Hunger and Poverty Worsen in the Philippines

UNCLAS SECTION 01 OF 04 MANILA 001050 SIPDIS SIPDIS SENSITIVE STATE FOR EAP/MTS, EAP/EP, EEB/IFD/OMA STATE PASS EXIM, OPIC, AND USTR STATE PASS USAID FOR AA/ANE, AA/EGAT, DAA/ANE TREASURY FOR OASIA USDOC FOR 4430/ITA/MAC/ASIA & PAC/KOREA & SE ASIA/ASEAN E.O. 12958: N/A TAGS: ECON EFIN PGOV RP SUBJECT: Hunger and Poverty Worsen in the Philippines REF: A) Manila 0367, B) Manila 0838 SENSITIVE BUT UNCLASSIFIED ¶1. (U) Summary: Recently-released Philippine government statistics indicate poverty increased in 2006 to engulf a third of the population. There has been little progress in reducing poverty or addressing the uneven distribution of incomes. The recent surge in the price of rice will push even more Filipinos into poverty. The government will have to balance any food subsidy or hunger alleviation programs against its ambitious fiscal goals. Measures needed to fight poverty include a macroeconomic and policy reforms conducive to economic growth, investment, and job creation; population policies; improved infrastructure, education, and health care; and reforms in the agricultural sector to bring about higher productivity. End Summary. Poverty and Hunger Increase Between 2003 and 2006 -------------- -------------- ¶2. (U) According to the Philippine government's recently released 2006 poverty statistics -- generated every three years from the Family Income and Expenditures Surveys (FIES) -- the ratio of families with insufficient income to meet basic needs increased from 24.4% to nearly 27% of total families between 2003 and 2006. The ratio of poor Filipinos unable to afford basic food and non-food requirements increased to a third of the population (or 3.8 million more poor Filipinos than in 2003). Moreover, the number of poor families and Filipinos below the government estimate of incomes needed to meet even basic food requirements (i.e., the "subsistence poor") also expanded, to 11% of total families and 14.6% of the population. -------------- -------------- Selected Poverty Statistics -------------- -------------- Increase 2003 2006 In % Millions -------------- -------------- -------------- -------------- Poverty Incidence (%) Families 24.4 26.9 Population 30.0 32.9 Number of Poor (Millions) Families 4.0 4.7 17.5 0.7 Individuals 23.8 27.6 16.0 3.8 Subsistence Incidence (%) Families 10.2 11.0 Population 13.5 14.6 Number of Subsistence Poor (Millions) Families 1.7 1.9 11.8 0.2 Individual 10.8 12.2 13.0 1.4 -------------- -------------- Source: National Statistical Coordination Board ¶3. (U) Government officials noted that their estimates of incomes required to meet minimum food and non-food requirements grew at a faster pace (22%) than average household incomes (16%) between 2003 and 2006. They cited high fuel prices, transportation costs, increased tax burdens, and weather disturbances between 2005 and 2006 as major factors behind the higher poverty rates. No Progress Over Past Decade -------------- ¶4. (U) Except for a brief decline in the poverty ratios between the 2000 and 2003 surveys, government statistics indicate that there has been no real progress in reducing Philippine poverty rates over the past decade. The official 2006 poverty ratios were little improved from 1997. Moreover, the modest overall improvement in the poverty ratios between 1997 and 2006 failed to translate to nominal declines in the number of poor families and Filipinos -- which increased by 700,000 and 2.6 million, respectively, from 1997. ¶5. (U) Other non-government sources of poverty statistics suggest that poverty in the country may be more severe than the official MANILA 00001050 002 OF 004 data indicate. The World Bank estimates that about 43% of the Philippine population live below the $2/day international poverty line (compare, for example, with 25% for Thailand). According to quarterly surveys on self-rated poverty conducted by the Philippines' foremost private social survey institute (Social Weather Stations),an average 18% of families experienced hunger and 50% of families considered themselves poor, in 2007. Inequitable Income Distribution Has Persisted -------------- ¶6. (U) The Philippines' Gini coefficient, which measures inequality of income, improved almost imperceptibly from 0.460 in 2003 to 0.458 in 2006. (Note: A measure of income distribution, the value of the coefficient ranges from 0 or perfect equality, to 1 or perfect inequality. Lower values indicate more equal distribution of income.) Since 1985, the value for the Philippines -- also published every three years -- has fluctuated within a narrow band of 0.445 (recorded in 1988) and 0.487 (recorded in 1997). High income disparity has persisted during the last two decades. According to the 2006 survey, the richest 30% of families earned nearly two-thirds of total incomes, while the poorest 30% shared barely 9%. The total income accruing to the richest 10% of families was close to 20 times the total income shared by the poorest 10% of families. More than 50% of Families Chronic or Transient Poor -------------- -------------- ¶7. (U) Economists who studied the 1997, 2000, and 2003 official poverty data in detail found that roughly 22% of families were "chronic poor" (i.e., falling below the government-estimated poverty thresholds in each of the three periods) and another 32% "transient poor" (i.e., moved into and/or out of poverty). This may explain the perception on the part of more than half of Filipinos that they are poor. Although they may not fit any of the definitions of the poor today, they have in the past and expect to do so again in the future. Narrow Middle Class, Large Low Income Class -------------- ¶8. (U) According to the latest available estimates by the government's National Statistical Coordination Board, the agency that generates the official poverty statistics, the Filipino middle class comprised 19.9% of total families during 2003, down from 23% in 1997. On the other hand, the ratio of low income families grew from 76.6% in 1997 to 79.9% in 2003. High income families comprised a small share (less than 0.5%) of all families. Although not all "low income" families are necessarily "poor" when measured against the government's poverty thresholds, their predominance indicates the vulnerability of many Filipino families to poverty. ¶9. (U) Officials estimate that families of Filipinos working overseas comprise 