for the Philippines Tagaytay, Luzon: June 19-20, 2000

Mr. Chairman,the U.S. delegation is pleased to take part in this Consultative Group Meeting for the Philippines.A more appropriate focus for the meeting could not have been chosen: alleviatingpoverty in the Philippines. The Philippines can reduce the root causes of poverty by increasing the pace of economic growth.

The Philippines was slow to recognize the trend toward a global economy as it gradually emerged from the 1960s through the 1980s. As a result, some of the Philippines' neighbors -- the famous "Asian Tigers" -- embraced the new opportunitiesearlier than the Philippines and pulled ahead in terns of income growth and poverty reduction. But with the restoration of democracy and stability over the past two decades, the Philippineshas begun to catch up. It weathered the Asian Financial Crisis more easily than some of its neighbors and has maintained one of the world's highest rates of export growth for several years.

The challenge now is to maintain the pace of progress. In an increasingly competitive global economy, the Philippinesmust not risk falling behind again. In today's economy, the penalties for failing to keep up are much more severe than in the past.

We would like to commend the Philippines for its investmentin education. We believe that its highly educated workforce will be key to its future competitiveness.However, if the Philippines is truly committedto alleviating poverty, it must devote attentionto three key issues: governance,family planning, and stability.

Governance

In today's global economy, investors have choices. They demand stable economic and legal conditions, as well as promise of significant return on investment.If investors feel these conditions are absent, they move their money elsewhere. Improved governance can attract investment that will lift more Filipinos out of poverty.

The United States is increasingly orienting its assistance towards anticorruption, pro- transparency efforts. We are emphasizing the areas of procurement reform, customs administration,tax administration,competition, and judicial reform. Sustained efforts in these areas must be complementedby continued progress in the whole range of pro-competition initiatives that are moving forward, including securities and banking regulation, energy generation and distribution, telecommunications,shipping, aviation, and grain marketing.

We note that the Supreme Court recently approved a blueprint for reform that shows great promise for streamliningcourt procedures, reducing corruptionin the judiciary, and improving relations with executive agencies that have regulatory and enforcementresponsibilities. If fully implemented,such legal reform will help encourage investmentand economic growth. Annex 4p Page 2 of 3

Family Planning and Health

Another great challenge to alleviating poverty in the Philippinesis the country's rapid population growth. The mid-year 1999 Philippine population of 79 million will increase to 127 million by 2030 even with moderate fertility decline. Under this scenario,the equivalent of 46% of the current populationof the United States will live on 3% of its land area. This demographic situation will have grave consequences for the Philippines'economic growth, social welfare, and environment.It is therefore vital for the Philippinesto support individual families in reducing fertility.

We believe that two management innovationsare needed in the family planning program. The first is expandingprivate-sector provision of family-planningservices. In 1999, USAID helped establish the FriendlyCareFoundation Inc., a private-sectorfoundation that provides financially sustainable,demand-driven family planning and health services to lower-middle and middle- income groups. The second innovation is to focus on providing information and services that accompany access to birth control products. More informationand services will reduce perceived risks and improve maternal-child health. The third innovation is to work in partnership to promote entrepreneurialleadership in the mobilization of domestic funds for financing contraceptives. Specifically,we believe that the Government of the Philippines could best demonstratecommitment to sustainability of the country's family planning program by including a line item in its national budget for the procurement of needed contraceptives. From our perspective,this single measure would go a long way towards achieving self reliance in family planning and deepening the Filipino sense of national pride in its achievement of population, health, and developmentgoals.

Finally, we would like to commend the Government'shighly effective efforts in HIV-AIDS prevention and management, along with new efforts in tuberculosisand malaria.

Stability

Finally, violence and regional strife act as obstacles to economic growth and poverty alleviation. Recent events in Mindanao have injected a note of uncertainty into the prospects for the Philippine economy. Instability in Mindanao hurts not only Mindanao but the country as a whole, as potential foreign investors divert resources to countries perceived as "safer bets." Governmentalone cannot manage an economy that remains competitive.Without private sector investment,development and poverty alleviation will remain incomplete.

