Thesis:The World Bank Group in the Economic Development of the Philippines

Development has been defined in various ways, all of which are different from the other on the ground of what, who, when, or where it has been defined. In the Third World, development is generally characterized by industrialization as they follow the footsteps taken by the much developed countries of the First World that have already achieved advanced industrialization according to Peter and Susan Calvert (Politics and Society in the Third World, 2001, p. 19-20). This kind of economic development, however, requires a definite source of capital which most of the developing countries of the Third World fail to accumulate by themselves and therefore leaving them no choice but to resort to foreign loans, aids and investment in order to acquire some of it. International organizations like the World Bank provide most of these financial requirements to capital-deficient "developing" countries like the Philippines.

In this paper, we aim to discuss the role and contributions of the World Bank Group in the economic development of the Philippines and assess through the realist, liberalist, Marxist and feminist perspectives how our long and continuous engagement with the Word Bank affects our progress as a developing nation. Finally, we shall analyze and conclude upon it and present our utmost recommendations about the discussed topic.

Chapter 1

Perspectives of Development: A Third World Analysis

There is no actual definition as to what development is. It has been diversely defined as to its basis and point of view. Michael Todaro(1985), in his work 'The Meaning of Development' discussed on Chapter 3 of his book 'Economic Development in the Third World', offered two approaches of economic development: the first one was the 'stages of economic growth' that was immensely popular in the 1950's and early 1960's which focuses on the process of development as a "series of successive stages through which all countries must pass."(p. 50). He further elaborated that during that time, development became "synonymous with economic growth since it was a purely economic theory suggesting that "the right quantity and mixture of saving, investment and foreign aid were all that was necessary to enable Third World nations to proceed along an economic growth path which historically been followed by the more developed countries." (Todaro, 1985, p. 50)

Even though this theory seemed to have worked on the now developed Western countries like the US, it didn't mean that it would produce the same effect to Third World nations which obviously had experienced different sets of circumstances and conditions. This is because, as Todaro(1985) explained it, "The stages theory fails to take into account the crucial fact that contemporary Third World nations are a part of a highly integrated and complex international system in which their best and most development strategies can sometimes be nullified by external forces beyond their control."(p.55). This being the case, the development in these Third World countries cannot be claimed just as "simply a matter of 'removing obstacles' and supplying various 'missing components' like capital, foreign exchange , skills and management - a task in which the developed countries could theoretically play a major role (Todaro, 1985, p. 55). The failure then to remodel the Third World to the strict mold of this 'economic' theory led to the formation of the International-structuralist model in which developing countries are viewed as being caught in an institutionalized and structuralized economic system where they are being dominated and dependent to the rich developed countries (Todaro, 1985).

The International-Structuralist model could be further broken down into two approaches: the neo-colonial dependence model and the false-paradigm model. The neo-colonial dependence model as Michael Todaro (1985) argues:

"...is an outgrowth of Marxist thinking. It attributes the existence and maintenance of Third World underdevelopment primarily to the historical evolution of highly unequal international capitalist system of rich country-poor country relationships. Whether intentionally exploitive or unintentionally neglectful, the coexistence of rich and poor nations in an international system dominated by such unequal power relationships between the 'center' and the 'periphery' renders attempts by poor societies (the periphery) to be self-reliant and independent in their development efforts difficult, and sometimes even impossible [3]. Certain groups in the developing countries (e.g. landlords, entrepreneurs, merchants, salaried public officials and trade union leaders) who enjoy high incomes, social status and political power constitute a small elite ruling class whose principal interest, whether knowingly or not, is in the perpetuation of the international capitalist system of inequality and conformity by which they are rewarded. Directly and indirectly, they serve (are dominated by) and are rewarded by (depended upon) special interest power groups including multinational corporations, national bilateral aid agencies, and multilateral donor organizations such as those in the UN system whose main allegiance and/or funding comes from wealthy capitalist countries. Their activities and viewpoints often serve to inhibit any genuine reform efforts which might benefit the wider population. In some cases these activities can actually lead to even lower levels of living or, using Baran's well-known phrase, to the 'development of underdevelopment'. In short, the neo-Marxist, neo-colonial, structural view of underdevelopment attributes a large part of the Third World's continuing and worsening poverty to the existence and policies of the industrial capitalist (and socialist) countries of the northern hemisphere, and their extensions in the form of small but powerful elite or 'comprador' groups in the less developed countries [4]." (p. 56).

