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Report and Recommendation of the President to the Board of Directors

Project Number: 43396 June 2012

Proposed Programmatic Approach and Policy-Based Loan for Subprogram 1 Republic of the Philippines: Increasing Competitiveness for Inclusive Growth Program

CURRENCY EQUIVALENTS (as of 1 June 2012)

Currency Unit – peso/s (P)

P1.00 = $0.02297 P43.5300 $1.00 =

ABBREVIATIONS

NOTE

In this report, “$” refers to US dollars.

Vice-President S. Groff, Operations 2 Director General K. Senga, Southeast Asia Department (SERD) Director S. Hattori, Public Management, Financial Sector, and Trade Division, SERD Team leader K. Bird, Principal Economist, SERD Team members I. Ahsan, Counsel, Office of the General Counsel C. de Vera, Operations Assistant, SERD R. Hattari, Economist (Fiscal Management), SERD A. Haydarov, Country Economist, Philippines Country Office, SERD S. Menthonnex, Senior Finance Specialist (Public–Private Partnership and

Nonsovereign Operations), SERD Peer reviewer G. Wignaraja, Principal Economist, Office of Regional Economic Integration In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

ADB – Asian Development Bank DOF – Department of Finance DOJ – Department of Justice DOLE – Department of Labor and Employment DOT – Department of Tourism LIBOR – London interbank offered rate NEDA – National Economic Development Authority PDP – Philippine Development Plan PESO – public employment service office PDMF – Project Development and Monitoring Facility PFM – public financial management PPP – public–private partnership PPPC – Public–Private Partnership Center RIA – regulatory impact assessment SSF – Strategic Support Fund TA – technical assistance TCC – tax credit certificate VAT – value-added tax

CONTENTS Page

PROGRAM AT A GLANCE I. THE PROPOSAL 1 II. THE PROGRAM 1

A. Rationale 1 B. Impact and Outcome 4 C. Outputs 4 D. Development Financing Needs 8 E. Implementation Arrangements 8

III. DUE DILIGENCE 9

A. Economic and Financial 9 B. Governance 9 C. Poverty and Social 9 D. Safeguards 9 E. Risks and Mitigating Measures 10

IV. ASSURANCES AND CONDITION 10 V. RECOMMENDATION 10 APPENDIXES 1. Design and Monitoring Framework 11 2. List of Linked Documents 14 3. Development Policy Letter 15 4. Policy Matrix 23

PROGRAM AT A GLANCE

1. Project Name: Increasing Competitiveness for Inclusive Growth Program (Subprogram 1) 2. Project Number: 43396 3. Country: Philippines 4. Department/Division: Southeast Asia Department Public Management, Financial Sector, and Trade Division 5. Sector Classification

Sectors Primary Subsectors Public Sector Management Economic and public affairs management

6. Thematic Classification: Themes Primary Subthemes Private sector development Policy reforms Capacity development Institutional development Economic growth Promoting economic efficiency and enabling business

environment Governance Economic and financial governance

6a. Climate Change Impact: 6b. Gender Mainstreaming:

Adaptation Mitigation

Gender equity theme Effective gender mainstreaming Some gender benefits No gender elements

7. Targeting Classification: 8. Local Impact:

General Intervention

Targeted Intervention Rural Geographic

dimensions of inclusive growth

Millennium Development

Goals

Income Poverty at Household

Level

Urban National High Regional

9. Project Risk Categorization: Complex

10. Safeguard Categorization: Environment C Involuntary resettlement C Indigenous peoples C

11. ADB Financing: Sovereign/Nonsovereign Modality Source Amount ($ million)

Sovereign Program loan 350.0 Total 350.0

12. Cofinancing: JICA co-financing the program in the amount of $100.0 million equivalent. 13. Counterpart Financing: No Counterpart financing available. 14. Aid Effectiveness:

Parallel project implementation unit No Program-based approach Yes

I. THE PROPOSAL 1. I submit for your approval the following report and recommendation on (i) a proposed programmatic approach for the Increasing Competitiveness for Inclusive Growth Program, and (ii) a proposed policy-based loan to the Republic of the Philippines for subprogram 1 of the Increasing Competitiveness for Inclusive Growth Program.1

2. The program will support the government’s key reform priorities aimed at employment generation by increasing competitiveness in the economy using an inclusive approach through the labor market. The structural reform priorities include efforts to enhance the business climate by promoting competition policy, regulatory efficiency, competitive logistics, and private sector participation in infrastructure through public–private partnership (PPP) projects. The program also supports the government’s efforts to promote competitive labor markets through piloting a job placement program to assist young school leavers find decent jobs (MyFirstJob), piloting an industry-led skills and services development program, and labor policy reforms.

II. THE PROGRAM A. Rationale 3. The government has made decent employment creation one of its central tenets. The Philippine Development Plan (PDP), 2011–2016 aims to create 1 million new jobs per year and maintain the unemployment rate within a narrow range of 6.8%–7.2%.2

Improvements in the business climate and infrastructure to attract investment and create jobs, and programs to improve the skills of young people and address the mismatch of skills in the labor market, form central themes of the economic program.

4. Low investment rate. There was significant growth in private and public investment in the 1990s. The investment rate started to decline after the Asian financial crisis of 1997 and bottomed out at 13.0% in 2005. It had recovered to 15.0% of gross domestic product by 2010 (1988 prices), but is still lower than in most other Southeast Asian economies. A consequence of this lower investment rate has been lower long-term economic growth potential. Asian Development Bank (ADB) staff estimates suggest that the Philippines is under-investing by as much as 5 percentage points of gross domestic product if it is to raise its potential growth to 6.0% from the current level of 5.0%. 5. Weak competitiveness. While there has been a marked improvement in the rankings of the Philippines in key global competitiveness surveys, indicating improved perceptions about the investment climate, the country continues to rate low on an international comparison of competitiveness indicators.3

1 The design and monitoring framework is in Appendix 1.

Several ADB and other diagnostic studies found that high business compliance costs in the regulatory environment, the prevalence of anticompetitive regulation and practices in several key services sectors, and high costs in trade logistics affected the competitiveness of the Philippines economy. Inefficiencies in tax policy and tax administration hurt exporters of goods and services. The Philippines is under-investing in infrastructure due to limited national budget resources and a weak regulatory framework for infrastructure projects

2 Unemployment rate is 7.2% in January 2012. 3 The 2012 Global Competitiveness Index ranks the Philippines 75th out of 142 countries, up 10 places from 2011.

The 2012 Heritage Foundation Index of Economic Freedom ranks the Philippines 107th out of 179 countries, up eight places over the previous year. The 2012 World Bank Group Doing Business Index ranks the Philippines 136th out of 183 countries, down two places from the 2011 report.

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under the 1990 Build–Operate–Transfer (BOT) Law. Inadequate skills of workers in key sectors and structural rigidities in the labor market have also affected competitiveness of the economy.4

6. Labor market and employment generation. While higher and sustainable economic growth is necessary to create more jobs, it is not sufficient as there are structural and policy impediments to employment generation. The 2012 ADB study on youth labor market experience found that high school leavers and dropouts have a difficult time integrating into the labor market. 5

It can take them up to 4 years to find a wage job compared with 2 years for college graduates, and only 50% of high school leavers actually find wage employment indicating a sizeable proportion of young persons excluded from productive employment. Several factors contribute to this slower transition to the workplace for high school leavers. First, economic growth averaging 5.0% per annum has been insufficient to create enough wage jobs for the 1 million new labor market entrants each year (economic growth above 6.0% is needed). Second, the labor market has been undergoing a structural change with an increased demand for skilled workers. This change has resulted in a widening skills mismatch in the labor market as many high school leavers are ill-equipped for entry into the labor market. Third, public provisioning of employment services to connect job seekers with jobs is in the early stages of development and not well targeted. There is limited labor market information available to school leavers. Fourth, some labor regulations have dampened employment growth.

