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THE STATE BANKS AND DEVELOPMENT POLICY:

FOCUS ON THE ROLE OF GFIs IN SOCIAL HOUSING IN

THE PHILIPPINES, 1987-1998

By

Dwight B. Perez, Ph.D.



ABSTRACT

In the face of the worsening housing shortage problem of the urban poor in the Philippines,

this study endeavored to answer this main question: What is the efficacy and nature of the

Philippine state in pursuing to finance social housing from 1987 to 1998?

The study argued based on the historical-structural analysis of the housing financial system,

and found the following main findings: 1) There was a large gap or failure between the actual

result or performance in terms of housing units produced by the National Shelter Program; 2)

The policy of encouraging the active participation of private banks under the Home Insurance

Guaranty Program from 1993 to 1998 in peso terms and number of loan accounts benefitted

minimally social housing, and more for market housing; and 3) The policy of encouraging the

participation of private developers, and authorizing them as loan originators by the United Home

Lending Program resulted to the granting of loans with state patronage to a few particular

interests as indicated by their huge loans granted with corresponding low collection efficiency

ratio.

It is shocking to note that both the state banks and the private banks were profit-oriented since

its main beneficiaries of the housing loans were more on the middle and upper end of the market

rather than its target beneficiaries which are the poor.

The study further argued that the state played a weak role in implementing the social housing

program for the poor because it lacked the political will and relative autonomy from an affluent

class to effectively pursue its development goals.



Chapter 1

THE PROBLEM

CONTEXT OF THE PROBLEM

In a broader sense, analysis of the banking system as a whole provides valuable insights into

state-oligarchy relations. As one bank president said: “Banking is a prism through which to

understand power politics in the Philippines (Hutchcroft 1994, pp. 57-58). “Within the arena of

banking, one finds what is generally the strongest of the state economic policy-making agencies

(the Bangko Sentral ng Pilipinas), and many of the most powerful of the elite extended families.

But Hutchcroft argued as he writes: “the institutional strength of the Central Bank generally

pales in comparison with the power of the oligarchy. The Central Bank is unable to defend itself

from the legal attacks of bankers, unable to enact regulations that will prevent oligarchs from

looting the loan portfolio of their banks and unwilling to challenge collusive practices within the

industry (Hutchcroft 1994, p. 58). “Thus, Hutchroft’s statement as based on his study of the

Philippine state with the Central Bank as its case had shown that the state was weak.

In the sub-arena of home-banking, one may also find the premiere house mortgage financing

institution in the Philippines (the Home Mortgage Finance Corporation) but in 1995 it was on the

brink of bankruptcy as the Home Development Mutual Fund (HDMF) took over its operations.

Particular groups were able to borrow huge loans from this state agency but it was saddled in the

end with billions of bad debts and receivables.

The Philippines presents a stark example of a state that has failed to effect the kind of socio-

economic change found among the newly industrializing countries of East Asia. However,

despite its weak degree of efficacy, the Philippine state plays an enormously important role in the



creation of wealth. Access to the state apparatus remains the major avenue to private

accumulation.

It is, indeed, paradoxical that a “weak” state should be a central subject of analysis. Even as it

is often incapable of meeting even the most basic infrastructural needs of the economy, the

Philippine state is central to any comprehensive analysis of the country’s political economy. In

other words, it is necessary to focus analysis on the nature of the Philippine state, and seek

frameworks that would be able to capture fully the dynamics of state-society interactions even in

countries such as the Philippines where the state has failed to effect an impressive degree of

socio-economic transformation.

The weak state in the Philippines has failed to provide basic provisions such as employment,

and housing. The country’s population majority are suffering from poverty and homelessness. It

is a cruel kind of underdevelopment that has not changed over the years.

