International Bank for Reconstn1ction and Development                            87661
                         International Development Association
                           International Finance Corportation
                       Multilateral Investment Guarantee Agency

                                     FOR OFFICIAL USE ONLY
                                    CONFIDENTIAL                                                    EDS98-124
                                                                                                 March 24, 1998


    Board Meeting of March 24, 1998
    Statement by Jan Piercy


                       Philippines Country Assistance Strategy Progress Report

    We appreciate the work of the Bank staff in preparing the CAS Progress Report for the
    Philippines. The document provides a realistic perspective on the impressive economic progress
    that the Philippines has made since 1996 and identifies how contagion from the Asian financial
    crisis has affected the country. We are also appreciative of the opportunity to review QED's
    comments on the document in CODE prior to this meeting. I believe that the sequencing in the
    way that the Board has taken up these documents has contributed to this Chair's better
    understanding of the issues.

    The Bank correctly highlights the Philippine's success in implementing structural reforms under
    the Ramos government. During the last several years, with the assistance of the IFis, the GOP
    has implemented important reforms in trade liberalization, financial sector restructuring and
    infrastructure development in rapid transit, water distribution and electricity generation. The
    country's relative economic stability in the face of regional crisis is a testament to the success of
    these reform efforts.

    To adequately respond to the current financial environment, we can agree with the proposed
    resumption of fast disbursing lending. The Bank's work to strengthen the financial sector is a
    definite priority.

    We would have liked to have seen a greater emphasis in the document on the need to address
    poverty alleviation and development - particularly in education - in rural areas. Moreover, it
    would be helpful to have a more critical analysis of current labor practices in the Philippines,
    with particular emphasis on the developmental and social consequences of unemployment
    caused by the current regional crisis.

    An estimated 40 percent of the population is unable to afford basic food and non-food
    requirements. According to the IMF, "among its ASEAN neighbors, the Philippines is notable
    both for its very high poverty incidence, especially when measured relative to total basic
    expenditure rather than just expenditure on food, and its very slow progress in reducing the rate
    of poverty." The poor are disproportionately located in rural areas.

lThis document has a restricted distribution and may be used by recipients only in the
lperformance of their official duties. Its contents may not otherwise be disclosed without
: \Vorld Bank authorization.
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In education, we note that primary school completion rates range from near universal in metro
Manila to barely 30 percent in the poorest provinces. Public primary education remains
relatively under-financed. We are pleased that the Bank is devoting more space in its analysis of
rural development and poverty alleviation, but we believe that the Bank should be making
greater investments in basic rural health and education in the FY1998-2000 lending plan.

The Bank document also fails to adequately address continuing problems associated with labor
practices in the Philippines and the economic and social risks associated with unemployment or
underemployment stemming from the Asian financial crisis.

We are particularly concerned about labor standards in export zones. A November 1997 World
Bank analysis of the Philippine economy points out that suspension of internationally recognized
worker rights in export zones has created sweatshop conditions. In addition, there is frequent
violation of minimum wage laws in some areas. The World Bank has also noted a "range of
social ills" in export zone communities, arising from concentration large pools of labor (mostly
female) in single locations without adequate facilities.

Lastly, I would like to welcome Juanita Amatong's statement. It is always extremely helpful to
the rest of the Board to have the benefits of such "first hand" perspectives.