7. Philippine Development Plan, 2011–2016. The government recognizes these constraints on the investment climate and on employment generation. The PDP, 2011–2016 has improving the competitiveness of industry and services as a core component, and its agenda includes creating a better business environment and promoting PPP projects in infrastructure. ADB’s country partnership strategy, 2011–2016 is consistent and aligned with the PDP. 6 It has set expansion in investment as an outcome indicator. ADB has extensive experience in assisting with improving the investment climate in the Philippines, including assistance to the energy sector, capital market development, road infrastructure, and the business climate.7

Lessons learned from these programs include: (i) policy reforms are more likely to show impact if they are performance-based measures; (ii) interventions are also required to operationalize policy reforms at the ground level; and (iii) programs should embed evaluation and monitoring frameworks to assist governments with evidenced-based policy development.

8. In response to private sector demands for structural reforms to specific sectors that hold promise for further lifting economic growth, the government has also prioritized support for several sectors in the PDP, 2011–2016. 8

4 Sector Assessment (Summary): Public Sector Management - Investment Climate (accessible from the list of linked

documents in Appendix 2).

The tourism sector has been identified by the government and private sector for longer-term development based on its recent growth performance, job creation possibilities across the archipelago, and positive externalities to other sectors. The challenges facing the tourism sector are also reflective of the challenges facing the

5 Sector Assessment (Summary): Youth School-to-Work Transition (accessible from the list of linked documents in appendix 2).

6 ADB. 2011. Country Partnership Strategy: Philippines, 2011–2016. Manila. 7 ADB. 2008. Philippines Country Assistance Program Evaluation: Increasing Strategic Focus for Better Results.

Manila. 8 Joint Foreign Chambers. 2010. Arangkada Philippines 2010. Manila, identifies tourism, business processing

outsourcing, creative industries, infrastructure, manufacturing and logistics, agribusiness, and mining as seven big sectors with promising growth prospects. International Monetary Fund. 2007. Philippines Selected Issues. Country Report No. 07/131. Washington, DC, also noted the services sector holds promise for lifting growth in the Philippines.

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economy as a whole: the 2011 World Economic Forum Tourism and Travel Competitiveness Index ranks the Philippines 94th out of 139 countries. To address this, and with support under the program, the government has put together a package of structural reforms to promote a conducive business environment in the sector, PPP infrastructure investments to improve connectivity between different destinations, and interventions to improve service standards and industry skills. It is in this context that the government and the private sector believe that successful implementation of these structural reforms in the tourism sector could provide a potential demonstration model for reforms in other sectors of the economy. The logistics sector has also been identified by government and the private sector for development based on its economy-wide linkages. The logistics sector remains high cost for air, sea, and road transportation affecting competitiveness of industry and services sector. The government intends to address this through reforms to the aviation sector (“open skies” policy and tax reform), improvements in port management and customs procedures. 9. The program builds on and complements other ADB programs promoting governance reforms in the Philippines, such as the Governance and Justice Sector Reform Program, completed in December 2011. 9 Also, ADB’s technical assistance (TA) on public financial management (PFM) is assisting implementing agencies under the program to enhance internal control and audit systems. 10 Previous ADB programs supporting technical and vocational education in the Philippines have laid down the infrastructure for the tourism industry skills intervention under the program (para. 11).11

10. The Programmatic Approach. The program comprises of two subprograms enveloped by a medium-term results-based framework. The program has identified three outputs critical for raising competitiveness and promoting labor market inclusiveness: (i) structural policy reforms to promote competitiveness through a better competition policy, regulatory efficiency, and competitive trade logistics; (ii) creating an efficient market for infrastructure through PPP projects; and (iii) promoting competitive labor markets to address structural weaknesses and generate employment. The program includes a set of high-impact structural policy reforms (such as competition policy, regulatory reform, tax, and trade logistics) designed to potentially benefit all sectors. It also adopts a package of deeper structural policy reforms and assistance to specific leading sectors, starting with the tourism sector and logistics in subprogram 1. Other sectors on a case by case basis may be considered for structural reforms in subprogram 2.12

11. The program includes three innovative interventions that apply policy and make it operational on the ground with clearly defined and measurable performance indicators. Subprogram 2 loan disbursement will be based on progress with these performance indicators. The proposed youth job placement program, referred to as MyFirstJob, will be a flagship program of the Department of Labor and Employment (DOLE). Drawing on successful models in Latin America, Canada, and Europe, MyFirstJob will provide job placement assistance to high school leavers to help them better integrate into the labor market. Services that will be provided include career counseling and grants for vocational training linked to internships with public and private sector employers. The MyFirstJob pilot will be implemented through public employment service offices (PESOs) in three localities in subprogram 2 and aims to target 1,600 school leavers, of which 50% will be women. Another innovative intervention is the establishment of the 9 ADB. 2011. Report and Recommendation of the President to the Board of Directors: Proposed Policy-Based Loan

to the Republic of the Philippines for Governance in Justice Sector Reform Program. Manila. 10 ADB. 2011. Completion Report: Development Policy Support Program in the Philippines. Manila. 11 ADB. 2000. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the

Republic of the Philippines for Technical Education and Skills Development Project and Fund for Technical Education and Skills Development. Manila

12 Diagram: Structure of ICIG Program (accessible from the list of linked documents in Appendix 2).

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PPP of the Department of Tourism (DOT) in service standards and skills development in the tourism sector. The skills development program will include industry-led upgrading of curriculums, and a matching grants program for industry to fund training of workers in the tourism sector. The pilot will be initiated in subprogram 2 and will target approximately 5,000 tourism workers. The industry skills program will also be complemented by the new hotel quality assurance and accreditation system aimed at raising services standards in the sector. The accreditation system includes new hotel standards aligned with international benchmarks. A third-party international assessor will be engaged to assist with the pilot to ensure credibility in the new hotel rating system. Both the skills development and hotel accreditation interventions will be piloted in a few selected tourism destinations to produce successful demonstration models that can be rolled out nationally. The final intervention is the establishment of the regulatory impact assessment (RIA) program in key departments to improve the quality of regulations. The RIA promotes transparent, evidence-based policy development in government. It is intended that the programs will be rolled out nationally after completion of the pilots. ADB is preparing separate TA to support the DOLE and DOT to design, implement, and fund the pilots.13

12. Third, the program will have built-in monitoring and evaluation frameworks to assist the government with evidenced-based policy making aimed at building stronger political support for eventual national rollout of the pilot programs. The evaluations could also guide government and development partners in adopting these models for other sectors. The monitoring and evaluation frameworks will be funded under the separate TA (footnote 13). Baseline data will be collected for each pilot and performance of participants in the pilots (treatment groups) and comparable nonparticipants (control groups) will be tracked over a 2–3–year period to enable a rigorous impact evaluation of the results of the pilots. 13. The program has been jointly formulated by the Government of the Philippines, ADB, and the Government of Japan. The Government of Japan (through the Japan International Cooperation Agency, JICA) is cofinancing components 1 and 2 of the policy-based loan for subprograms 1 and 2. The JICA will cofinance subprogram 1 in the amount of $100 million equivalent. The Government of the Philippines (through the Department of Finance) has coordinated the reform agenda with other development partners through established coordination mechanisms such as the National Competitiveness Council.14

B. Impact and Outcome 14. The impact of the program is an improved investment climate. The benchmark will be improvements in key global competitiveness indicators. The growth inclusiveness element of an improved investment climate is measured by the expansion in the number of young people employed in full-time wage jobs. Wage employment provides higher economic returns to schooling than informal employment, and evidence points to wage employment helping families escape from poverty (footnote 5). The outcome of the program will be improved competitiveness of selected sectors. C. Outputs 15. Subprogram 1 supports the government’s efforts in improving competitiveness and inclusiveness in three outputs: (i) structural policy reforms to the economy, (ii) creating an 13 Two proposed TA projects are being processed to provide assistance to DOT and DOLE to pilot the programs in

subprogram 2. The Government of Canada (through the Canadian International Development Agency) is considering financing the two proposed TA projects with a grant of $12,500,000.