The phenomena of underdevelopment or the existence of a chronic state of underdevelopment

is not only a question of economics or even of quantitative measurement of incomes,

employment, and inequality. Underdevelopment is real. It is real for the Philippines and over two

billion people in the world. It is what Andre Gunder Frank would call, “the development of

underdevelopment (Frank 1967)”. It is a state of dependency towards the help of others who

have the access to wealth and power. Underdevelopment is a state of misery and helplessness in

the Philippines and in all Third World countries. As Dennis Goulet (1971) succinctly put it:



Underdevelopment is shocking: the squalor, disease, unnecessary deaths, andhopelessness of it all! No man understands if underdevelopment remains for him a

mere statistic reflecting low income, poor housing, premature mortality orunderemployment. The most emphatic observer can speak objectively about

underdevelopment only after undergoing, personally or vicariously, the “shock of

underdevelopment.” This unique culture shock comes to one as he is initiated tothe emotions which prevail in the “culture of destitution when a new self-understanding reveals to them that in their life is neither human nor inevitable

(1971, p. 23).

In the Philippines, the misery of poverty and homelessness of squatters in Manila (as they

were forcibly evicted by the state during the Marcos regime to a suburb in Quezon City) was

vividly captured by Manapat as he writes:

At that time the place was used as a garbage dump of Quezon City. Close to athousand families were relocated to the area and left to fend for themselves. They

were totally cut off from their traditional arena of livelihood. Access to publictransportation was a walk of several miles on a dusty trail, and commuting to

work would have eaten up a good part of their daily earnings. There was no water,no electricity, and no sanitation system. There was only famine, desperation, and

death. One cannot imagine a more hostile environment to live in than to be besidetons of garbage. Drinking water had to be fetched from hand pumps several miles

away and carried by hand (Manapat 1991, p. 3).

The community had to endure the stench and eat inside mosquito nets to fend off the hordes

of flies which feasted daily on them, their food, and the Quezon City garbage. During the first

few weeks of this painful diaspora, children died by the dozens because of exposure to the

elements and the lack of potable water (Manapat 1991, p. 3).

The Philippine state did not have a serious program for social housing over the years. Its

failure to generate adequate housing for the lower echelon of the Filipino masses persistently

over the years led the researcher to wonder why is it that there is no clear and and adequate

explanation to these phenomenon. This study would argue that this issue can best be explained

from the perspective of “house financing” which is a crucial area in its development.



The spiraling cost of housing had been triggered by the staggering increase in land prices as

well as the cost of materials in constructing houses. Thus, at the heart of the problem of social

housing is the issue of financing and banking in this area because of the housing cost factors

mentioned.

The state institutionalized the Housing and Urban Development Coordinating Council

(HUDCC) as the premier policy-making body in finding solutions and program implementation

on social housing and the Government Financial Institutions (GFIs) that were identified as the

principals in providing financial support were the following: Social Security System (SSS),

Government Service Insurance System (GSIS), the Home Development Mutual Fund (HDMF),

the National Home Mortgage Finance Corporation (NHMFC), and the Home Insurance Guaranty

Corporation (HIGC).

The private banking sector is expected to play a crucial role in contributing to the social

housing program of the government. The viability of banking on mass housing must indeed be

profitable if properly managed because of the economies of scale. However, the private banking

sector’s dismal performance in helping the state’s housing program in the past few years was

buffling.

The role of Government Financial Institutions (GFIs) in financing social housing, and in

relation to the private banks in the Philippines is an issue that must be examined and addressed in

the light of the worsening housing problems in the country. The amount which the state allocated

for the socialized housing program was insufficient to cover the real needs of housing for the

poor. The state, thus, resorted to a financial policy for housing which relied on the private sector

to enhance the construction of social housing.



Simbulan (1998) stated that the government only has a small budget for social housing and

left the rest of these housing needs for the private sector to solve. The problem with this policy is

that the funds of the private sector are more tied-up with investments in real estate, and other

highly profitable form of business interests.