We hope that a negotiated settlement in Mindanao will restore confidence soon. In the meantime, USAID is accelerating its efforts to assist the Government in providing services that will help prevent any serious downturn in Mindanao. As you know, the United States believes it is important that the Government of the Philippines and the intemational donors redouble efforts to foster stability in unstable areas of Mindanao through economic assistance and programs to spur economic and social development there. We look forward to discussions during this ConsultativeGroup session about strategies to increase the effectivenessof programs designed to reduce tensions. More broadly, we hope to discuss ways to reduce bottlenecks and bureaucratic obstacles that are holding up programs in Mindanao and elsewhere. The U.S. Delegation would like to emphasize the urgency of accelerating implementationof projects in the pipeline for Annex 4p Page 3 of 3

Mindanao. This is badly needed to offset the impacts of the recent kidnappings and bombings on the economy and improve the well being of the region. We are aware that the security situation may make program implementationdifficult in some cases. However, with the pipeline estimated at over $1 billion, we believe there is a substantialopportunity to respond to recent events. We should take full advantage of this opportunity.

Conclusion

In Conclusion, Mr. Chairman, the U.S. delegation would like to emphasize our belief that the Philippines is poised to become a strong player in the global economy. However, it must ensure that the conditionsthat attract and retain investment are in place. Effective and accountable governance,renewed efforts in family planning, and security and stability are preconditions for lasting economic growth. The United States is helping and is poised to continue providing support in these areas.

Thank you. Annex 4q Page l of 3

Asian Development Bank Intervention on Reforms

1. The Asian DevelopmentBank's (ADB's) lending operationsin recent years have increasinglyemphasized support for Government'sreforms in vitalsectors of the economy.With the Government'sincreased emphasis on speedingup economicreforms, particularly since the mid-1990s,ADB's lending program has begun reflectingincreased policy-based lending, in supportof Government'sefforts at usheringin neededpolicy changes in critical areas. The reformprocess obtained a furtherimpetus during the financialcrisis when systemic weaknesses were exposedin the functioningof the economyin severalkey areas. At Government'srequest, several newprogram loans were approvedby ADB. Thesereflect the importanceGovemment attachesto bringingabout structuralchanges in the economyto improveoverall economic performanceand better living conditions.

2. Severalof ADB's programloans in recent years havebeen of particularsignificance. These include support for such diverse areas as capital market reforms, power sector restructuring,grains sector reformsincluding restructuring of the NationalFood Authority, and reformsto improvethe environment.Reforms in these areasimpact on the functioningof vital sectorsof the economy,and thereforetheir smoothimplementation is a matterof concernof boththe Governmentand the ADB.

3. ADB's Capital Market DevelopmentProgram Loan approvedin 1995, for instance, helped the Governmentin its efforts to improve stock market functioningthrough greater transparencyand disclosure,improve govemance in the workingof the stockexchange, better protectinvestor interests, and strengthen regulation. Several of the reformswere contingent on the enactmentof the SecuritiesAct, which althoughdelayed, has madeconsiderable progress recentlytowards final passage by Congress.

4. In the powersector, ADB's Power Sector Restructuring Program Loan approvedin 1998 supportsthe Government'srestructuring initiatives in the sector.These include privatization of power generation, development of a competitive market in electricity, strengthening transmissionand distribution.The restructuringis expectedto improve the efficiencyof the power sector as a whole and result ultimatelyin lowertariff for consumersthat are high by Annex 4q Page 2 of 3

regional standards.The restructuringprocess, however, involves several prior executiveand legislativeactions. The OmnibusPower Sector Reform Bill, whichlays out the basic legislative frameworkfor the restructuringprocess, is now likely to be enactedsoon. Action is necessary still, however,on improvingthe NationalPower Corporation's (NPC's) financial position prior to the sale of NPC's assets. Releaseof loan tranchesfrom the PowerSector Restructuring ProgramLoan have been delayedpending action on thesefronts. ADB's plannedinvestment supportfor 2000 in the transmissionarea could also be delayedif theseneeded actions take time to be implemented.

