Gloria Macapagal-Arroyo

President of the Republic of the Philippines 2001 - 2010

The 4 P's Program

A. Program Description

The Pantawid Pamilyang Pilipino Program ("4P's") is a conditional cash transfer program for the poorest of the poor that was first introduced in 2008 and is administered through the Department of Social Welfare and Development (DSWD).

Beneficiaries were initially identified through a systematic process that went through multiple search levels. The starting point were the poorest provinces listed in the 2006 Family Income and Expenditure Survey. Drilling deeper, the search narrowed down to the poorest municipalities in those poorest provinces, according to the National Statistical Coordination Board Small Area Estimates of 2003; as well as the 15 most highly urbanized cities with large pockets of poverty. Finally, the search considered the results of a household survey where families were ranked according to their socio-economic status, using a Proxy Means Test that looked at variables like the appearance of the family dwelling unit, number of appliances owned, and so forth.

The 4P's was deliberately patterned after a highly successful conditional cash transfer program introduced in Brazil in 2003. Called "Bolsa Familia", the Brazilian program has three important components: the provision of financial relief to eligible beneficiaries among the poor, the imposition of certain conditionalities in exchange for such relief, and capacity development in various activity areas over the longer term.

In the Philippines, the relief component of 4P's—as in Brazil—includes both fixed and variable components. The fixed component is a basic benefit per family of Ps 500 a month, augmented by a variable benefit of Ps 300 per child aged 3-14 years old. Total benefits are capped at Ps 1,400 a month, effectively limiting the number of eligible children to only three and helping to dissuade bigger family sizes beyond that.

The conditionalities imposed under 4P's are intended to promote behaviors that are considered desirable, for various reasons. Among these requirements are regular school attendance by the children of the beneficiary family; regular attendance by the parents at parental effectiveness seminars; regular vaccinations for the kids and maternity check-ups for expectant mothers—among others.

B. Areas for Improvement

The third component of the Brazilian program, capacity development, is something that is still being built into 4P's. At various times, the President has called for the addition of such benefits and features as literacy classes, socialized housing, assistance with utility bills, availability of banking and micro-credit services, and training, work and income opportunities that can come specifically from government's infrastructure building programs.

Since its inception, the 4P's has rapidly scaled up over time, so that for the current fiscal year 2010, it is budgeted for Ps 10 Billion and reaches a million families throughout the country. In order to stabilize the program and allow it to be improved further, the President recently called for legislating it into law as a permanent new government service. It could be called "Bulsa ng Pamilya", in tribute to its Brazilian antecedent.

Another area for improvement is to locate conditional cash transfers within an evolving and broader network of social protection and welfare promotion services. Brazil's own Ministry of Social Development and Fight Against Hunger was created in January 2004 to coordinate social assistance, food and nutrition security, and income transfer action. They now have a single system of social assistance and food and nutrition security, including continuous benefits for ageing and disabled people, the fight against sexual abuse, violence, and exploitation of child and adolescent victims.

In the Philippines, the Secretary of Social Welfare and Development is tasked to coordinate the delivery of similar programs. These are being implemented not only by DSWD, but also by SSS, GSIS, PhilHealth, Department of Health and the Nutrition Council, TESDA, Department of Education, CHED, PAG-IBIG, NHA, Micro SMED Council, the Department of Energy and others.

If we look at the wide array of such programs that are being delivered by these agencies—from subsidized rice to cheaper medicines, from lifeline power rates to upgrading of provincial hospitals, from relocation of displaced informal settlers to cheaper and more available socialized housing assistance—it may be seen that the 4P's program is well situated within a clearly defined framework of social assistance. But the work of institutional coordination and integration is a continuing one.

C. Support from Economic Theory

There is no better argument than success. In the case of conditional cash transfers, the World Bank has noted that "Bolsa Familia" and similar programs in Brazil had immediate and significant effects on the living conditions of the poor, without discouraging work and job search. The income of the poorest 10 percent has reportedly grown nine percent per year versus the three percent growth for the higher income levels. In fact, Brazil has already reached its Millennium Development Goal (MDG) of reducing poverty by half by the year 2015.

In addition to the success of actual results, the 4P's also finds unarguable support in the familiar argument from mainstream economic theory that any kind of market distortion, no matter how well-intentioned, is ultimately bound to break down and cause new problems bigger than what they were originally designed to meet. Price controls, subsidies, incentives, and other interventions may be introduced to help specific beneficiary groups, but in doing so, they inherently operate to prevent the price of a given commodity or service from being freely and transparently determined in an open market.

Such policies will always lead to unintended and adverse consequences, ranging from inequitable charging of the costs incurred (e.g. all taxpayers end up paying for subsidized rice, not just the consumers of that rice) to the appearance of moral hazard and rent-seeking opportunities (e.g. export and import licenses in any regime of controlled trade invariably enrich the officials empowered to issue those licenses) to the stifling of long-term growth of the service because the non-market-based price is not high enough to encourage investor retention and expansion (e.g. rent control can dissuade long-term investment in additional housing stock especially for lower-income families).

Direct cash assistance to the poor is the simplest way to bring more goods and services within the reach of families who cannot afford to acquire them on their own. It allows the poor the freedom and dignity of making their own consumer choices, without disrupting the stability of supply prices for the benefit of producers. At the same time, the presence of conditionalities—hopefully accompanied by a clear timeline for beneficiaries to graduate someday from the program—encourages the learning of modern and productive behaviors that are likewise important to help the lift the poor from their plight.

Some Philippine economists have even gone so far as to suggest that the whole range of currently existing price control and subsidy programs—from cheaper NFA rice to subsidized medicines at Botika ng Bayan outlets to lifeline power rates for poor consumers—should be replaced instead by a massively expanded program of conditional cash transfers.

This is certainly a radical proposal, but also one that is intriguing, and perhaps might be worth pursuing especially by the free market adherents within the next administration.