In terms of the slums and squatter settlements in the Philippines, a World Bank (1996) report

states:

Slums and squatter settlements around the world reflect the failures of housingand land markets as much as poverty. In the Philippines, it is the underlying

failure of the land market which has made land so costly that urban housing hasbecome not affordable to many. With such a high proportion of urban dwellers

surviving with uncertain land tenure, improved security of settlement is critical tothe reduction of poverty in urban areas. With secure tenure, the majority of the

poor can meet their own needs for shelter, constructing their own houses (WorldBank 1996, p.27).

The World Bank reported the failure of social housing, and increasing problems of poverty in

the Philippines. The underlying factor that caused this according to them is the failure of the land

market. This is true but this paper would prove that this is not the only critical factor.

STATEMENT OF THE PROBLEM

In the main, this study aims to examine and explain the efficacy and nature of the Philippine

State in pursuing to finance social housing from 1987 to 1998.

Specifically, it will answer the following questions:

1. What was the actual result or performance of housing units produced by the National

Shelter Program versus its policies/plan from 1993 to 1998?

2. What was the actual result or performance in terms of total housing expenditures, and

number of housing units of the United Home Lending Program versus its policy/plan

from 1993 to 1998?



3. What were the actual housing loan takeouts by interest rate/loan range by the United

Home Lending Program in terms of loan value, and number of accounts during this

period?

4. What were the mortgage financing takeouts for social housing (6% to 9% interest rates

range) of the United Home Lending Program in terms of loan value, and number of units

from 1993 to 1998?

5. What were the loan value and number of accounts granted by the United Home Lending

Program from 1987 to 1998?

6.

What was the share of social housing and market housing as a result of the policy of

encouraging the active participation of private banks as mortgage originators under the

Home Insurance Guaranty Program in peso terms and its number of accounts from 1993

to 1998? And

7. What were the effects of the policy of encouraging the participation of private

developers, and banks in terms of loan value, number of accounts, and collection

efficiency ratio?

HYPOTHESES

The following hypotheses would attempt to answer the specific problems:

1. The state was weak as it was not effective because there was a large gap or failure

between the actual result or performance in terms of housing units produced by the

National Shelter Program versus its policies from 1993 to 1998;

2. The state was weak as it was not effective because there was a large gap or failure

between the actual result or performance in terms of total housing expenditures, and



number of housing units of the United Home Lending Program versus its policy/plan

from 1993 to 1998;

3. The state was weak as it was not effective because the actual housing loan takeouts by

interest rate/loan range granted by the United Home Lending Program in terms of loan

value, and number of accounts during this period were minimal for social housing

takeouts (P180,000 and below loan range) versus market housing in relation to the total

budget;

4. The state was weak as it was not effective because the mortgage financing takeouts for

socialized housing (6% to 9% interest rates range) of the Home Development Mutual

Fund, and the United Home Lending Program in terms of loan value, and number of units

from 1993 to 1998 were minimal in relation to the total budget;

5. The state was weak as it was not effective because the number of accounts, and loan

value granted by the United Home Lending Program from 1987 to 1998 were minimal in

relation to the housing need of the Philippines;

6. The state was weak as it was not effective because the policy of encouraging the active

participation of private banks under the Home Insurance Guaranty Program from 1993 to

1998 in peso terms and number of loan accounts benefited minimally socialized housing,

and more for market housing; and

7. The state was weak as it was not effective because the policy of encouraging the

participation of private developers, and authorizing them as loan originators by the

United Home Lending Program from 1997 to 1998 resulted to the granting of loans with

state patronage to a few particular interest as indicated by their huge share in loans

granted with corresponding low collection efficiency ratio.



SCOPE AND LIMITATIONS OF THE STUDY

The study’s scope and limitations are the following:

1. The focus of the study were on the Government Financial Institutions especially the

Home Development Mutual Fund in relation to the National Shelter Program and its

contribution to socio-economic development particularly in social housing;

2. The study is limited to interviewing key persons at the Home Development Mutual Fund

and other key agencies;

3. The data gathered from key agencies of the National Shelter Program were limited to the

planned housing expenditures, planned number of housing units, actual expenditures and

housing units from 1987 to 1998, social housing takeouts, and amount form 1993 to

1998;

4. This study is also limited as to the details of annual data from 1987 to 1998 as regard to

number of housing units and amount of loans granted. However, the total number of

houses produced and total amount of loans granted from 1987 to 1998 were revealed to

the researcher.