On the other hand, the second approach under the International-structuralist model called the 'false-paradigm' model as Todaro(1985) reported:

"...attributes Third World underdevelopment to faulty and inappropriate advice provided by well-meaning but often uninformed international 'expert' advisers from both developed country assistance agencies and multinational donor organizations (like the World Bank, UNESCO, the ILO, UNDP and the International Monetary Fund). These 'experts' offer sophisticated concepts, elegant theoretical structures and complex econometric models of development which often lead to inappropriate or simply incorrect policies. Because of international and structural factors such as the highly unequal ownership of land, disproportionate control over domestic and international financial assets and very unequal access to credit, those policies often merely serve the vested interests of existing power structures, both domestic and international." (p.57).

Therefore, in the 1950s and 1960s, even though many Third World countries produced an increase in their GNP, achieving their growth targets as prescribed by the UN, unfortunately it didn't change the quality of life of most of their people which resulted to the questioning and reevaluating of many of their economists as to what should be the more appropriate definition of 'development' ( (Todaro, 1985). This had then prompted the redefinition of development as "a multidimensional process involving major changes in social structures, popular attitudes and national institutions as well as the acceleration of economic growth, the reduction of inequality and the eradication of absolute poverty. Development, in its essence, must represent the entire gamut of change by which an entire social system, tuned to the diverse basic needs and desires of individuals and social groups within that system, moves away from a condition of life widely perceived as 'unsatisfactory' and towards a situation or condition of life widely regarded as materially and spiritually 'better'." (Todaro, 1985, p. 62).

The Philippines, as a long time member of the Third World, fit in to these concepts of development or underdevelopment that widely emphasizes the disadvantage and stagnant progress of the developing world. Armed with these theories, how are we going to assess the development of our nation?

Development through the Years: The Philippine Profile

This country profile is provided by the combined reports of The Economy Watch and Wikipedia.Org:

"It was once expected that the Philippines would be the economic powerhouse of Asia, but instead it became one of its poorest countries.

For many years, the Philippines has been one of the world's up-and-coming emerging markets. Unfortunately for the Philippine economy and its people, it has been a case of up-and-coming but never quite there.
After the Second World War, many experts believed that the Philippines would become the economic powerhouse of Asia, not Japan. It was an American ally, it was a stable Filipino-speaking country with a capable workforce, and it had natural resources. By the 1960s it had a per capita income that was double that of Thailand and it seemed destined for greatness however today the opposite has happened, and Thailand now has almost twice the per capita income of the Philippines.

Several hundred years of Spanish rule followed by almost 50 years of US occupation created enormous landed estates that are today controlled by a small group of families. Agriculture employs 40% of the populace, often on these estates, and produces 20% of GDP, a good indicator that expected development has not occurred. Reform and economic liberalization are vital for the long term economy, but with the landed families wielding so much economic and political power major change is unlikely.

Some experts believe that the Philippines has more in common with Latin America than Asia, having inherited strong Spanish traditions from its years as a Spanish colony, including a tradition of Caudillismo, a form of leadership that often leads to dictatorships and leads to widespread corruption and nepotism." ("The Philippines Economic Profile", n.d.).

"During the regime of Ferdinand Marcos, the economy grew at a rate consistently slower than the years preceding and following him, destabilized by corruption. Marcos embezzled billions of dollars from the national treasury. By the time of the People Power revolution, the economy had declined, falling severely below the growth of other nations in Southeast Asia. A severe recession in 1984-85 saw the economy shrink by more than 10%, and perceptions of political instability during the Aquino administration further damped economic activity. During this time, capitalism became highly prevalent in the nation, as major American corporations dominated local industry alongside a few local entrepreneurs. Fidel V. Ramos managed to briefly stimulate the economy during his reign as president, posting one of the Philippines' highest GDP growth rates. The country, however, could not recover entirely from the economic slowdown in the Marcos regime.