14 Development Coordination (accessible from the list of linked documents in Appendix 2).

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efficient market for infrastructure projects through PPP projects, and (iii) promoting competitive labor markets. All 25 policy measures required for subprogram 1 have been fully accomplished.

1. Output 1: Structural Policy Reforms to Promote Competitiveness 16. Subprogram 1 supports the government in initiating a competition policy and measures to promote competitive trade logistics. 17. Competition policy and regulatory efficiency. The government has initiated steps to develop a robust competition policy framework. Its approach adopts three pillars: (i) develop a competition policy law, (ii) institutionalize RIAs in government, and (iii) undertake sector-by-sector competition and regulatory reforms. It is recognized that this is a long-term agenda. Under subprogram 1, the following measures were accomplished to start the development of a competition policy. First, in June 2011, a presidential executive order was issued mandating the Department of Justice (DOJ) to lead the implementation of a competition law as a precursor to Congress passing a competition law. A departmental order was issued establishing the Office for Competition at the DOJ, and the office was provided with a startup budget in 2012. Under subprogram 2, capacity development activities at the office will be carried out and the office made operational. Second, the government started implementing RIA through accomplishing the following critical institutional steps: (i) a memorandum of agreement between DOT and DOLE to pilot RIAs in the departments; (ii) DOT and DOLE designated focal persons responsible for overseeing RIA implementation in the respective agencies; and (iii) 2012 work plans drafted by DOLE and DOT identifying regulations to be subject to RIA. The DOLE will subject the review of the Labor Code to the RIA process and DOT will use RIA to assess the impact on the business community of proposed implementing regulations and standards under the 2009 Law on Tourism. Under subprogram 2, RIA will be extended to 2–3 other agencies and a legal framework for establishing an office of better regulatory practice will be drafted. Ongoing ADB TA is providing capacity building support for the RIA program.15

18. Promoting competitive trade logistics. A major reform to the logistics market is the government’s “open skies” reforms. Presidential Executive Order 29 was issued in 2011 providing for open skies in the domestic aviation sector, whereby the Philippine Air Panels (which negotiates agreements on landing rights) may offer and promote freedom rights to the country’s airports other than Ninoy Aquino International Airport without restriction on frequency, capacity, and type of aircraft. Tax distortions have also prevented a conducive business environment between domestic and foreign carriers in the domestic aviation and shipping markets. In subprogram 2, with ADB TA, the government will draft amendments to the tax code abolishing the common carrier tax applied to gross cargo and passenger revenue of foreign-owned carriers. Both these reforms will align the Philippines aviation sector with neighboring economies and will boost the competitiveness of the logistics sector benefiting a wide range of industries including tourism. 19. Another major reform benefiting exporters of goods and services is the reform to VAT refunds for enterprises. Until 2011, enterprises received tax credit certificates (TCCs) for VAT refunds, instead of cash refunds commonly used elsewhere in the region. The TCC approach tied up the working capital of firms and, therefore, significantly raised their cost of working capital. With analytical support funded by JICA, the government has abolished the TCC system and will make cash refunds, starting with new VAT refunds in 2012. The 2012 General Appropriations Act (national budget) allocated P9.3 billion for VAT cash refunds in 2012. Encashment of the stock of TCCs will occur during subprogram 2. As a result of this reform,

15 ADB. 2011. Philippines: Strengthening Institutions for an Improved Investment Climate. Manila.

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ADB staff estimate that exporters could save up to $150 million on the cost of working capital over the program medium-term period of 2011–2016. Other accomplishments aimed at improving trade logistics include (i) the Bureau of Customs including in its 5-year strategic plan measures for improving customs clearance and for aligning customs procedures with international standards under the ratified Revised Kyoto Convention on the simplification and harmonization of customs procedures; and (ii) the government, through the Department of Transportation and Communications and port authorities, agreeing to improve container traffic and revenue performance at the Manila, Subic, and Batangas ports in an effort to ease container congestion at the Manila port. The government is drafting a ports utilization plan containing concrete measures to decongest the Manila port. These measures will be implemented in subprogram 2.

2. Output 2: Creating an Efficient Market for Infrastructure Projects through Public–Private Partnerships

20. Subprogram 1 supports the government in creating a world class PPP for infrastructure as one financing modality for addressing the underinvestment in infrastructure.16

21. Strengthening the public–private partnership policy, regulatory, and institutional framework. In 2010, the government announced the promotion of PPPs in infrastructure as a central priority of its economic agenda. As a first step, in September 2010, the government restructured the build–own–transfer center into the Public–Private Partnership Center (PPPC), an agency attached to the NEDA. Building on this reform in subprogram 1 and with ADB’s TA on PPP in infrastructure, the government implemented a series of measures to strengthen the PPP governance framework and build capacity of the PPPC with the aim of improving service delivery.17 These accomplishments included (i) The NEDA drafted amendments to Presidential Executive Order 8 (2010) to streamline functions of the PPPC and strengthen the operations of the Project Development and Monitoring Facility, which helps prepare PPP projects. The presidential executive order will be issued during subprogram 2. (ii) The government drafted and circulated amendments to the implementing rules and regulations of the BOT Law to address regulatory impediments to PPPs in infrastructure, and drafted amendments to the joint-venture guidelines to ensure consistency with the PPP regulatory framework. These legislative and regulatory measures will be completed in subprogram 2. (iii) To advance the preparation of PPP projects prepared by the PPPC, the PPPC established a panel of firms for fast-track selection of PPP project development consultants. Under subprogram 2, the Project Development and Monitoring Facility will provide support for carrying out six feasibility studies for PPP projects. Recently, much progress has been made in bringing PPP projects to the competitive bidding stage. Through the PDMF, nine projects are being prepared for competitive bidding in 2012, of which three PPP projects are new international and domestic airports in support of tourism infrastructure.18

22. The government introduced measures to provide for sustainable financing of public–private partnership projects. Under subprogram 1, the government carried out the following measures to provide budgetary support to the PPPC and develop instruments for sustainable financing of PPPs: (i) The 2012 national budget allocated total funding of P19.6 billion to the Strategic Support Fund (SSF) and P161.0 million to the PDMF to finance preparation of PPP projects and public capital expenditure. The NEDA board’s Investment Coordination Committee’s guidelines for the use of the SSF were issued. (ii) The Department of 16 Sector Assessment (Summary): Public–Private Partnerships in Infrastructure (accessible from the list of linked

documents in Appendix 2). 17 ADB. 2011. TA-7796 PHI: Strengthening Public–Private Partnerships in the Philippines. Manila. 18 These are the Laguindingan Airport, new Bohol Airport, and Mactan-Cebu international airport.

