| Poverty Profile The report found that about 30 percent of families in the Philippines lived below the poverty line in 1988, but fewer than 9 percent of these fell below a minimum subsistence line. These percentages have been slowly improving over time, despite the fact that personal income has decreased in real terms since the early 1970s, as have the real wages of urban unskilled workers. The government's commitment to social development and to eradicating poverty is partly responsible for the reduction in poverty, but the poor (especially retirees, the unemployed, and female-headed households) have also benefitted significantly from rapid urbanization, from transfers from family workers, from a complex network of private relationships, and from productivity and price gains for traditional crops. Poverty is considered to be largely a problem of underemployment and low productivity rather than of unemployment. Income distribution is comparable to or better than that of other low middle-income countries. Most of the poor (more than 80 percent) live in rural areas; many of them work as self-employed farmers (of rice, corn, and coconuts) and fishermen, but nonagricultural seasonal work is also an important source of their income. There are fewer poor people in urban areas, but they are susceptible to the specific health hazards inherent in living in slum housing and urban pollution, such as high birth rates, malnutrition (especially in pregnant and lactating women), and infectious diseases.
Incentive and Regulatory Framework The report identified the absence of any structural shift from self--employment towards wage-paying jobs as a key correlate of poverty. This is attributed to a low demand for labor because of minimum wage legislation that is effectively enforced in the formal sector and to a bias in trade and investment incentives towards large, capital-intensive firms. This has been compounded by a macroeconomic strategy that has allowed for an appreciated peso in order to reduce the costs of debt repayments and to keep fiscal balances under control. As the poor produce tradables and receive significant transfers from abroad, they suffer directly from real exchange rate appreciation as well as indirectly because jobs are lost as competitiveness declines. However, recent structural reforms have significantly reduced the bias towards large firms and have made the exchange rate dependent on the market. The labor market has yet to be reformed, although for the past two years, real minimum wages have been allowed to erode with inflation. In rural areas, poverty has been associated with an unequal distribution of land, although less so than in Indonesia and Thailand. Migration to upland areas due to population pressures have led to the overexploitation of natural resources, which has led to soil erosion, deforestation, overfishing, and the destruction of fragile mangrove ecosystems. Policies have been adopted to rationalize the use of natural resources, including large increases in forestry charges, but these need to be implemented more vigorously. Land reform is not seen as a major means of reducing poverty in the medium term. Some of the land involved is already farmed by squatters, and so no additional assets would be transferred to the poor. Legalizing squatters' land rights will allow, however, for greater investment in the land over time. Another element of the land program involves the government purchasing land from private owners at fair market prices, with a limited net transfer of assets to the poor.
Public Taxes and Expenditures Despite consisting mainly of indirect taxes, the tax burden in the Philippines is fairly evenly distributed across income deciles. It could and should be made more progres-sive. The problem lies in the way that taxes are administered rather than the way they are structured. Only about 50 percent of personal and business income taxes are collected; increasing this percentage would increase both revenues and equity. Public expenditures on social services have been protected throughout the economic crises of the last decade, and have been targeted to poorer regions and selected low-income municipalities. The private sector also contributes significantly to providing both education and health services. Literacy, life expectancy, and infant mortality all remain better in the Philippines than in other countries, adjusting for per capita income levels. In education, the structure of public expenditures is sound, with the bulk of the budget going to primary education while the private sector dominates the provision of tertiary education. The poor, however, do not benefit from the education system as much as they might; rates of return are lowered by high drop-out and repetition rates for children from poor families. Public secondary education also suffers from high unit costs and lower quality, compared to the private sector. Important increases in public health expenditures have been made over the past six years, but these have largely been offset by reductions in private spending. There has been a shift, however, from preventive to curative services in the budget, which has had an adverse impact on the incidence of health expenditures. Some areas remain neglected, including nutrition programs (especially the provision of iron, vitamin A, and iodine supplements), family planning, and women's health. Health risks from urban pollution are also growing, but have been neglected in government programs. Better targeting would make health expendi-tures more cost-effective. In all the social sectors, establishing the relative roles of the public and private sectors and then regulating the private sector are vital, as is raising more financial resources from the private sector and from NGOs.
Safety net The public safety net is not very well developed. How much it benefits the most vulnerable groups is questionable, given the extensive role played by private transfers. If private transfers decline as public transfers rise, the benefits will be shared by private transfer givers. Other programs, such as those benefiting sugar workers, have uncertain equity implications in that rice and corn farmers and coastal fishermen may be equally disadvantaged but not have equal access to the same benefits. Food ration shops run by the National Food Authority are found mostly in urban areas where few truly indigent groups are to be found. The public safety net is likely to remain limited, given present budgetary circumstanc-es.
Poverty Strategy The strategy in the Philippines includes both broad-based growth and specific targeted interventions to support the poor. Some aspects of the broad-based growth strategy are already in place, including macroeconomic stability, internationally competitive prices, market exchange rates, transportation deregulation and decentralization, and a focus on primary health care and primary education. Priorities for what remains to be done include reforming taxes, restructuring public employment, reforming energy pricing and institutions, and rehabilitating existing transport infrastructure. It will also be necessary to strengthen capital markets, including reforming social security policies and restructuring the Central Bank. In addition, at least three groups need special attention -- the indigent, those who are at risk because of natural resource degradation, and those who are at risk from environmental pollution or other health hazards. Measures that should be supported include: (i) low-cost nutritional supplements, especially iodine, vitamin A, and iron; (ii) birth-based targeting and women's health; (iii) environmental projects to clean up water in cities and to improve the health of the urban poor; (iv) improvements in the system for responding to natural disasters; and (v) the substitution of narrow- for broad-based targeting. However, the country would benefit significantly from a strategy that did more to encourage labor-intensive growth.
Statistical System Household data in the Philippines are processed with considerable delay, and major discrepancies exist between poverty measures based on income and those based on expenditure. The Consumer Price Index (CPI) is not a good reflection of the consumption basket of the poor, so it is difficult to assess whether the real poverty line is being held constant over time. The official poverty line is higher than that of neighboring countries because it includes a much higher proportion of higher-value foods in the supply of total calories and allows for a higher proportion of nonfood expenditures.
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