5. ADB recentlyapproved the Grains Sector DevelopmentProgram, which will assist Governmentin overallreform in the grainssector, including restructuring of the NationalFood Authority (NFA) by separatingits regulatoryand trading functions.The reformsin the grains sectorenvisage stabilization of rice pricesat marketlevels, implementing a targetedsafety net programfor the poor,maintenance of adequatebuffer stocksand adoptinga transparentrice import policywith abolitionof NFA'smonopoly over rice imports.The reformswill help farmers obtain better prices for rice, improve productivityin grains productionthrough support for researchand developmentand investments in rural infrastructure.

6. ADB'sprogram loans in the environmentsector provide support for reformsthat bring in changes in environmentpolicy particularlyfocusing in their impact on improving the environmentalconditions of Metro Manila.ADB's Metro ManilaAir QualityImprovement Sector DevelopmentProgram Loan approved in 1998and the PasigRiver Environmental Management and ImprovementSector Development Program being processed for approvalsoon in 2000 are expectedto makea substantialimpact on the metropolitanenvironment. Government's speedy action to enact the CleanAir Act demonstratesits determinationto act quickly in this area. However,actual implementation of necessaryinstitutional measures, such as establishinga vehicularemissions control system, is takingtime.

7. While structuralreforms are necessary,they do often entail temporaryhardships for some affectedgroups. It is necessarytherefore to see that speedyameliorating measures are put in place to reduce such hardshipsand enable those affectedto adjust quickly. The Governmentmay alsoconsider improved information dissemination to the publicat large about the benefits of these reforms. Often, owing to partial information being available, Annex 4q Page 3 of 3 misconceptionsabout the intent of the reformsarise which leads to difficultiesin mustering supportfor the reformmeasures, delaying them to the detrimentof the public.

8. ADB's support for implementingGovernment's reform initiativeswill continue.The Governmenthas soughtfurther assistance in several areas such as in the nonbankfinancial sector,export development, education and health. ADB looksforward to continuedcooperation with the Governmentin theseareas in our commonquest for speedydevelopment and poverty reductionin the Philippines. Annex 4r Page 1 of 2 PHILIPPINES CONSULTATIVE GROUP MEETING Tagaytay, 19-20 June 2000

STATEMENT BY THE EUROPEAN COMMISSION

The European Commission wishes to compliment the Government of the Philippines and the World Bank for the organisation of the Consultative Group Meeting and the excellent documentation.

The year that has passed since the last CGM in Tokyo has brought to the Philippines much needed economic recovery after the Asian financial crisis but has put the present administration to a difficult test.

On the economic front, we note the positive (GDP) growth of 3,2% achieved by the economy in 1999 that followed the slight decline in 1998. Agriculture has been the driving force behind last year's economic growth. The industrial sector, which resumed its recovery by last year's end, could become the main engine of economic growth of the present year. Also, the continuing dynamism in exports will underpin a modest acceleration in growth during the current year bringing it to the 4 to 5% range.

One of the pillars of growth of the pre-crisis years in the Philippines was investment. In recent years, 1998 and 1999, investment has been falling in real terms only to see a slow resumption in the current year.

In order to fully exploit your country's opportunities we believe that more could be done to enhance investors' confidence. The Philippines certainly offers a significant number of advantages for potential investors like a skilled population, a democratic society, a world language, English, spoken broadly by its population and relatively liberal trade and capital regimes.

Substantial improvements in the Philippines' infrastructure including telecommunications, environment and energy can be envisaged. Business hesitations to invest in the Philippines, often based on the perception of a complex environment to operate, could be overcome by a continuous reform process.

We note the important reforms recently announced by the Government. However, we have the impression that the pace of reform in the Philippines has not been sufficiently sustained. There seems to be a need for further institutional reform, focusing in the areas of structural, regulatory and macroeconomic policy management, including judicial procedures, accountancy practices and taxes.

As the recent Asia crisis demonstrated, relations between economic and social policies are not clear-cut: to operate properly, sound economic policies need also an enhanced socio- economic balance. Economic reforms should be complemented by a social policy framework, both to ensure a capacity to address the social consequences of inevitable cyclical downturns and to foster a flexible labour market and to upgrade the investment in human capital necessary for growth. Annex4r Page2 of 2 Failure to properly address growing inequalities between rich and poor, or between urban and rural populations facilitate an environment propitious to social and political unrest.