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Finance (DOF) initiated a study on identification of risks, management, and funding of contingent liabilities arising from PPP projects and initiated a study on the mechanisms of government financing of its share in PPP projects. Under subprogram 2, the government will formulate a policy on financing and contingent liabilities.

3. Output 3: Promoting Competitive Labor Markets 23. Subprogram 1 supports the government in implementing measures and programs to improve youth job placements, improve skills development in the workplace, and address other structural rigidities in the labor market with the aim of stimulating job growth. 24. MyFirstJob pilot. The government is addressing the slow school-to-work transition for young persons with its proposed MyFirstJob pilot. To initiate the pilot, the government undertook several institutional and capacity development measures: (i) DOLE has been advocating among local government units to institutionalize PESOs as permanent, staffed, and funded agencies of local government units. As of December 2011, 89 PESOs had been institutionalized, placing approximately 95,000 people into jobs. With the assistance of the International Labor Organization, DOLE has provided capacity building support to the PESOs in employment facilitation, including staff training in coaching and counseling. (ii) DOLE drafted labor market information materials for dissemination among the public and high schools with the aim of improving awareness among young people about career opportunities. Subprogram 2 will extend these efforts through further capacity building measures at the PESOs and implementation of the MyFirstJob pilot. Under ADB TA, work on the design of the MyFirstJob pilot is ongoing (footnote 15). 25. Private–public partnership in tourism industry skills and service development. Employers in several sectors complain about the skills mismatch of many school leavers and the emerging shortages of skilled workers. The government recognizes these constraints on competitiveness and employment and is trying to address them through both crosscutting interventions and sector-specific programs. Under subprogram 1, the following measures have been instituted to set out the foundations for skills development, starting with the tourism sector: The DOT endorsed the National Tourism Development Plan, 2011–2016. Key features of the plan relevant to the program include (i) recommended adoption of a PPP framework for accreditation and certification of tourism service providers, and (ii) a PPP in tourism industry skills development. Ongoing ADB TA is supporting the DOT to design and develop the PPP in industry skills development and a matching grants fund. The skills development program and fund will be made operational in subprogram 2; to improve service standards, the government (through the DOT) drafted new standards for hotels and resorts consistent with international standards. Piloting of the new standards will be carried out in subprogram 2. 26. Employment policies and programs. The government, in collaboration with other stakeholders, initiated actions to improve labor and employment policies and programs with the aim of generating employment and improving access to decent employment. These accomplishments included the following: (i) DOLE initiated a comprehensive review of the labor code with the aim of improving quality employment facilitation and addressing structural impediments in the labor market. The review will be carried out by DOLE staff under the RIA initiative with TA from ADB (footnote 15). A tripartite committee comprising government, employers, and union groups will oversee the review. Key recommendations for reforming aspects of the Labor Code are expected in late-2012. (ii) DOLE completed a series of studies to identify policies to mitigate labor market risks, such as unemployment insurance and risks from climate change and natural disasters. (iii) In 2010, the government established the

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Community-Based Employment Program, which is the umbrella for the different public employment programs in several departments. This program will be evaluated in subprogram 2. 27. Triggers for subprogram 2 and medium-term results framework. The program has specified (i) 15 policy triggers that need to be satisfactorily accomplished by early 2014, and (ii) a set of medium-term expected results. The triggers advance accomplishments under subprogram 1 with the primary focus on employment facilitation systems, skills development, promoting competition policy, tax reform, lowering costs of trade logistics, and advancing the preparation of PPP projects (Appendix 4). D. Development Financing Needs 28. To support its reform initiatives, the government has requested a single tranche loan of $350,000,000 from ADB’s ordinary capital resources to help finance subprogram 1 of the program. The loan will have a 15-year term, including a grace period of 3 years, an annual interest rate determined in accordance with ADB’s London interbank offered rate (LIBOR)-based lending facility, a commitment charge of 0.15% per year, and such other terms and conditions set forth in the draft loan agreement. The government has provided ADB with (i) the reasons for its decision to borrow under ADB’s LIBOR-based lending facility based on these terms and conditions, and (ii) an undertaking that these choices were its own independent decision and not made in reliance on any communication or advice from ADB. The loan proceeds will be used to finance the full exchange cost (excluding local taxes and duties) of items produced and procured in ADB member countries, excluding ineligible items and imports financed by other bilateral and multilateral sources. In accordance with the provisions of ADB’s Simplification of Disbursement Procedures and Related Requirements for Program Loans,19

the proceeds of the policy-based loan will be disbursed to the Republic of the Philippines as the borrower.

29. The subprogram 1 loan proceeds will support key development spending in the 2012 budget, including (i) budget allocation of P9.3 billion to fund the VAT cash refund policy trigger under subprogram 1; (ii) budget allocation of P22.1 billion to fund the SSF and P161.0 million to the PDMF to finance the public sector share of capital spending and project preparation costs for PPP projects; and (iii) other spending items in the 2012 budget such as for the start up of the Office of Competition at the DOJ, capacity development of the PESOs, and the review of the Labor Code, among other things. The indicative loan amount for subprogram 2 is $350,000,000 from ADB’s ordinary capital resources. It will support key development spending in the 2013 and 2014 budgets (policy triggers) including VAT cash refunds, SSF, PDMF, competition office, and industry skills development fund. The loan will also offset the reduction in tax revenues of approximately $80 million per annum resulting from the abolition of the 3.0% common carrier tax on foreign carriers. E. Implementation Arrangements 30. Subprogram 1 period is from August 2010 to October 2012 and the subprogram 2 period is from April 2012 to October 2014. The DOF will be the executing agency for the program and will be responsible for the overall implementation of subprogram 1 and the medium-term results framework. The program implementing agencies — DOJ, DOLE, DOT, the Department of Trade and Industry, the Department of Transportation and Communications, NEDA, the Bureau of Customs, and the Bureau of Internal Revenue — will be responsible for day-to-day implementation of subprogram 1. The DOF will coordinate with implementing agencies and

19 ADB. 1998. Simplification of Disbursement Procedures and Related Requirements for Program Loans. Manila.

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meet with them as required to monitor progress on subprogram 1 reforms. The National Competitiveness Council will consult with representatives of the key chambers of commerce —such as the Japanese Chamber of Commerce and Industries and the Joint Foreign Chambers of Commerce — to provide feedback to the DOF and implementing agencies on program implementation, impact, and other issues affecting competitiveness.