In 1998, the Philippine economy deteriorated again as a result of spill over from the Asian financial crisis, although not as much as other Asian nations, and a wave of natural disasters also dragged the economy down. Growth fell to about -0.6% in 1998 from 5.2% in 1997, but recovered to 3.4% by 1999. President Joseph Estrada attempted to resist protectionist measures, and efforts to continue the reforms begun by the Ramos administration made significant progress. A major bank failure in April 2000 and the impeachment and subsequent departure of President Estrada in the beginning of 2001 led to lower growth.

The current administration under President Gloria Macapagal-Arroyo has been marked by radical and risky moves pushing toward faster and more rapid economic growth. In recent years, Arroyo's stance towards economic improvement since 2004 has seen the Philippines re-emerge as one of the growing economies in Southeast Asia. In 2004, the Philippine economy grew by 6.1%, beating most analysts and even the government's estimates. In 2005, the Philippine peso posted an appreciation rate of 6%--the fastest in the Asian region for that year. However, the advent of high oil prices dampened the government's growth estimates for that same year as growth only amounted to 5.1%. The Philippines is still faced with the challenge of generating income internally, as it has the third-highest rate of remittances from overseas in the world. During 2006, the economy posted a 5.4% growth, dampened by two typhoons which wreaked havoc on the agricultural sector. The government plans to bolster infrastructure spending in 2007 tenfold, and is targeting an accelerated growth of the economy by 7% in 2007, 8% in 2008, and 9% in 2009 well as improved domestic improvement. President Arroyo had visioned that by 2020 the Philippines would be a First World country." ("Economy of the Philippines", n.d.)

"Lacking opportunities at home, Filipinos have sought work elsewhere. Remittances from overseas Filipino workers (OFWs) are estimated to contribute close to 10% of GDP. Filipinos are to be found across North America, the Middle East, Europe and Asia-Pacific. In the US alone there are over four million Filipinos, with a further two million in Saudi Arabia. In all, there are 11 million Filipinos abroad, close to 11% of the population, of whom eight million are OFWs. One million Filipinos are sent out each year through the overseas employment program. They are employed as doctors and nurses, accountants, IT professionals, construction workers, domestic help, technicians, engineers, architects and as military servicemen. Over one third are unskilled workers, typically domestic maids or employed in the retail, hospitality, and food & beverage industries.

There are some signs of progress, however. In 2007 the International Monetary Fund recognized the Philippines as being the 37th largest economy in the world. Its growth rate in 2007 was 7.3%, the best the country has had thirty years.

Comparisons are starting to be made with India, in particular because of the growth of the Philippine outsourcing business, in IT and particularly in call centers and business process outsourcing (BPO). Low wages, an Philippino-speaking populace and one of the highest literacy rates in Asia should drive this boom, with planners aiming to capture 10% of the $130 billion outsourcing industry by 2010.

In addition to services, growth was also boosted by higher government spending and larger remittances from OFWs. Economic growth has averaged 5% since 2001, and recent years have been marked by a reduction in national debt and debt service ratios and increased investment in infrastructure and social services. Higher sustained growth rates are still needed, however, if the Philippines is to reduce endemic poverty levels and start to live up to its potential." ("The Philippines Economic Profile", n.d.)

Hindrances to Development

The Philippines has long been under the category of "developing countries" ever since it has been recognized as a nation. It continues to remain under this category because the Philippine economy has been unstable because of several factors like constraints in physical geography, militant rebellions, extreme poverty, neocolonialism, and corruption.

Because the nation is an archipelago, it is hard to transfer development to other islands especially to the far-flung areas. Anti-government movements like the current situation in Mindanao involving the MILF and Abu Sayaff also prevents development because it hinders the development workers from working and staying long term in a war-torn area. Instead of providing developmental projects and cultivating resources in these areas, the government resorts to deploying military assistance to secure these areas from rebellious groups. Extreme poverty, of course, is nothing new to the Philippine setting. This is caused mainly by high rates of unemployment in the country which leads to the lack and loss of income of many people resulting to their low and even pathetic levels of living.