SIGNIFICANCE OF THE STUDY

The significance of this study in terms of contribution to theory is that by using the state as a

conceptual variable in pursuing specific kinds of housing finance policies in the Philippines, this

would promote comparative understanding of the capacity of the third world state in this area.

As Althusser’s theory of structuralism would argue on the superstructure or the state as a

captive of the economic base, this study would support such an argument as applicable in the

Philippines, however, this study would focus on the policy analysis of the weak state in the

Philippine housing finance sector. This is in line with Hutchcroft’s theory of the weak state in the



Philippine financial sector but Hutchcroft focused on the poor performance of Philippine banks

in the light of a predatory oligarchy in this area. As such, this study would focus on the

performance of Government Financial Institutions in the financing of social housing.

Hutchcroft maintained that the Philippine state is patrimonial and its oligarchy predatory in

the banking system, this study would utilized this framework. Also, another significance of this

study is that by examining Philippine state financial policies with focus on the role of

government financial institutions in social housing, the factors that caused underdevelopment in

housing finance in the Philippines will be uncovered so that long-term policies can be formulated

in order to promote sustainable and balanced socio-economic development in the Philippines.

Social housing is a very vital need for millions of urban poor who lived in their make-shift

houses as well as to low-income employees who cannot afford decent housing for their families.

Also, the growth of urbanization, and population requires a second look at defective housing

financing policies which are rooted in the defective structure of the housing finance sector. Thus,

sound, and realistic development policies which are pro-poor can be formulated to address these

needs.

METHODOLOGY

Operational Research Framework

Based on the theoretical framework of Migdal’s strong and weak states and Hutchcroft’s

predatory and developmental states, the operational framework of this study is formulated in this

section.

The operational framework of this study would follow the operational definitions and

procedures in explaining the weak state in the housing finance sector in the Philippines. The state

as operationally defined are the state banks involved in the housing program particularly the



Home Development Mutual Fund, National Home Mortgage Finance Corporation, the Social

Security System, the Government Service Insurance System, and the Home Insurance Guaranty

Corporation. It is the conceptual variable in this study as reflected through the policies and plans

of the Housing and Urban Development Coordinationg Council (HUDCC). A strong state is

operationally defined as having high effectiveness in achieving policy targets. It is measured by

its attaining targets in the plan. A weak state is defined as having low efficacy or effectiveness in

terms of achieving policy targets in the housing program. It is measured by its not attaining

policy targets in the program. It can also be measured through structural measures in this study

through failing to achieve its social housing targets by at least 50 percent based on the actual or

planned output. A weak state is also operationally defined as a state which failed because of its

patronage to rentiers or particular interests by giving favored loans to them as measured by the

percentage of loans granted to private developers or banks. The collection efficiency ratio

determines the degree of favoritism. It is measured by the giving of loans despite a low

collection efficiency ratio which is measured at the level below 80 percent.

The parameters of policy effectiveness are the following:

1. The variance or gap between planned and actual performance of loan value from 1993 to

1998;

2. The variance or gap between planned and actual performance of housing units from 1993

to 1998;

3. The percentage of social housing share versus market housiong share indicated as the

dominant share since social housing were the major target of the national housing

program ( the lowest 40 percent income echelon of the population).



4. The United Home Lending Program’s (UHLP) performance from 1987 to 1998 in terms

of loan value and number of accounts granted.