III. DUE DILIGENCE A. Economic and Financial 31. The size of the program loan is based on (i) the relative importance of the sector to the economy and the weight of the benefits of the reform program, (ii) the policy adjustment costs incurred by the government and stakeholders in implementing and complying with reforms, and (iii) the need to conform to the overall financing requirement of the country partnership strategy period. ADB staff simulations indicate that the benefits of the reforms over the program’s medium-term period—from 2011 to 2016—could be at least $1.87 billion (in 2010 prices). These economic benefits arise from a reduction in business costs of compliance with licensing, lower costs of trade logistics, an improved competition policy, and increased investment in infrastructure. The policy adjustment costs to the government and the private sector are conservatively estimated at $966 million discounted over the program’s medium-term period. These adjustment costs include the administrative, enforcement, and fiscal costs to the government in implementing the reforms and direct budgetary funding of the SSF and PDMF. There are also substantial revenue transfers from the public sector to the private sector that could amount to $1.47 billion discounted over the program’s medium-term period. These arise from reforms to the VAT refund system and the abolition of the common carrier tax. 20

B. Governance 32. Improved governance and anticorruption efforts are core priorities of the new government. The government’s PFM plan was announced in February 2011, and it includes a series of short- to medium-term reforms building on previous accomplishments made since 2006. The plan is supported by development partners. ADB has supported PFM reforms since 2006, starting with the Development Policy Support Program loan completed in 2009, and associated PFM TA focusing on public debt management (footnote 9). ADB’s Anticorruption Policy (1998, as amended to date) was explained to and discussed with the government. C. Poverty and Social 33. Subprogram 1 is categorized as some gender benefits and subprogram 2 is proposed as effective gender mainstreaming. Unemployment rates are higher among young women than young men. The program aims to address this gender employment gap through a set of policy measures and interventions. Key interventions include setting quotas of 50.0% or more for young women participating in the MyFirstJob pilot and 55.0% or more for young women accessing skills training under the Tourism Skills Development Program. Both DOLE and DOT will also develop gender-responsive manuals for these two pilot programs. In PPP infrastructure projects, gender-sensitive checklists will be produced and completed at the design stage. D. Safeguards 34. The program does not trigger the safeguard policies and is categorized C for the environment, involuntary resettlement, and indigenous peoples. The following are agreed upon, 20 Summary Program Impact Assessment (accessible from the list of documents in Appendix 2).

10

and will be incorporated into the legal agreement. Consistent with its commitment to good governance, accountability, and transparency, ADB reserves the right to investigate, directly or through its agents, any alleged corrupt, fraudulent, collusive, or coercive practices relating to the program. The government agreed to cooperate, and shall cause any and all government offices, organizations, and entities involved in implementing the program to cooperate fully with any such investigation and to extend all necessary assistance, including providing access to all relevant books and records, as may be necessary, for the satisfactory completion of any such investigation. E. Risks and Mitigating Measures 35. There are four main risks to the program that are rated low to medium and are expected to be outweighed by the benefits of the program. These risks are that (i) there will be weak interagency coordination; (ii) the capacity of agencies to implement reforms may be constrained by resources; (iii) the reform agenda remains sensitive to political interests; and (iv) increased risks to global financial markets slows economic growth and limits budget resources to fund the program commitments. Measures to mitigate these risks are put in place and include public-private coordination and monitoring of reforms.

IV. ASSURANCES AND CONDITION 36. The government has assured ADB that implementation of subprogram 1 shall conform to all applicable ADB policies, including those concerning anticorruption measures, safeguards, gender, procurement, and disbursement as described in detail in the loan agreement. The loan will not be declared effective until the government, through the DOF, has fulfilled all conditions as set out in the Policy Reform Matrix (Appendix 4).

V. RECOMMENDATION 37. I am satisfied that the proposed programmatic approach and policy-based loan would comply with the Articles of Agreement of the Asian Development Bank (ADB) and recommend that the Board approve:

(i) the programmatic approach for the Increasing Competitiveness for Inclusive Growth Program; and

(ii) the loan of $350,000,000 to the Republic of the Philippines for subprogram 1 of the Increasing Competitiveness for Inclusive Growth Program, from ADB’s ordinary capital resources, with interest to be determined in accordance with ADB's London interbank offered rate (LIBOR)-based lending facility; a term of 15 years, including a grace period of 3 years; and such other terms and conditions as are substantially in accordance with those set forth in the draft loan agreement presented to the Board.

Haruhiko Kuroda President 1 June 2012

Appendix 1 11

DESIGN AND MONITORING FRAMEWORK

Design Summary

Performance Targets and Indicators with Baselines

Data Sources and Reporting Mechanisms

Assumptions and Risks

Impact Improved investment climate

By mid-2018: (i) Philippines ranking in global surveys of competitiveness improved by at least 15 places: (2010 baseline: ranked 87th in the World Economic Forum Global Competitiveness Report; 109th in the Heritage Foundation Economic Freedom Index; 134th in the World Bank Group Doing Business Survey); and (ii) youth full-time wage employment increased by an average of 5.0% per annum (2010 baseline: average 3.4% growth in 1991–2010)

National Statistics Office household labor force survey World Economic Forum Global Competitiveness Report Heritage Foundation Economic Freedom Index Work Bank Group Doing Business

Assumption Macroeconomic stability maintained Risk Lack of effective coordination among national government departments

Outcome Improved competitiveness of selected sectors

By December 2015: (i) number of persons found jobs through institutionalized PESOs increased by 10% per annum (2010 baseline: average 1,000 persons per PESO), (ii) cost of rules and regulations for key licenses reduced by 15% (baseline 2012), (iii) Philippines ranking in global logistics index improved by at least 10 places (2010 baseline), and (iv) Philippines ranking in global tourism and travel competitiveness index improved by at least 15 places (2010 baseline)

Department of Labor and Employment annual PESO data ADB red tape survey 2012 and 2014 Official Gazette of the Republic of the Philippines World Economic Forum Global Competitiveness Report on Tourism and Travel

Assumption Government stays on course with key business regulatory reform Risk Lack of commitment and willingness of government agencies and stakeholders to participate in implementing reforms

Outputs 1. Structural policy reforms to promote competitiveness implemented

By end of 2014: (i) at least three complaints of anticompetitive practices investigated (2011 baseline: no data), (ii) RIA piloted at five national departments or agencies with at least half pilots with women focal persons (2011 baseline: no data),

DOJ Office of Competition annual report Department administrative orders from Department of Labor and Employment, DOT, NEDA, and two others

Risks Weak interagency coordination Capacity of agencies to implement reforms may be constrained by resources and other emerging priorities

12 Appendix 1 12

Design Summary




(iii) at least 15 RIAs completed by all pilots (2011 baseline: no data), (iv) at least 50% of stakeholders consulted through the RIA process are women (2011 baseline: no data), (v) at least 90% of eligible value-added tax refunds made within the 120/60 day rule and encashment of all outstanding tax credit certificates completed (2011 baseline: no data), (vi) increased container traffic at the Subic and Batangas ports (2010 baseline: Subic 34,318 TEU and Batangas 6,194 TEU), and (vii) number of foreign tourist arrivals to Philippines increased by 10% per annum (baseline: average 4.0% per annum growth in 1991–2010)

Published RIAs by agencies piloting RIA Completed RIA checklists DOF (Bureau of Internal Revenue) annual tax reports, surveys of investors DOTC annual reports on Subic and Batangas port sales National statistics on tourism arrivals, National Statistics Office

Competition policy reforms and reducing red tape efforts may face strong resistance from vested interests in the public service (regulatory agencies), industry, and agriculture

2. Efficient market for infrastructure projects through PPPs enhanced

(i) Six competitively tendered PPP projects, of which two are gender responsive, are implemented (2011 baseline: no data); and (ii) at least 100 staff members involved with PPP in DOF, NEDA, DBM, and line ministries trained in PPP, at least 30% are women

Government reports including from DOF, NEDA, and other line departments and agencies ADB technical assistance reports

3. Competitiveness of labor markets improved

By December 2014: (i) increased number of institutionalized PESOs with standard labor market information and employment intermediation systems in place to 100 (2011 baseline: 89); (ii) at least 1,600 youths placed in internships through the MyFirstJob pilot, of which at least 50% are female school leavers (2011 baseline: no data); (iii) at least 5,000 people accessed skills development through the PPP Tourism Industry Skills Development Program pilot, with at least 55% women workers (2011

Department of Labor and Employment and PESO annual reports Department of Labor and Employment annual report on the MyFirstJob pilot DOT annual report on the skills development pilot

Appendix 1 13

Design Summary




baseline: no data available); (iv) 100 hotels accredited under the new national quality assurance system pilot (2011 baseline: no data).