Adding more damage besides the nation's ongoing internal struggles, it cannot be denied that colonialism is still alive in the Philippines today, only now it has a new term. We now call it "Neocolonialism". Relating the Neo-colonial Dependence Model to the Philippine development, as a 3^rd world country, the Philippines is neo-colonized by highly developed countries like USA. The colonization is inconspicuous because it is in the disguise of help and support to the Philippines. As a neo-colonized country, we are dependent on our neo-colonizers. Consequently, we tend to be exploited. Philippines depend on the financial aid given by developed countries. Those developed countries will lend us money and when we are highly indebted to their country, our country must agree on conditions given by them wherein they will benefit more.

And all these are further worsened by the corruption committed by the public officials. Corruption of public funds and even loans borrowed abroad that aggravates and increases our external debt, which as Pease (2007) argues, is "the principal obstacle to development" (p. 194).

To explain more clearly, "External debt is money borrowed from abroad and repayable in foreign currency." (Pease, 2007, pp. 194-195) According to Pease (2007), there are two causes of debt, and it could be classified as internal or external. Internal debt results from "excessive government spending and domestic consumer demands", not to mention excessive military spending and "pervasive government corruption". (Pease, 2007, p. 195).

On the other hand, the external causes of debt began when Third World countries were advised by 'neo-liberal economists' of international organizations like the World Bank Group to borrow capital from them that is "needed to achieve economic takeoff" that failed to take place because during the 1970's, the international economy was chronically unstable that it was difficult for developing states to "plan economic growth". He elaborated further that for developing states to survive that time, they were left no choice but to "borrow heavily from both Western governments and Western private banks." (Pease, 2007, p. 195). Also, the development assistance coming from the West that developing countries get were always in the form of 'military credit' which they could only use to purchase 'military hardware' that did not help strengthen Third World economies, rather it only served the vested interests of 'Western defense industries'. (Pease, 2007)

The Philippines therefore could have nothing but a large share of external debt because of its dependence to foreign capital. According to the reports of abs-cbnNEWS.com, the debt of each Filipino to local and foreign creditors based on the national government's total debt stock as of September 2009 amounts to P47,039. (Balea, 2009). Also, according to an earlier report:

"The country's debt stock as of end-August was 5.1% higher than what was recorded as of the same period last year as the government raised more funds to plug the widening budget deficit. Data from the Bureau of Treasury showed, the Philippines' outstanding debt amounted to P4.231 trillion as of the first 8 months of the year, P207 billion more than the P4.024 trillion as of the same period in 2008. The latest figure was also 0.2% or P10 billion higher than July's P4.22 trillion. The Treasury blamed the month-on-month increase in the debt on the depreciation of the peso and appreciation of third currencies against the dollar, and adjustments arising from the conversion of loans from multilateral lender Asian Development Bank. The Treasury said 55% of the total national debt came from domestic creditors while 45% was sourced from foreign ones. Domestic debt declined 2.1% to P2.309 trillion as of end-August 2009 from P2.359 trillion as of the same month last year. Foreign debt, on the other hand, soared 15.4% to 1.922 trillion from P1.665 trillion as the government floated more foreign currency-denominated bonds and availed of more official development assistance loans from multilateral institutions." (abs-cbnNEWS.com, 2009).

So where do we owe most of our foreign debt? This is where the World Bank Group comes in.

Enter the World Bank

As stated in the official website of World Bank:

What is the purpose of the World Bank?

The goal of the World Bank is to reduce poverty and to improve the living standards of the people in low and middle-income countries.

The World Bank is one of the world's largest sources of funding and knowledge to support governments of member countries in their efforts to invest in schools and health centers, provide water and electricity, fight disease and protect the environment. This support is provided through project or policy-based loans and grants, as well as technical assistance like advice and studies.

The World Bank is not a 'bank' in the common sense. The World Bank is an international organization owned by the 184 countries¾both developed and developing¾that are its members.