In this connection, the improvement of socio-economic conditions in the Mindanao region requests particular attention. The persistently poor human development indicators, in spite of efforts to boost its development, show that there is still great scope for improvement. Government and the international community could together examine development programmes and take stock of best practices in order to seize opportunities for improved efficacy of assistance.

I think that we all agree on the fact that development interventions, if they are to succeed, need a minimum level of stability. In the same spirit, the participatory approach to development requires that the beneficiary communities are free from threats of violence and are allowed to voice their needs. The transfer of technologies and the brining in of outside experience, for which Technical Assistance is mobilised, require that their safe passage be guaranteed. Delivery mechanisms for the development assistance need to be restored in places where they have been rendered unworkable

Recent resumption of peace negotiations between Government representatives and those of the Muslim insurgent groups raises prospects for a lasting improvement of the current situation in Mindanao. Achieving an equitable peace agreement could make a significant contribution to political stability in the region and positively impact on growth perspectives for the Philippines' economy.

The European Commission is following events in Mindanao and the neighbouring islands closely. I should only express our concern for the safety and health of the hostages, but although I do not want to elaborate in this context on this humanitarian problem we note that the escalation of violence has resulted in the loss of civilian lives, human rights abuses and the hundreds of thousand displaced people. The Commission is supporting through its humanitarian aid and rehabilitation assistance the needs of the most vulnerable civil population.

Moreover, a new development project, STARCM, is being launched with the aim to support alleviation of rural poverty and economic disparities in four provinces of Central Mindanao.

The Commission wishes to reinforce its co-operation with the Philippines. Enhancing our overall relation should be achieved through an evolutionary approach, taking into account the progress realised by the Philippines Government in addressing the internal conflicts peacefully and reforming the economy.

We will endeavour to support, within the limits of our possibilities, the economic reforms and poverty alleviation. I can assure you that'the European Commission will explore all possibilities for co-operation with the Government of the Philippines and with other major donors in order to support the necessary reforms.

Traditionally, the Commission never pledges at CG meetings. The argument has always been that we work on a project by project basis rather than allocating multi-annual programmes to our Asian partners. On this basis we have, over the period from 1995 to 1999, made available Euro 90 million in development project funding for the Philippines as well as funding through a number of regional economic co-operation programmes. This approach will continue to be followed and therefore, while we make no new pledge today, the European Commission remains ready to assist the Government of the Philippines to meet its difficult challenges. Annex 4s Page 1 of I

CONSULTATIVEGROUP MEESlNG FOR THE PHLIPPINES MANILA, 19-20 JUNE 2000

STATEMENT OF THE EUROPEANINVESTMENT BANK

The operations,which the EIB has carriedout in Asia since 1993,have steadilygrown in magnitude.The first two mandates,covering the period1993- 1999, are now behindus and involveda total commitmentof EUR 950 m, whichhas now beenfully allocated.The third mandate,for an amountof about EUR 1250 m earmarkedfor Asia, which was approvedby the European Ministersof Finance(ECOFIN) early this year and runningfrom February2000 - January2007, will be effectivefrom mid-2000.

While the Bank will continueto support a numberof public sector projects,the focusof its operationsis now in the privatesector. In this respect, we.are particularlylooking at projectsbeing undertakenas European- Asian joint ventures,including those on a BOTor BOObasis, as well as concessions, for instancein the sectorsof watersupply, wastewater treatment, energy, etc.

In the Philippines,the market for these types of projects has been growing rapidly, and has not been materiallyaffected by the onset of the regionaleconomic crisis. During the last two years,the EIB has supportedtwo importantBOT projectsin the Philippines,namely the new 1000-MW Santa Rita power plant in Batangasand the Water and SewerageManila West project. Together,these two loans total EUR 122 m, which is a significant amountin the light of thelimitations of the Bank'sfinancial mandate for Asia.At the sametime, the Bankis continuingits support,together with the ADB,to the extensionand improvementof the airportsof Davaoand PuertaPrincesa.