5%-6% of Philippine families. About half of these families fall in the middle-income segment; most of the other half falls in the low income group. Large Disparities across Regions and Provinces -------------- - ¶10. (U) Underlying the national-level poverty figures are persistently large disparities among regions and provinces. In 2006, for example, the National Capital Region (Metro Manila) registered a 10.4% poverty incidence among its population while the worst-off region (the Autonomous Region of Muslim Mindanao) posted a 62% poverty rate. The ten least poor provinces during 2006 were all located on Luzon Island, while six of the ten worst off-provinces were in Mindanao (with poverty incidence of the population highest at nearly 80% for the Muslim province of Tawi-Tawi). Overall, 47% of Mindanao's population subsisted below government-established poverty thresholds, much higher than Luzon's 28% poverty ratio. Economic Growth Necessary... -------------- ¶11. (U) Economists have proven quantitatively the correlation between economic growth and poverty alleviation. In the Philippines, real growth of GDP per capita has been slower than in neighboring countries. The Philippines has not been able to sustain economic growth rates significantly higher than population growth. MANILA 00001050 003 OF 004 ¶12. (SBU) According to the government's latest census, the Philippine population grew by 2.04% annually between 2000 and 2007, lower than the 2.3% rate recorded in the 1990's but still markedly higher than in most Southeast Asian countries (including 0.8%, 1.3%, and 1.4% for Thailand, Indonesia, and Vietnam, respectively). The ongoing global food crisis (Ref B) has sparked worries about the Philippines' ability to feed its rapidly growing population and revived debates over population policy. However, the issue remains particularly contentious in this predominantly Catholic country. ¶13. (SBU) Although there have been improvements in recent years, real per capita GDP growth averaged barely 1% from 1980-2007. By most estimates, the Philippines needs to sustain real GDP growth of at least 7%-8% per year to achieve more significant progress in poverty reduction. However, even sustaining the three-decade high 7.3% GDP expansion achieved in 2007 (only a little more than 5% growth in real per capita terms) is unlikely (Ref A). ...But Not Sufficient -------------- ¶14. (SBU) While economic expansion is essential for higher incomes, poverty alleviation in the Philippines has been less responsive to income growth than in many developing economies. The country's "growth elasticity" -- the ratio of the rate of poverty reduction to the rate of income growth -- is roughly half those of China, Indonesia, and Thailand's. In other developing countries, there has been a very strong connection between poverty reduction and rural development, infrastructure (particularly roads, transport, and power),and education and health -- unfortunately, all areas where the Philippines has severely under-invested. ¶15. (U) The need to improve rural incomes and boost the productivity of the agricultural sector -- which employs nearly 40% of the Philippine work force in the generation of only 17% of GDP -- has been receiving much attention due to the ongoing global food crisis. Roughly two-thirds of workers supporting the poorest 30% of Philippine families are employed in the agricultural sector. Political Economy of Poverty -------------- ¶16. (SBU) The Philippine economy suffers from low competitiveness and high corruption, resulting in one of the lowest investment rates in the region and hampering sustained high growth and job creation. Implementation of reforms to liberalize the Philippine economy and promote greater competition has been limited by strong resistance from vested interests. The significant convergence between economic and political power supports an entrenched economic elite. High levels of corruption affect the predictability of the policy regime, put in question the enforceability of contracts, and constrain constrained the delivery of vital infrastructure and social services necessary for more growth and for pro-poor policies. ¶17. (SBU) The Philippines Congress is currently debating another extension to the country's 40-year-long process of agrarian reform that has resulted in a nation of small, unproductive landholdings. Limited in their ability to transfer their property rights, land reform beneficiaries are unable to access commercial credit, with many forced to borrow from informal lenders at usurious rates. Remaining large agricultural landholders have no incentive to invest in property which is still subject to expropriation. A non-functional land titling system means that most small landowners and agrarian reform beneficiaries in particular, do not have clear title to their land, further discouraging investments in the rural sector and making it difficult for small borrowers to access credit from formal credit institutions. Global Food Crisis Expected to Worsen Hunger/Poverty -------------- -------------- ¶18. (U) Surging rice and food prices will inevitably push even more Filipinos into hunger and poverty and international experts have already warned that the Philippines likely will be among the hardest hit in the region by soaring prices of food grains. Food carries a heavy weight (50%) in the Philippine consumer price basket and rice, in turn, makes up about a quarter of food expenditures. Food expenses eat up even more of the budgets of the country's 30% poorest families - 60%-70%. Rice is especially critical for the more than 12 million Filipinos already subsisting below government-estimated food thresholds who depend mainly on the staple for daily sustenance. MANILA 00001050 004 OF 004 Comment -------------- ¶19. (SBU) The reforms necessary to combat poverty in the Philippines are widely agreed upon by economists, development professionals and international financial institutions. However, they have proven incredibly difficult to implement in the face of deeply entrenched interests and a political system controlled by those interests. Our continuing policy reform and advocacy efforts focus on issues which we assess to be ripe for change and are implemented by working with Philippine institutions to build a consensus and lobby for that change. This is slow, difficult work, but is the only way we see of reducing poverty here. Kenney