The Bank was set up in 1944 as the International Bank for Reconstruction and Development to act as facilitator of post-World War II reconstruction and development. The number of member countries increased sharply in the 1950s and 1960s, when many countries became independent nations. As membership grew and their needs changed, the World Bank expanded and is currently made up of five different agencies.

All support to a borrowing country is guided by a single strategy (called the 'Country Assistance Strategy') that the country itself designs with help from the World Bank and many other donors, aid groups, and civil society organizations.

How is the World Bank Group organized?

As membership grew, and needs changed, the World Bank expanded and now comprises five different agencies that together make up the World Bank Group:

The International Bank for Reconstruction and Development provides assistance to middle income countries. IBRD obtains most of its funds through the sales of bonds in international capital markets.

The International Development Association assists the poorest countries with a per capita income of less than $885--to which it provides interest-free loans, technical assistance and policy advice.

The International Finance Corporation (IFC) promotes growth in client countries by financing private sector investments.

The Multilateral Investment Guarantee Agency (MIGA)helps encourage foreign investment by providing guarantees to foreign investors against loss caused by non-commercial risks in developing countries, thereby creating investment opportunities in those countries.

The International Centre for Settlement of Investment Disputes provides facilities for the settlement by conciliation or arbitration of investment disputes between foreign investors and their host countries. (World Bank.org)

World Bank and the Philippines

In the work of Walden Bello, David Kinley and Elaine Wilson, entitled 'Development Debacle: the World Bank in the Philippines', the following represents the overview of the World Bank's grand entrance to the Philippine Economy:

"Between 1970 and 1982, the World Bank became a massive presence in the Philippine affairs. Its dramatic entry was provoked by a deep-seated crisis of the postwar social order characterized by an "elite democratic" state presiding over a stagnant, underdeveloped economy. The World Bank effort had two fundamental objectives: to stabilize the deteriorating political situation and to more thoroughly integrate the Philippine economy into the international capitalist order dominated by the United States.

Rural and urban development projects aimed at defusing discontent among the rural poor and the burgeoning urban underclass formed the core of the Bank's political stabilization. Tighter integration into the capitalist economy was to be accomplished by a strategy of creating favorable climate for foreign investment, knocking down tariff barriers to US imports ("liberalization"), and fostering a strategy of "export-oriented industrialization" geared toward satisfying the demand of markets in the United States, Japan, and Western Europe rather than the domestic market.

...What was new in the Philippines in the 1970s was the leading role that the World Bank played in restructuring the economy. The country was, in fact, deliberately chosen as the site of a World Bank experiment in "authoritarian" or "technocratic modernization", the lessons which could later be applied in other countries." (Walden Bello, David Kinley, Elaine Wilson, 1982)

Recent Development Assistance

Over the past decades, the Philippines has promoted an open market attracting foreign investors with the help of the World Bank. The World Bank assisted our nation through supports in the forms of aid and loans and development programs provided by the Bank. The following is the report taken from the Bank's official website updated last January 14, 2010:

World Bank Assistance to the Philippines

The new World Bank Country Assistance Strategy for the Philippines which covers Fiscal Years (FY)2010-2012 has greater focus on poverty reduction, a strategic shift in the Bank's approach to development in the country. With a central goal of achieving growth that works for the poor, the World Bank Group (WBG) will support the Philippines in pursuing macroeconomic stability, an improved investment climate, better public service delivery for the poor, reduced vulnerabilities to income shocks and natural disasters, and better governance.

Addressing the country's fundamental development challenges, the new CAS focuses on poverty alleviation measures and on operationalizing governance in all Bank-supported activities. It also addresses emerging global challenges such as climate change, disaster risk management, and the financial crisis and emphasizes a knowledge agenda that supports the Philippines in addressing its own development challenges.