The Bank intends to continueto finance projectsof this type in the Philippines.At the sametime, possibilities to supportsmall and mediumscale joint ventures, possibly through a line of credit to a first class financial institution, are being studied. In the public sector projects, the EIB is particularly looking at projectswhich have a beneficialimpact on regional development (as the airport projects), involve a transfer of European technologyand improvethe communicationsbetween the Philippinesand the EuropeanUnion. IFAD FIDA FIDA IFAD INTERNATIONAL FONDS FONDO J JL |FUND FOR INTERNATONA INTERNACIONAL AGRICULTURAL DEDMVELOPPEMENT DEDESARROLLO _ DEVELOPMENT AGRICOLE AGRICOLA *

Annex 4t Page I of 2 THE PHILIPPINES

ConsultativeGroup Meeting Manila, 18 - 20 June 2000

IFAD Delegation's Statement

Mr Chairman,Distinguished Delegates, Ladies and Gentlemen,

I am honoured to represent the International Fund for Agricultural Development at this meeting.

It is heartening to note that, like other countries of the Region which were affected by the financial crisis, the economy of the Philippines is recovering fast with a projected growth rate of 4 percent in 2000. However, on reflection, we in IFAD have learnt many lessons. From the point of view of the poor, the crisis has demonstrated the weaknesses of a development approach that does not pay adequate attention to the problems of uplands and mountainous areas which are home to the millions of indigenous people and other minorities.

In response to the crisis, EFADhas formulated a programme for the upland poor in Asia, which will also include the upland areas of the Philippines. This programme is designed to provide improved and increasingly resilient livelihoods to the marginalised upland poor through secure access and control over their natural resources. The focus will be on developing and implementing projects that promote regenerative and non-extractive agriculture and forestry, using locally adapted, resource-conservingtechnologies that have tended to be sustainable.

Priority will be given to the transformation of gender relations in ways that emphasize women's transformational role through the control over resources and through their involvement in household and community decision-making. Systematic and widespread use of participatory techniques will be promoted includingparticipatory monitoring and evaluation of project impacts involving beneficiaries. Also, there will be a focus on local institution building through a process of participatory learning and networking. Collaboration with grass-roots level NGOs will constitute an important part of partnership building. We are glad to have initiated this process in the Philippines and we are learningmany useful and practical lessons.

IFAD's operations in the Philippines started in 1978, and since then eight loans for developmentprojects have been extended to the Government of the Philippines for a total lending of USD 89.2 million dollars. Three of them are still ongoing and a fourth is in the pipeline.

The purpose of these projects ranged from the development of livestock sector to the rehabilitation of irrigation schemes, from rural micro-enterprisefinancing to institutions building

IFAD - INlEIJA]CNALFLNID FOR AGRCLlU.PL DXELOPNcENT * FIDA - FONCI INTEIWWaCALDE DCiELOPEF&NAGCOLE Annex 4t Page 2 of 2 --but for all of them the aim is to reduce poverty among the ultra-poor rural people, encouraging self-help groups, women groups, income-generatingactivities; promoting sustainable resOUM managementpractices, protecting the environment and improving beneficiary's access to fornal and informal credit. These activities are underlined by a general policy of beneficiaries' participation and gender sensitivity.

The new project which is going to be appraised soon and presented for approval by the end of this year, will be located in Northern Mindanao and Caraga Regions and is intended for the development of coastal and uplands communities. The project was conceived as a wide-ranging intervention in geographical and sectoral interest terms. Indigenous people, marginal fisherfolks and uplands dwellers need support in seeing through their plans for community and natural resource development. The stress is on the critical and fragile ecosystemson which their way of life depends; the paucity of aid assistance and revenue allotment in relation to needs; and in the absence, in many cases, of rights and control of assets of land and sea involved.

IFAD-funded projects have always had a specific focus on the rural poor. We, in IFAD believe that involvementof stakeholders from the outset and throughout the project evolution and realisation processes result in greater long-term impact and several of IFAD-fundedprojects have demonstrated this. However our recent experience particularly in the uplands do bring out the message that we need to be more sensitive to the vulnerability of the upland poor. We need to pay more attention to their social capital.

