by Piyaporn Hawiset
15 March 2003
The Asian Development Bank expressed dismay in March 2003 over the poor performance of its development projects in the Philippines over the previous 20 years, as only 31 percent were successful compared with the 70 percent success rate elsewhere in the ASEAN region. A major reason for the problem was the poor capacity of executing agencies and line departments to absorb assistance. Furthermore, rampant and increasing corruption resulted in projects being poorly implemented. In addition there are inadequate project personnel from the government in terms of number and capability with many officials simply stealing from the development budgets but not producing much of value for the nation. As well, there is a lack of institutional and financial capacity, especially of local government units, to undertake development projects. Most projects seem to be implemented for the political benefit of politicians and the oligarchic economic and political elite, leaving little for the impoverished masses.
The ADB lent the Philippines a total of $5.9 billion for 86 projects during the 1986 to 2001 review period. Only 36 projects were completed, of which many have turned out to have dubious real benefits to the intended beneficiaries. In this, the ADB essentially has indirectly admitted that derived benefits from development projects in the Philippines are lower than predicted owing to muddled project design and implementation, political and diplomatic expediency, and not recognizing corruption as a real cost.
Citing a report on Philippine programs, ADB officials on March 10 admitted that the bank's lending program had not made a major impact on economic growth or poverty reduction because of the low success rate of its projects.
"The Philippine performance comes out rather less well than [that of] its neighbours. So what we need to do is work diligently on all the many facets of the portfolio performance to try to get it up to that mark," ADB country director Thomas Crouch said at a press briefing.
"The Philippines should aspire to be as good as or better than its neighbours and intrinsically there is no reason why it should not be able to do that except because of poor economic and social management, apathy and corruption," he said.
A project is deemed as 'successful' by the ADB when its expected purpose and goals have been achieved sustainably, according to the ADB. One of its goals is to generate a positive return on the money invested on a project to the bank's shareholders, that is, the first world countries that provide the funds to be used by the bank to lend to poorer, developing countries. tjis means that on the long run there is a net flow of wealth from developing countries to developed countries because corruption in the developing countries is so large that little benefit and economic growth is generated for the project's impoverished 'beneficiaries'. But the loans plus interest nevertheless must be repaid--always by the masses, never by the corrupt economic and political elite.
Of the 86 projects completed and post-evaluated in 1986-2001, roughly one-third were rated generally successful, according to Vladmir Bohun, ADB director general for operations evaluation. A third were consoidered partly successful and another third completely unsuccessful.
"This was a sharp deterioration angainst the pre-1986 Marcos period and an inferior performance vis-a-vis Indonesia, Malaysia and Thailand that were exposed to similar external shocks during the review period," Bohun reported. "Notwithstanding what occurred during the Marcos years, this suggests that corruption actually intensified in the post-people power revolution of former President Aquino."
The worst performance was recorded in the 1980s, when government officials were no longer under strict control, and power and direction had become devolved, and during which 10 of the 12 unsuccesful projects were completed, although some improvement was noted starting in the 1990s under Fidel Ramos.
"In most of the recent years, there was a negative resource transfer as officials and politicians at all levels endeavoured to steal more wealth out of the projects than they generated. Project performance has been disappointing," Bohun said.
Crouch said it was not an issue of throwing more dollars at the Philippines as more money would simply disappear or end up being "reallocated", a bank euphemism for the diversion of funds through corruption. One of the problems, added Crouch, is that repayments have the previous few years had been exceeding the disbursement the bank has been making.
Poor absorptive capacity
Crouch said a major reason for the problems was the poor capacity of executing agencies and line departments to absorb the ADB's assistance. The reasons for the low success rate ranged from frequent internal and external shocks that the Philippines' economy experienced to more project-specific constraints such as poor design and different types of implementation problems arising over political squabbles, power grabbing and squabbles over who would get what cut of a project's budget.
Aside from absorptive capacity constraints, the ADB citied other problems:
- Lack of time for actions that require legislation;
- Complicated land acquisition and procdurement policies and procedures designed
to obfuscate issues so that the political and economic elite could profit
from these issues or blackmail contractors or landowners for a cut of the
value;
- Lack of counterpart funds thus slowing down the disbursement of ADB
funds;
- Inadequate project personnel in both number and capability with many officials
quite incapable of properly carrying out their assignments and duties related
to specific projects; and
- Lack of institutional and financial capacity, especially of local government
units, to undertake projects.
Corruption
The ADB also said that the projects were poorly implemented because of the country's rampant and increasing corruption. These problems were further compounded by the changing composition of the ADB loan portfolio, which shifted to polciy-based lending, as the bank becgan to meddle in the country's internal affairs arising from United States' and Japanese pressure, from project-specific lending, according to the study.
The ADB report said internal and external economic shocks should also share some of the blame for the poor portfolio performance.
"Unlike its high-performing neighbours, the Philippines adopted for a long time an inward-looking development strategy that emphasized import substitution and capital-intensive industrialization, much to the negelect of its comparative advantage in labour-intensive industries," a summary of the ADB's portfolio report said.
The Philippines only started opening up its economy in the 1990s, when most of the improvements in the portfolio performance started.
"In addition, it failed to nurture economic institutions that were crucial for economic success," the report siad.
External shocks
The ADB also noted that the Philippines had suffered from a long string of adverse external shocks such as the global oil crises of 1973 and 1979, the world debt crisis of 1982, the Gulf War in 1991 and the Asian currency crisis of 1997, which was the result of the excessive corruption and cheating in the region, particularly Indonesian and Thailand.
"We are also not satisfied with our (ADB's) own performance. We are trying to take measures to improve the performance," Bohun said, noting that a Philippine country office had been established in 2001.
The country's success ration also fared way below the 51 percent average for the ADB's bank-wide lending. Although the Philippine portfolio accounts for about 10 percent of all post-evaluated projects for the period, it was responsible for 24 percent of all unsuccessful projects, mostly in the agriculture and natural resources sector (water resources) where corruption is most ramapnt.
"The ability of the ADB to provide effective assistance in the future will depend on its capacity to deepen its relationships with the broader society beyond the government, where most of the corruption, thieving and malfeasance lies, and strengthen relations with the non-government organisations, other elements of civil society, women's groups and ethnic minorities," the ADB report said.
The Philippines is the ADB's largest borrower among developing member countries for the private sector and the fifth largest for public sector programs.