VZCZCXRO3639
OO RUEHCHI RUEHCN RUEHDT RUEHHM
DE RUEHML #1050/01 1230447
ZNR UUUUU ZZH
O 020447Z MAY 08
FM AMEMBASSY MANILA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 0577
INFO RUEATRS/DEPT OF TREASURY WASHDC IMMEDIATE
RUCPDOC/USDOC WASHDC IMMEDIATE
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RHHMUNA/CDR USPACOM HONOLULU HI//FPA//

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