DOT data on hotel accreditation and annual report on the accreditation pilot

Activities with Milestones 1. Structural policy reforms to promote competitiveness implemented 1.1. Presidential executive order was issued providing for increased “open skies” whereby international airlines are permitted to fly directly from abroad to domestic destinations other than Manila. 1.2. The government (through DTI and BOI) started implementing PIPP sector plans and continued PIPP steering committee and technical working group meetings (2011). 2. Efficient market for infrastructure projects through PPPs enhanced 2.1. The PPPC established a panel of firms for fast-track selection of PPP project development consultants. The panel and the PDMF guidelines, approved by the PDMF board, were published on the PPPC’s website (Dec 2011). 2.2. The government (through NEDA) submitted to Congress comments on the amendments to the BOT law, including on increasing the number of days for Swiss challenge (2011). 2.3 The government (NEDA) initiated review of (i) the government’s PPP institutional set-up, and (ii) other PPP-related legislation to ensure harmonized legal and regulatory framework for PPPs. The government drafted guidelines for joint-venture inclusion in the PPP approval process. 2.4. DOF initiated studies on identification of risks, management and funding of contingent liabilities arising from PPP projects, and the mechanisms on government financing of its share in PPP projects. 3. Competitiveness of labor markets improved 3.1. DOLE Employment Creation Strategy, 2011–2016 was endorsed and published (August 2011). 3.2 DOT Tourism Development Strategy and Action Plan endorsed and published (August 2012) 3.3 The government (through DOLE) continued advocating the institutionalization of PESOs at the local government unit level. In 2010 and 2011, 89 PESOs were institutionalized, placing approximately 95,000 persons in jobs (by end of 2011). 3.4. The government (through DOT), together with the TESDA and the Tourism Industry Board Foundation, initiated review of training regulations to ensure consistency and harmonization with the Philippines commitment under the ASEAN Mutual Recognition of Tourism Professionals (by end of 2011). 3.5 The government (through DepEd, CHED, and TESDA) in collaboration with PEZA set up a committee to develop curriculum for kindergarten to year 12 basic education program, including technical vocational training (Dec 2011). 3.6 The government (through DOLE) initiated a comprehensive review of the labor code (September 2011). 3.7 DOLE completed study on options for establishing unemployment insurance.

Inputs Policy-based loans Subprogram 1: $350 million (2012 Subprogram 2: $350 million (2014)

ADB = Asian Development Bank, ASEAN = Association of Southeast Asian Nations, BOI = Board of Investments, BOT = build–own–transfer, CHED = Commission for Higher Education, DBM = Department of Budget and Management, DepEd = Department of Education, DOF = Department of Finance, DOJ = Department of Justice, DOT = Department of Tourism, DOTC = Department of Transportation and Communications, DTI = Department of Trade and Industry, NEDA = National Economic and Development Authority, PDMF = Project Development and Monitoring Facility, PESO = Philippine employment service office, PEZA = Philippines Economic Zone Authority, PIPP = Philippine Investment Priority Plan, PPP = public–private partnership, PPPC = Public–Private Partnership Center, RIA = regulatory impact assessment, TESDA = Technical Education and Skills Development Authority, TEU = twenty-foot equivalent. Source: Asian Development Bank.

14 Appendix 2

LIST OF LINKED DOCUMENTS http://www.adb.org/Documents/RRPs/?id=43396-013-3

1. Loan Agreement 2. Sector Assessment (Summary): Public Sector Management - Investment Climate 3. Contribution to the ADB Results Framework 4. Development Coordination 5. Country Economic Indicators 6. International Monetary Fund Assessment Letter 7. Summary Poverty Reduction and Social Strategy 8. Risk Assessment and Risk Management Plan 9. List of Ineligible Items Supplementary Documents 10. Summary Program Impact Assessment 11. Sector Assessment (Summary): Youth School-to-Work Transition 12. Sector Assessment (Summary): Public–Private Partnerships in Infrastructure 13. Problem Tree and Diagram: Structure of ICIG Program

http://www.adb.org/Documents/RRPs/?id=43396-013-3�

Appendix 3 15

16 Appendix 3

16 A

ppendix 4

Appendix 3 17

Appendix 4

17

18 Appendix 3

18 A

ppendix 4

Appendix 3 19

Appendix 4

19

20 Appendix 3

20 A

ppendix 4

Appendix 3 21

Appendix 4

21

22 Appendix 3

22 A

ppendix 4

Appendix 4

23

POLICY MATRIX

Policy Actions [ADB and JICA assistance]

Subprogram 1 (Q3 2010–Q1 2012)

Triggers in bold

Subprogram 2 (2012–2014)

Triggers in bold

Medium Term direction and

expected results (2010–2016)*

1. Structural Policy Reforms to Promote Competitiveness 1.1 Competition policy and regulatory efficiency ADB TA (JFPR) provide support to the RIA activities in 2011-13 g/ JICA TA to support capacity building on competition policy, 2010-2013.

The Government has implemented a series of measures to set the foundations for improved domestic competition, regulatory transparency and efficiency. These accomplishments included:

1. Government started implementing regulatory review pilots in three departments. These steps included (i) Memorandum of Agreement (MoA) between, DOLE, and DOT to pilot regulatory impact assessment (RIA) programs, (ii) DOLE, and DOT designated RIA focal person(s), of which one of the two is a woman, and (iii) DOLE and DOT started drafting RIA work plans for 2012. a\

2. Presidential Executive Order (EO) issued pronouncing Government commitment to promoting competition policy. The EO assigned the Department of Justice (DOJ) as the focal point and responsible for establishing a competition office. DOJ issued department order establishing the Office for Competition.

The Government started implementing reforms to competition policy, regulatory transparency and efficiency. These include: 1. The Government submits draft Presidential EO for the establishment of an office of best regulatory practice. 2. DOLE and DOT implemented RIA work plans and publishes impact assessments on approved regulations. Pilots extended to another 2 or 3 key regulatory agencies. 3. The Government (through Department of Justice) established the competition office by designating staff and budget and started capacity development initiatives.

1) Government continues to implement a transparent regulatory system with at least of 15 preliminary impact assessment on key regulations completed. At least 35% of stakeholders consulted are female. 2) At least 3 complaints of anti-competitive practices investigated

24

Appendix 4



Triggers in bold


Triggers in bold



1.2 Competitive trade logistics ADB TA (JFPR) provide support to DOF on review of the common carrier tax JICA TA support to DOF on VAT refund system, 2010, to BOC for capacity development to enhance risk management in customs operations and support to assist with harmonization of vehicle standard system with ASEAN practices

The Government has introduced several measures to lower the cost of domestic trade logistics and facilitation with the aim of improving economy-wide competitiveness in the economy. These measures include:

3. Presidential EO issued providing for increased “Open Skies” whereby Philippine Air Panels may offer and promote third, forth and fifth freedom rights to the country’s airports other than Ninoy Aquino International Airport (NAIA) without restriction on frequency, capacity, and type of aircraft. \b 4. The Government initiated reforms to the VAT refund system by shifting from the current tax credit certificate (TCC) system to the cash refund system. To this effort, P9.3 billion has been earmarked in the 2012 General Appropriations Act for VAT cash refund. 5. The Government continued to implement measures to improve trade facilitation. To this effort, the BOC included in its five year strategic plan (i) measures to design and develop the clearance-related e2m system project, and (ii) measures to align customs procedures to