IFAD's programme and projects will be designed in close collaboration and consultation with all stakeholders including other donors active in the country. These will take into account the best practices in the programme areas and the promising initiatives of NGOs and community organisations. IFAD will also try to establish partnership with local champions who have a known commitment to the rural poor and who have legitimacy in the country. We hope to closely collaborate with the new initiatives of the United Nations Development Assistance Framework, ComprehensiveDevelopment Framework and the Poverty Reduction Strategy Paper. We have been established for the rural poor and as an institution that has been specifically created only for them, we welcome the new focus on poverty reduction in organisations such as the World Bank, AsDB and indeed the whole intemational community. We stand today to play our part for the upland poor of the Philippines.

Thank you very much. Annex4u Page 1 of 2

MR. CHAIRMAN,

EXCELLENCIES, DISTINGUISHED DELEGATES, LADIES AND GENTLEMEN,

I WOULD LIKE TO EXPRESS MY SINCERE THANKS AND GRATITUDE FOR

THE KIND INVITATION EXTENDED TO SFD TO PARTICIPATE IN THIS IMPORTANT MEETING. I WOULD LIKE ALSO, TO THANK THE GOVERNMENT OF PHILIPPINES AND THE WORLD BANK FOR PREPARING THE EXCELLENT

DOCUMENTS AND ORGANIZING THIS MEETING. WE ARE PLEASED TO JOIN THE GOVERNMENTS AND INSTITUTIONS THAT SHARE WITH US THE DESIRE TO SUPPORT THE PHILIPPINES GOVERNMENT IN IMPLEMENTING ITS AMBITIONS DEVELOPMENT PROGRAM. THIS MEETING PROVIDED THE OPPORTUNITY FOR THE DONORS TO DISCUSS THE RECENT SOCIO-ECONOMIC DEVELOPMENTS AND POVERTY REDUCTION POLICIES.

MR. CHAIRMAN,

THE KINGDOM OF SAUDI ARABIA & REPUBLIC OF THE PHILIPPINES ENJOY WARM & FRIENDLY RELATIONSHIP BASED ON STRONGCO-OPERATION & MUTUAL UNDER STANDING. BOTH COUNTRIES HAVE BENEFITED FROM THEIR CO-OPERATION. HUNDREDS OF THOUSANDS OF FILIPINO NATIONALS ARE LIVING & WORKING IN SAUDI ARABIA. WE APPRECIATE THEIR ROLE. WE ARE SURE THAT THEIR CONTRIBUTION TO PHILIPPINES ECONOMY IS HIGHLY VALUED AS WELL. MR CHAIRMAN, Annex4u Page 2 of 2

THE KINGDOM OF SAUDI ARABIA HAS EXTENDEDVARIOUS TYPES OF AIDS TO THE DEVELOPINGCOUNTRIES. THE SAUDI ASSISTANCE AIMS TO HELP THE DEVELOPING COUNTRIES TO REDUCE POVERTY AND TO IMPROVE STANDARD OF LIVING THROUGHDEVELOPMENT.

WITH RESPECT TO THE PHILIPPINES ASSISTANCE, THE CUSTODIAN OF THE TWO HOLY MOSQUES KING FAHAD BIN ABDULLAZIZ DONATED A RELIEF ASSISTANCE FOR THE REVACUEESIN THE AFFECTEDAREA IN THE PHILIPPINES, LAST WEEK, CARGO PLANES LOADED WITH RELIEF MATERIALS LANDED IN MANILA AIRPORT, AND IMMEDIATELY IT WAS DISTRIBUTED TO THE PEOPLE IN THE AFFECTED AREA. MOREOVER,FOR THE DEVELOPMENTASSISTANCE, SAUDI FUND FOR DEVELOPMENTWILL PROVIDEA LOAN IN A TOTAL AMOUNT OF US$ 20 MILLIONS. THIS AMOUNTWILL BE PROVIDEDIN FORM OF HIGHLYCONCESSIONAL LOAN TO FINANCEPROJECTS IN THE SOUTHERN REGIONS OF MINDANAO. OUR FOCUS WILL BE TO CATER FOR THE NEEDS OF THE POOR, IN SECTORS SUCH AS HEALTH, EDUCATION& RURAL DEVELOPMENT.