5. The variance of the planned and the actual performance in terms of loan accounts from

1993 to 1998 in the guaranty program for private banks by the Home Insurance Guaranty

Corporation;

6. The percentage in share of social housing versus market housing in the guaranty program

for private banks from 1993 to 1998;

7. The loan value granted to private developers and banks and their corresponding share in

percentage to total loans granted from 1987 to 1996;

8. The collection efficiency ratio of these private developers in relation to the loans granted

to them from 1987 to 1996; and

9. Other anomalies and structural defects in the housing program from 1987 to 1996.

Research Methods and Procedures

Historical Method

The historical method was utilized in this study. This method was appropriate for this study

since the period being studied happened already in the past. The period being studied were the

Aquino and Ramos administration from 1987 to 1998.

Historical data were gathered during these periods and were analyzed based on state policies

and actual performance.

Historical research in this study proceeded with the systematic collection and objective

evaluation of data related to past occurences in order to test hypotheses concerning causes,

effects, or trends of those events that may help to explain present events and anticipate future

events.



The steps involved in conducting historical research in this study were essentially the same as

for other types of research:

1. Definition of a problem

2. Formulation of hypotheses

3. Systematic collection of data

4. Objective evaluation of data, and

5. Confirmation or disconformation of hypotheses.

In conducting this historical study, on the one hand, the researcher can neither manipulate nor

control any of the variables. On the other hand, there was no way the researcher can affect events

of the past; what has happened has happened. The researcher, however, applied scientific

objectivity in attempting to determine exactly what did happen.

DEFINITION OF TERMS

In order for the reader to understand and clarify better the essence of this study, the following

terms are conceptually and operationally defined as follows:

The state. It is operationally defined as the State banks involved in the housing program

particularly the Home Development Mutual Fund, National Home Mortgage Finance

Corporation, the Social Security System, and the Home Insurance Guaranty Corporation.

State banks. It is operationally defined in this study as the state in the housing finance sector. It

is composed of the Government Financial Institutions (GFIs) namely: the Home Development

Mutual Fund, the National Home Mortgage Finance Corporation, Social Security System,

Government Service Insurance System, and the Home Insurance Guaranty Corporation.

Policy. These are the major programs, plans, strategies, and targets of an institution or

government agency.



Strong state. It is operationally defined as the state banks which are having high effectiveness in

achieving policy targets. It is measured by its attaining targets in the plan.

Weak state. It is defined as the state banks which are having low efficacy or effectiveness in

terms of achieving policy targets in the housing program.

Social housing. It is a housing program for the lowest 40 percent of the population in the

Philippines. It is operationally defined as houses that were built for a loan grant of P180,0000

and below.

Economic housing. It is a housing program which has a loan range from above P180,000 to

P225,000. It is operationally defined in this study as a sub-component of market housing.

Market housing. It is operationally defined as those houses built with a loan above P225,000.

Political will. It is the will of the state or the government to attain sufficiently its programs or

policy targets.

State autonomy. It is the capacity of the state to pursue its programs effectively through

independence from particular interests and influences.

Rentiers. These are people with particular interests which capitalize on favored government

loans through patronage.

Takeouts. These are loans granted to housing beneficiaries.

Pro-poor. This is operationally defined as a state policy favoring the lowest 40 percent of the

population in the Philippines particularly in social housing.

Banks. These are entities involved in financial intermediation such as commercial banks, thrift

banks, etc.

Development policy. These are the major thrusts and programs of governments which provide a

framework or guide for development.



Elites or oligarchs. These are the wealthy and ruling class in a society.

ORGANIZATION OF THE STUDY

The organization and structure of the study is based on the format of the American

Psychological Association (APA). This dissertation is organized and divided into six chapters.

Chapter one discusses the context of the problem, the statement of the problem, hypotheses,

objectives of the study, significance of the study, scope and limitations of the study,

methodology, definition of terms, and the organization of the study. Chapter two discusses the

background of the study. Chapter three discusses the review of literature of this study and

chapter four explains the nature of the Philippine state.

Chapter five discusses and analyze the the state and Philippine housing finance, and finally,

chapter six presents the conclusions, and recommendations of the study.

The bibliography can be found at the end of the text of the study.