The Government started implementing reforms aimed at lowering the transaction costs to doing business and trade. These include: 4. Government reviews the common carrier tax (CCT) on cargo and passenger revenues with the aim of reforming the tax. Amendments to the tax code drafted 5. Government (DOF/BIR) implemented its VAT refund reforms including (i) issue Presidential EO on the VAT refund reform, (ii) make progress with achieving its prescribed 120/60 days rule for VAT refunds; (iii) replace TCCs with cash refund for new rebates, (iv) start encashment of outstanding TCCs in line with its medium term action plan, and (v) submit to Congress budget for VAT cash refund in the 2013 and 2014 budgets. 6. The Government continued to implement measures to improve trade facilitation. These include: (i) BOC to designed and started implementing the Philippine Customs Intelligent System (PCIS) backed

3) Increase in foreign visitor arrivals by 10% over the long term average (estimated over 1990 to 201 4) At least 90% of eligible VAT refunds made within the 120/60 day rule. 5) Encashment program of all outstanding TCCs completed. 6) The 2016 Time Measurement Survey shows a 15% reduction in customs clearance time compared to

Appendix 4

25



Triggers in bold


Triggers in bold



international standards under the ratified Revised Kyoto Convention on the simplification and harmonization of customs procedures. 6. To reduce congestion at the Manila port, the Government (through DOTC/PPA/SBMA) initiated a review of the strategic actions for improving Manila, Subic and Batangas ports utilization. PEZA issued circular providing incentives for improving port utilization at Batangas. 7. The Government (Department of Transportation and Communication DOTC) initiated a study on ways to harmonize vehicle regulations and certifications with ASEAN partners

by the ISO accreditation (ISO27001), and (iii) BOC continued implement the ratified Revised Kyoto Convention on the simplification and harmonization of customs procedures. 7. The Government (through DOTC/PPA/SBMA) approved the ports utilization plan and enhanced port sales. 8. The Government (through DOTC) implemented measures to harmonize vehicle regulations and certifications with ASEAN practices.

2004 survey. 7) 18 BOC collecting districts implement PCIS. 8) Increased container traffic at Subic and Batangas ports.

2. Creating an Efficient Market for Infrastructure Projects through Public-Private Partnerships 2.1 Strengthening PPP policy, regulatory and institutional framework ADB TA on PPPs will provide support

The Government implemented a series of measures to strengthen the PPP governance framework and capacity with the aim of improving service delivery. These accomplishments included: 8. NEDA drafted amendments to the EO no 8 (dated 9 September 2010) to streamline functions of the PPP Center (PPPC) and strengthen the operations of the Project Development and Monitoring Facility (PDMF). Key features included (i) upgraded the PPPC Executive Director to the level of an undersecretary; (ii) clarified that the PDMF is a

The Government continued strengthening the PPP policy and regulatory framework. These measures included: 9. Amendments to EO 8 adopted to streamline functions of the PPPC and strengthen the operations of the PDMF. 10. At least 6 feasibility studies for PPP projects prepared with support of the

9) Six competitively tendered PPP projects prepared with PDMF support, of which 2 are gender-responsive, are implemented. f/ 10). 100 Staff of DOF, DBM, NEDA and line ministries trained in PPPs, of

26

Appendix 4



Triggers in bold


Triggers in bold



to PPPC, DOF and NEDA.h/ JICA TA to support NEDA/PPP center and concerned line agencies and support for feasibility studies for selected priority PPP projects

revolving fund for developing PPP projects; and (iii) strengthened oversight of the PDMF through setting up the PDMF Board. c/ 9. The PPPC established a panel of firms for fast-track selection of PPP project development consultants. The panel and the PDMF guidelines, approved by the PDMF Board, were published on the PPPC’s website. 10. Government (BOT IRR Committee) drafted and circulated amendments to the implementing rules and regulations (IRRs) of the Build-Operate-Transfer (BOT) law. Key features of the amended IRRs include clarifications on (i) the procedures for granting automatic franchise to the winning bidder; (ii) procedures for processing of unsolicited proposals; and (iii) the government guarantees for regulatory risks. 11. The Government (through NEDA) submitted to Congress comments on the amendments to the BOT Law, including on increasing the number of days for Swiss challenge. 12. The Government (NEDA) initiated review of (i) the government’s PPP institutional set-up, and (ii) other PPP-related legislation to ensure harmonized legal and regulatory framework for PPPs.

PDMF. Gender responsive check lists completed at the project design stage. 11. The Government, through the Infrastructure Committee of the NEDA Board, adopted comprehensive PPP manuals for national government agencies and local government units. Both manuals published on the web-site of PPPC. 12. The Government (NEDA, PPPC) completed initiatives to enhance capacity of PPPC. These included: (i) at least one twinning partnership established between the PPPC and its counterpart in another country, (ii) PPP’s management information system developed and website upgraded; and (iii) at least 100 staff members involved with PPP in DOF, NEDA, DBM, and line ministries trained in PPP. At least 30% of staff are female. 13. Government (NEDA) completed review of (i) the PPP institutional set-up, and (ii) the PPP-related legislation to ensure harmonized legal and regulatory framework for PPPs.

which at least 30.0% are women.

Appendix 4

27



Triggers in bold


Triggers in bold



13. NEDA drafted amendments to 2008 guidelines on joint ventures to provide for inclusion of PPP projects following joint-venture arrangements into the review processes of the Investment Coordination Committee. This will be applied to joint-venture PPP projects with government contribution amounting to at least P150 million.

14. NEDA approved amendments to 2008 guidelines on joint ventures. Amended guidelines published websites of NEDA and PPPC.

2.2 Establishing long term financing and risk guarantee mechanisms ADB TA on PPPs will provide support to PPPC, DOF and NEDA. JICA TA support on PPP financing schemes

The Government introduced measures to provide for sustainable financing PPP projects. These accomplishments included: 14. The Government allocated in the 2012 General Appropriations Act (GAA) P19.6 billion to the Strategic Support Fund (SSF) to support PPPs, and P161.0 million for PDMF to finance preparation of PPP projects. The NEDA Board (ICC) has issued the guidelines for the SSF. 15. The Department of Finance initiated two studies to develop policy on: (i) the identification of risks, management and funding of contingent liabilities arising from PPP projects and (ii) the mechanisms on government financing of its share (e.g., right-of-way acquisition, resettlement costs) in PPP projects.

The Government continued adoption of measures to provide sustainable financing and risk guarantee mechanisms for PPP projects. These included: 15. Government (Department of Budget and Management) included adequate financing for SSF in the 2013 budget proposal. 16. The Department of Finance proposed to the Development Budget Coordination Committee a mechanism on funding of contingent liabilities arising from PPP projects. 17. The Department of Finance proposed to the Development Budget Coordination Committee a mechanism on government financing of its share (e.g., right-of-way acquisition, resettlement costs) in PPP projects.

28

Appendix 4



Triggers in bold


Triggers in bold



3. Promoting Competitive Labor Markets 3.1 Improving labor market information and employment intermediation systems ADB TA (JFPR) assists with strengthening LMI at DOLE in 2012 Proposed ADB TA-provide capacity development of PESOs and assist with the pre-test of the MyFirstJob pilot in 2012-2015

The Government implemented a series of measures to address the challenge of job and skills mismatch in the labor market. Through the Human Development and Poverty Reduction Cluster, the government has developed a governance framework and identified convergent programs to address mismatch in the labor market. These accomplishments included the following: 16. The Government (through DOLE) continued advocating the institutionalization of the Public Employment Service Offices (PESOs) at the LGU level. As of December 2011, 89 PESOs were institutionalized placing approximately 96,000 persons in jobs. d\ 17. The Government (through DOLE) drafted publications on labor market information including: (i) skills report providing information (LMI) on skills needs of the tourism and BPO sectors over the medium term; and (ii) industry career guides containing critical indicators on the employment potentials of key industries over the medium term.

