Private Funding for Poverty Reduction
Former NEDA Secretary and Ateneo Economics Professor Dr. Ciel Habito cites the Poverty Alleviation and Eradication Certificates (PEACe) Bonds as a creative mechanism of tapping private funding to address poverty, whereby civil society organizations under the CODE-NGO network were able to raise a substantial endowment fund of P1.3Billion to provide sustainable financing for poverty-reduction efforts of NGOs. The funds were raised from buying and selling government bonds in October 2001. He cites the mechanism as a win-win for both government – which was able to borrow funds at an interest rate that was lower than what prevailed at that time – and for the country’s poor – the ultimate beneficiaries of the various projects supported by the earnings of the fund. (Source:http://opinion.inquirer.net/inquireropinion/columns/view/20100921-293405/Private-funding-for-poverty-reduction)
No Free Lunch
Private funding for poverty reduction
POVERTY AMONG Americans is now at a record high. According to the latest report from the US Census Bureau, there were close to 44 million poor Americans last year, the highest recorded in 51 years. Our government has yet to release our own official poverty statistics for 2009, but as of last count in 2006, there were close to 4 million poor Filipinos. The poor make up one of every seven (14 percent) Americans; for Filipinos, it’s one of every three (33 percent). But even that may be an underestimate: Social Weather Stations (SWS) tells us it’s close to one out of two (43 percent); Ibon Foundation says it’s two out of three (66 percent). Both are based on surveys on self-rated poverty, where respondents are simply asked if they feel poor or not. The government figure counts those who are below a given poverty line, which as of 2006 was around P15,000 per year per person, or P6,300 per month per family of five members.
We know of course that poverty is much more than simple lack of income
. To be poor is to be deprived not just economically, but deprived in the social, environmental, cultural, political and spiritual dimensions as well. Recognizing this, the United Nations (UN) General Assembly, in a summit of world leaders held in September 2000, adopted the Millennium Development Goals (MDGs) aimed at cutting extreme poverty in half by 2015. The eight goals that define the MDGs address the economic, social and environmental dimensions of poverty. How is the world in general doing in meeting the MDGs? How are we in the Philippines doing?
Worldwide, the picture is mixed, with some countries making faster progress than others. Vietnam has reportedly met most of the MDGs well ahead of the 2015 deadline. The Philippines, even before the global economic downturn came about, has been projected to miss most of the targets by 2015. But we are not alone in this. A recent UN assessment indicated that the least developed countries, especially in Africa, are lagging behind on the MDGs. A key reason is that official development assistance (ODA) from rich countries has not been coming in the amounts they had earlier committed. On top of that, much of the assistance had gone to middle-income countries rather than to those in most need.
Here at home, lack of resources also largely explains why we lag behind. Dr. Rosario Manasan estimated the MDG funding gap to lie in the range of P350 billion to P448 billion for 2007-2010 alone. This comes after a significant slide in shares of the national budget going to the social sectors over the years, from 27 percent in 1998 to 18 percent in 2005. Manasan found a similar decline in social sector shares of local government budgets (from 28 down to 24 percent) in the same period.
With funds from public sources falling far short of needs, it seems logical to look to private finances as a potential source of funds for poverty reduction, for at least three reasons. One, international private financial flows now far outstrip official financial flows, including ODA. Two, the share of labor income (wages and salaries) to total incomes worldwide has been falling over the years, while the share of profit income has correspondingly been on the rise—suggesting that some redistribution of income toward the poor working classes would be in order. Three, such redistribution is already happening voluntarily to some extent, through corporate philanthropy and a general rise in corporate social responsibility. What’s needed are more creative ways of harnessing private sector finances to support the fight against poverty.
One such creative mechanism has been the controversial PEACE Bonds, whereby civil society organizations under the CODE-NGO network managed to raise a substantial endowment fund of P1.3 billion to provide sustainable financing for poverty-reduction initiatives by the non-government sector. The fund arose from profits earned from buying and selling special government IOUs issued in October 2001. Rather than criticize them for it, I have applauded CODE-NGO for its creative use of the capital markets to raise funds for the poor. It was a win-win for both government (ultimately, taxpayers)—which, through the bonds, was able to borrow funds at an interest lower than what prevailed at the time—and the country’s poor, the ultimate beneficiaries of the various projects supported by the earnings of the fund. To make sure the money does not go the way of substantial government funds often waylaid into the wrong pockets, the Peace and Equity Foundation (PEF) was established to manage it, led by respected leaders in society and run by professionals of known integrity. From 2001-2009, PEF reports having supported 1,215 projects in 68 provinces implemented by over 1,200 NGOs, cooperatives, people’s organizations and other partner institutions, with a total value of P1.074 billion. And given the positive track record of the Philippine NGO community in grass-roots development work, I would bet that these funds had made greater headway on the MDGs than any equivalent amount put in the hands of government in recent years.
Debt swaps—where loans owed to a willing creditor abroad are “paid” via local projects for the poor or for the environment—have been another creative and well-known mode of funding poverty reduction. Meanwhile, some wealthy corporations and individuals have made their own efforts to “pay back” directly to poor communities in various ways. Such modes of funding poverty reduction initiatives with private resources are the other kind of public-private partnership that P-Noy could well build a successful presidency on.
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