THANKYOU MR. CHAIRMAN U-A

A

PRESS RELEASE

NEW ODA COMMMITMENTS UP TO US$10.3 BILLION

Tagaytay City, Philippines. New pledges by the international donor community today increased total available official development assistance (ODA) commitments to US$10.3 billion, Finance Secretary Jose Trinidad Pardo, Chairman of the 23r Meeting of the Consultative Group for the Philippines announced.

With fresh pledges of US$2.6 billion from participating donors in the CG meeting added to the US$7.7 billion in undisbursed commitments for ongoing projects, Government expects to disburse annual ODA of US$2 billion in the next five years.

"We are heartened by the fact that the international donor community has kept their faith in the country," Secretary Pardo said, adding that the meeting, held in scenic Tagaytay Highlands, was marked b y candidness and constructive dialogue.

"While we admitted to temporary disruptions in our development efforts, we were also able to explain to our donor friends the intricacies of our socio-economic and political system," the Secretary explained, pointing out that even as the donors indeed expressed apprehension over the Mindanao problem, they remained bullish to peace and development efforts for the island.

Mr. Vinay Bhargava, the Head of the World Bank delegation, and co-chairman of the CG meeting, commended the Government for assuming a greater role as chairman of this year's CG meeting which he said is in line with the Bank's Comprehensive Development Framework. Mr. Bhargava also praised the Government for holding pre-CG workshops, which enabled Government and donors to discuss the topics substantially and afforded more focused discussion during the CG sessions. The co-chairman of the CG meeting highlighted the following four crucial areas which the donor community wishes to be addressed: "(i) how to boost sagging investor confidence and accelerate GDP growth to 5+ percent in the remaining years of the Medium Term Development Plan; (ii) how to make growth more equitable, particularly in Mindanao through a focused development program; (iii) how to improve governance in the private and public sectors; and (iv) how to make better use of ongoing and new ODA commitments."

The Government presented policies and programs in the areas of basic social services, rural development, economic and corporate governance, and efforts at improving performance of projects and programs being implemented with Official Development Assistance (ODA). The donors expressed their support to Government's undertaking, and likewise discussed their concerns about the Philippines' economy including poverty alleviation and governance, and concerns on ODA performance. Annex 5 Page 2 of 2

The Government and donor community had fruitful discussions that led to identification of action areas that concern the internationaldonors and the Government.As a result of the general discussions in the meeting sessions,the donors presentedthe followingaction agenda to which Governmentduly responded: (i) enhanceresource mobilization;(ii) raise investor and business confidence; (iii) keep focus on rural development and ComprehensiveAgrarian Reform Program; (iv) population management;(v) finalize the National Anti-PovertyAction Agenda; (vi) support for judicial reform; (vii) enhance anti-corruption measures; (viii) activate CG- Working Group on governanceimprovement; (ix) deliver commitmentson the December 1999 ODA Portfolio Review;(x) the Mindanaosituation.

The 23rd ConsultativeGroup (CG) meetingfor the Phippines was held June 19-20, 2000 In Tagaytay City, Philippinesunder the chairmanship of the Governmentof the Philippines,with the World Bank as co-chair. The meeting was attended by delegationsfrom Australia, Austria, Belglum, Canada,Denmark, Finland, France, Germany, Italy, Japan, Korea, Malaysia,Netherlands, Norway, Singapore, Spain, Sweden, Switerland, and the United States of America. The international organizationsparticipating In the meeting Included the Asian Development Bank, European Commission, International Finance Corporation, International Fund for Agricultural Development,International Monetary Fund, Saudi Fundfor Development,United Nations Agencies (including UNDP, ILO, INICEF, UNFPA) and the World Bank. NGO represntatives also participated. The last CG meetingfor the Philippines was held on March 24-25, 1999 In Tokyo. The ConsultativeGroup Meding is a regular meeting of major donors to the Philippines; It serves as a forum for policy dialogue between the government and the donor community and provides a mechanismfor moblizing official developmentassistance to support the public investmentprogram.