The Government implemented several capacity development activities to strengthen delivery of labor market services to local communities. These included the following activities: 18. The Government (through DOLE) in collaboration with PESO in selected LGUs designed and initiated a pilot of its MyFirstJob providing job search assistance and internship programs for young, out-of-school youths. 50% of target group are female school leavers. 19. The Government (through DOLE) continued capacity development at selected PESOs for effective service delivery at the LGU level by (i) designing and developing a full cycle employment service systems to address local needs, (ii) designed gender-sensitive manual for employment services, (iii) providing technical assistance in developing LMI Communication Strategy, and (iv) publishing and disseminating career guidance/coaching modules.

11).At least 100 PESOs implementing standard LMI and employment intermediation systems. 12) 1,600 out-of-school youths placed in internships through the pre-tested MyFirstJob assistance ,of which 50% placements are females 13) Increased the number of job placements through PESOs by 10.0% per annum

Appendix 4

29



Triggers in bold


Triggers in bold



3.2 Industry-led skills and service standards development ADB TA (JFPR) assists with developing the governance framework for the skills development program and matching grants fund in 2012. Proposed ADB TA provides capacity development for the industry skills program, initial matching grants fund, and capacity development for the hotel

The Government (through Department of Tourism, DOT) implemented a set of measures to provide the building blocks for raising industry service standards and skills development in the tourism sector. These measures included: 18. The Department of Tourism (DOT) endorsed the National Tourism Development Plan (NTDP), 2011-2016. Key features of the plan relevant to the Program include (i) recommendation for the adoption of a public –private framework for accreditation and certification of tourism service providers, and (ii) an industry skills development program. 19. DOT established working group to develop gender strategy for the industry skills development program. 20. The Government (through DOT), together with the TESDA and the Tourism Industry Board Foundation, Inc. (TIBFI), initiated a review of existing training regulations for consistency with and harmonized with the Philippines commitment under the ASEAN Mutual Recognition (MRA) of Tourism Professionals. 21. The Government (through DOT) drafted new standards for tourism enterprises pursuant to the Law on Tourism 2009. The new standards related to hotels.

The Government (Through DOT/TESDA and DTI), implemented a set of interventions to raise industry-led skills and service industry standards. The measures include: 20. Based on the results of the gap analysis, the Government provided budgetary financing for the tourism skills development grants program. 21. The Government (through DOT) prepared the implementation of the Tourism Skills Development program by (i) GAP analysis completed and identified current training provision needs that are gender responsive for the sector; (ii) Skills curriculum upgraded, vocational training providers identified, and teacher assessors upskilled, and (iii) designed monitoring scheme for graduates. These programs will be implemented for industry workers, LGUs and local communities. At least 55.0% of industry workers accessing training are female.

14). At least 5,000 persons accessed vocational training funded under the DOT/TESDA industry skills program, of which 55% are females. 15). At least 500 Philippine professionals achieved mutual recognition under the ASEAN agreement 16). 250 hospitality providers nationally accredited under the quality assurance system

30

Appendix 4



Triggers in bold


Triggers in bold



quality assurance and accreditation system

22. The Government (through DOT) in collaboration with relevant stakeholders implemented training programs to enable tourism professionals to be recognized by the ASEAN through the MRA, including advocating to business community in the region. 23. The Government (through DOT) in collaboration with industry stakeholders designed and approved a tourism industry quality assurance system for national accreditation of hotels and other hospitality providers. Accreditation of hotels started under the pilot accreditation system. International third party assessor engaged to assist with pilot. 24. The Government (through Department of Trade and Industry DTI) in collaboration with PEZA and subsectors of the manufacturing industry assess feasibility of an industry skills development program and fund.

3.3 Strengthening employment policies and programs

The Government in collaboration with other relevant stakeholders initiated actions to improve labor and employment policies and programs with the aim of improving access to quality employment. These accomplishments included:

The Government with relevant stakeholders continued developing policy and programs for employment facilitation including:

(17) Protocols or

Appendix 4

31



Triggers in bold


Triggers in bold



ADB TA (JFPR) for the support to review of labor code in 2012 Proposed ADB TA support the review of the community-based employment program in 2012-2015.

22. The DOLE endorsed the Labor and Employment Plan 2011-2016, which aims to strengthen coverage of employment programs to address risks to vulnerable workers. 23. The Government (through an inter-agency committee chaired by DOLE) created the Community-based Employment Program for Infrastructure and non-infrastructure programs, an emergency employment program that guarantees temporary employment particularly in rural areas. 24. The Government (through DOLE) initiated a review of the labor code with the aim of improving employment generation. e\ 25. DOLE completed a series of policy studies on mitigating labor market risks on workers including (i) options for establishing unemployment insurance; (ii) trade and employment, and (iii) climate change and employment.

25. The Government (through DOLE) assessed the impact of the community-based program and provided recommendations for improvement to the program (including the feasibility of a Minimum Employment Guarantee Scheme [MEGS]) to mitigate risks to employment of vulnerable workers. 26. Government (through DOLE) developed and endorsed a set of policy and program protocols for dealing with the impact of conflicts, economic shocks and natural disasters on local labor markets. Protocols gender responsive.

guidelines on dealing with the impact of conflicts, economic shocks and natural disasters on local labor markets.

ADB = Asian Development Bank, ASEAN = Association of Southeast Asian Nations, BIR = Bureau of Internal Revenue, BOC = Bureau of Customs, DBM = Department of Budget and Management, DOF = Department of Justice, DOJ = Department of Justice, DOLE = Department of Labor and Employment, DOTC = Department of Transportation and Communications, GOJ = Government of Japan (JICA and Embassy of Japan), GOP = Government of the Philippines, NEDA = National Economic and Development Authority, PDMF = Project Development and Monitoring Facility, PPA= Philippine Port Authority, PPPC = Public-Private Partnership Center, SBMA = Subic Bay Metropolitan Authority, VAT = Value Added Tax. Notes: a\ The MoA for piloting RIA sets out the process for piloting RIA in a line agency and establishes a steering committee, chaired by the NEDA focal person and comprising focal persons from other agencies, to oversee the advocacy and development of RIA in the national government. b\ Presidential EO 28 was also issued to restructure the Philippine Air Panel responsible for negotiating bilateral agreements. Incumbent airlines were removed from the Air Panel as a way to reduce regulatory capture of the Panel by industry incumbents. c\ The draft presidential EO amends Presidential EO 8 (2010). d\ Institutionalization of PESOs refers to LGU issuance of a local ordinance establishing the PESO, designating permanent staff and an annual budget to the PESO. e\ Institutionalization of PESOs refers to LGU issuance of a local ordinance establishing the PESO, designating permanent staff and an annual budget to the PESO. f\ Various sources of financing can be considered for PPP projects including overseas development assistance (ODA). g\ see ADB. 2011. Republic of the Philippines: Strengthening Institutions for an Improved Investment Climate. Manila. h\ see ADB. 2011. Republic of the Philippines: Public-Private Partnerships in Infrastructure. Manila