The new CAS pilots deeper integration of the operations of World Bank and the International Finance Corporation (IFC), the private sector financing arm of the WBG. The Bank is prepared to provide support amounting to US$700 million to US$1 billion per year for the next three years, coupled with a robust program of analytical and advisory activities. IFC's program would be in the range of US$250-US$300 million per year. Specific areas of joint IFC and Bank collaboration are in infrastructure, agribusiness, and the financial sector. Another member of the World Bank Group, the Multilateral Investment Guarantee Agency (MIGA), will provide guarantees to foreign investors against losses caused by non-commercial risks, as well as technical assistance to help countries disseminate information on investment opportunities.

World Bank's Lending Portfolio in the Philippines

As of June 30, 2009, the World Bank's assistance program in the Philippines includes 24 active projects (18 active project loans; 2 stand-alone Global Environment Facility (GEF) projects that are not counted separately; and 6 recipient-executed trust funds in excess of $5 million), with a total value of $1.40 billion.

World Bank's Trust Fund Portfolio in the Philippines

As of June 30, 2009, the World Bank's portfolio of trust funds to support its Philippine program amounted to $139.2 million, comprising 81 trust funds, 96 of which are operated by government agencies and selected NGOs. Six of these operations are recipient-executed grants with commitment values in excess of $5 million and are processed and monitored along with the Bank's investment portfolio.

Another report from Positive News Media.net is the recent signing last January 10, 2010 of the Emissions Reduction Purchase Agreement (ERPA) between the World Bank and the Metro Manila Development Authority (MMDA) for a project designed to help address traffic congestion in Epifanio De Los Santos Avenue (EDSA) and contribute to the reduction in greenhouse gas (GHG) emissions and curb air pollution along the country's busiest and main thoroughfare. (Positive News Media, 2010). The report also stated that "The World bank, on behalf of carbon Fund for Europe will purchase for the MMDA the GHG emission reductions over the period 2011 to 2013 worth 364,000 Euros or more than P24 million. The project has a fixed 10-year crediting period under the Clean Development Mechanism (an instrument under the Kyoto Protocol of the United Nations Framework Convention on Climate Change, which promotes projects that reduce carbon dioxide emissions).

The project is consistent with the Bank's Country Assistance Strategy for the Philippines, which targets, among other results, a reduction of the country's vulnerabilities by reducing GHG emissions through the expansion of climate change mitigation programs in key sectors (including power, transport, and waste management) and local government units." (Positive News Media, 2010)

Considering all these developmental assistance, projects, loans, debts, history and economic profile of the Philippines, as well as the theories behind development, how far have we progressed, really?

How our relation with the World Bank Group does affects our development as nation, in the viewpoints of realist, liberalist, Marxist and feminist will be discussed in the next chapter.

Bibliography

(n.d.). Retrieved February 14, 2010, from EconomyWatch: http://www.economywatch.com/world_economy/philippines/

(n.d.). Retrieved February 14, 2010, from World Bank.org: http://www.worldbank.org.ph/WBSITE/EXTERNAL/COUNTRIES/EASTASIAPACIFICEXT/PHILIPPINESEXTN/0,,menuPK:332992~pagePK:141132~piPK:141107~theSitePK:332982,00.html

(2009, November 11). Retrieved February 14, 2010, from abs-cbnNEWS.com.

(2010, January 10). Retrieved February 14, 2010 , from Positive News Media: http://positivenewsmedia.net/am2/publish/Main_News_1/MMDA_and_World_Bank_sign_Emissions_Reduction_Purchase_Agreement.shtml

Balea, J. (2009, December 31). Retrieved February 14, 2010, from abs-cbnNEWS.com: http:/abs-cbnnews.com/business/12/31/2010-burden-philippine-deficits-and-debts

Pease, K. K. (2007). International Organizations: Perspectives On Governance In The Twenty-first Century. Prentice Hall.

Todaro, M. (1985). "The Meaning of Development", Economic Development in the Third World. Longman.

Walden Bello, David Kinley, Elaine Wilson. (1982). Development Debacle: The World Bank in the Philippines. Third World Publications.

Recommendation

The researchers are suggesting to other researchers to make this study more focused in some of the specific sub categories of the World Bank, it is hard for the researchers to elaborate the World bank in general but if the other researchers will elaborate the topic of Philippine development in world bank, making a smaller scope on it will make the study more informative to the country.