ال نینو و یا ال پزوی؟ بحران، فقر و توزیع درآمد در فیلیپین

Using household survey data for 1998, this paper assesses the distributional impact of the recent economic crisis in the Philippines. The results suggest that the impact of the crisis was modest, leading to a 5% reduction in average living standards and a 9% increase in the incidence of poverty, with higher increases indicated for the depth and severity of poverty. The largest share of the overall impact on poverty appears attributable to the El Niño shock as opposed to shocks mediated through the labor market. Both household and community characteristics mattered to the differential impact of the crisis. There is some evidence of consumption smoothing by the crisis-affected households, though the poor amongst them were more constrained in their ability to protect their consumption.

When devaluation of the Thai Baht in July 1997 marked the beginning of the Asian financial crisis, the Philippine economy was in relatively good shape. In the three years prior to the crisis, the Philippines was not only enjoying favorable economic growth, inflation had returned to manageable levels after the double-digit rates of 1988–91, the Peso was stable against the US dollar, net international reserves had grown to comfortable levels, and the fiscal budget was in surplus. Poverty rates had been declining; for instance, the incidence of poverty declined from 32% in 1994 to 25% in 1997 (Balisacan, 1999 and Balisacan, 2000).1 Nonetheless, the Thai financial crisis was rapidly transmitted to the Philippine economy and large capital outflows instantly created downward pressure on the Peso. The Bangko Sentral ng Pilipinas initially tried to defend the Peso but as foreign reserves were insufficient to counter the massive capital outflows, the Peso depreciated from P26.40/$ in June 1997 to P37.20/$ in December 1997 to a peak level of P42.66/$ in January 1998. To ease the pressure on the exchange rate the government raised interest rates. In tandem with the depreciating exchange rate, interest rate on 91-day treasury bills rose from 10.5% in the first half of 1997 to a high of 19.1% in January 1998. Net domestic credit stopped growing and there was a sharp decline in investment (by 17% during 1998). With the setting in of the financial crisis by the last quarter of 1997, the Philippine economy stalled in 1998. Real GNP shrank by 0.5% in 1998. Per capita real GNP declined by 2.7%. The financial crisis was compounded by the worst drought in 30 years caused by the El Niño beginning September 1997. This was reflected in the 1998 sectoral growth rates. Agriculture contracted the most, by 6.6%, while industrial production fell by 1.7%. With the slowdown in output growth came the slowdown in employment. Unemployment rates increased to double-digit levels during 1998 (averaging 10.1% in 1998 against 8.7% in 1997). Inflation also accelerated to double-digit levels. With the plummeting of agricultural output, food prices increased even faster than the general level of prices. The crisis also reduced government revenues, which constrained public spending despite an overall countercyclical fiscal policy adopted by the government. In 1998 real per capita spending on social services declined. These macroeconomic developments raise a number of questions related to the potential impact of the crisis on living standards of the Filipino population. In this paper, we address the following four. (a) How large was the impact in terms of the effect on average living standards and measures of absolute poverty? (b) How was the impact distributed across the population? What factors contributed to rendering some households more vulnerable to the adverse shock than others? (c) How did the impact on household consumption compare with that on household incomes? Is there any evidence of consumption smoothing by households? (d) Was the Philippines crisis more of an adverse weather phenomenon than a financial crisis? What was the relative contribution of the El Niño shock to the total impact? In addressing these questions, this paper limits its focus to the consumption or income dimension of the welfare impact. The crisis of course potentially affected other dimensions of welfare, however, their analysis remains beyond the scope of this paper.2 The paper is organized as follows. The following section reviews what is known about the impact of the crisis in the Philippines. In the course of this review, we also make some methodological comments on related literature for other countries in the region. 3 and 4 respectively describe the data and our methodology. Our results are presented in Section 5. Section 6 sums up with some concluding observations.

The following key findings emerge from our analysis of the distributional effects of the economic crisis in the Philippines. The impact of the crisis was modest relative to what has been estimated for other crisis-affected countries in the region. By our estimates, the crisis caused a 5% reduction in average living standards. It led to an increase in the incidence of poverty by about 9%, and in the depth and severity of poverty by 11% and 13% respectively. In addition, the impact on measures of overall inequality was minimal. In assessing the estimated effects on poverty, however, it is important to bear in mind that our results could underestimate the full impact of the crisis insofar as they do not factor in the effects of the price shock reported by nearly 90% of the population. On the other hand, there may also be an element of overestimation of the impact attributable to the crisis due to potential endogeneity of the self-reported shocks, i.e., households experiencing any negative income or consumption shock being more likely to report as being affected by the crisis, or because the reference group of “unaffected” households may also include some gainers from the crisis. Our results suggest that in terms of the poverty impact the crisis in the Philippines was more of an El Niño phenomenon than a financial crisis. We find that the largest share of the overall impact on poverty is attributable to the El Niño shock, its share ranging between 47% and 57% of the total impact on measures of incidence, depth and severity of poverty. Another one-third of the total impact is attributable to the joint effects of the El Niño and labor market shock, while the labor market shock by itself only accounts for 10–17% of the total poverty impact. Given that El Niño is a recurrent phenomenon in the Philippines occurring every 3–4 years, our findings have relevance beyond the most recent crisis. That said, the result on El Niño vs. El Peso needs to be qualified. The distinction between these shocks in the survey data is not as sharp as one would like. Some of the El Niño shock could have been perceived and reported as a labor market shock, and vice versa. Hence, the results on relative importance should be viewed as indicative. We find that the estimated impact on poverty is sensitive to the choice of the poverty lines. The proportional impact on poverty incidence, for instance, declines over a wide range of poverty lines, which also suggests greater proportionate impact on measures of ultra poverty. We also find that while the labor market shock was progressive (inequality reducing), the El Niño shock was regressive (inequality increasing). Not all households were equally vulnerable to the crisis-induced shocks. We find that while ownership of land made households more susceptible to the El Niño shock (which is unsurprising), higher levels of education made them more vulnerable to wage and employment shocks. The impact of the crisis increased with the level of commercial development of the community. The crisis also dampened the positive effects on living standards of households’ social network (such things as membership of co-operatives and NGOs) and community social capital (such things as a town hall, a church, a park or library in the community). We also find evidence that occupational diversity within the household helped mitigate the adverse impact of crisis-related shocks. Our results further suggest that despite the relatively small magnitude of the overall impact of the crisis, households did try to protect their consumption. For three-fourths of the affected households, consumption impacts were smaller in magnitude than the income impacts; the median consumption impact was about one-third lower, while the mean consumption impact was about four-fifths of the income impact. This points to a limited ability of households to smooth consumption in the face of income shocks, which is a matter of significant policy concern. Of even greater concern is the evidence that the ability of the poor to protect their consumption was more limited than that of the nonpoor.