Chapter 2

BACKGROUND OF THE STUDY

Government Financial Institutions

The State housing finance responsibility was assigned to three key government financial

institutions: The Home Development Mutual Fund (HDMF), the Social Security System (SSS),

and the Government Service Insurance System (GSIS). Among the three agencies, the Home

Development Mutual Fund or Pag-IBIG Fund played a key role in the National Shelter Program.

The Social Security System, and the Government Service Insurance System contributed funds to

the Home Development Mutual Fund for implementation in housing finance under the United

Home Lending Program (UHLP).

Thus, the Pag-IBIG Fund or Home Development Mutual Fund, the premier state housing

finance institution (together with SSS and GSIS with supportive roles under the United Home

Lending Program managed by HDMF) in relation to the housing policies, and the organizational

set-up of the National Shelter Program would be a significant institution to focus on this study.

The Home Development Mutual Fund

The Home Development Mutual Fund, more popularly known as Pag-IBIG Fund was created

on June 11, 1978 by virtue of Presidential Decree 1530. The fund was basically conceptualized

to address two of the country’s basic concerns: generation of savings and provision of shelter for

the workers.

Funds generated under Presidential Decree 1530 were administered by two agencies: The

Social Security System (SSS) from private employees; and the Government Service Insurance

System (GSIS) from government workers. Contributions were pegged at 1% of Fund Salary

which comprised of the basic salary and cost of living allowance of employees.



On March 1, 1979, Executive Order 527 took effect which transferred the administration of

the fund to the National Home Mortgage Finance Corporation (NHMFC). NHMFC was one of

the operating agencies of the then Ministry of Human Settlements.

To further strengthen the stability and viability of the two funds, Executive Order 538 was

issued on June 4. 1979. The said order merged the two funds into what is now known as Pag-

IBIG Fund.

On December 14, 1980, Presidential Decree 1530 was amended by P.D. 1752. This made

Pag-IBIG a corporation, independent from NHMFC, and made membership mandatory for all

SSS and GSIS member-employees.

Due to the clamor from some sectors, Pag-IBIG contributions were suspended from May to

July 1986. However, on August 1, 1986, President Corazon C.Aquino,

recognizing the merits of the Fund’s existence, directed its resumption under Executive Order

No. 35.

January 1, 1987 marked the return of Pag-IBIG to a voluntary program under Executive Order

90. The next eight years witnessed the growth of Pag-IBIG as a voluntary fund. On June 17,

1994, President Fidel V. Ramos signed Republic Act 7742 which reverted the nature of Pag-

IBIG membership to mandatory. Covered by the new law which became effective on January 1,

1995, are SSS and GSIS members with monthly compensation of P4,000 and above.

However, employees earning below P4,000 have the option to sign up with the fund as

voluntary members. Pag-IBIG is an acronym which stands for Pagtulungan, Ikaw, Bangko,

Industriya at Gobyerno. In effect, Pag-IBIG harnesses these four sectors of our society to provide

its members with adequate housing through an effective savings scheme.



The National Shelter Program

Based on interviews with key personnel and corresponding materials provided by the Home

Development Mutual Fund (HDMF), and the Housing and Urban Development Coordinating

Council (HUDCC), the National Shelter Program for the period 1993-1998 were as follows:

1993-1998 Estimated Housing Need

The shelter problem in the Philippines was characterized by a shortage of 3.72 million housing

units for the period covering 1993 to 1998. This was broken down into the following

components:

1.

A backlog of 873,000 units composed of:

• 444,000 households doubling-up with other households in view of inability to

afford separate dwelling units;

• 422,000 dwelling units needed to replace those occupied by households located in

danger areas or those living on land which was needed by government for a major

infrastructure project or in areas where there was a court order for

eviction/demolition;

• 7,000 housing units for individuals or households living in parks, along sidewalks,

and all those without any form of shelter.

2. A future need of 2,853,000 units composed of:

• 1,498,000 new dwelling units needed to supply the demand of new households

formed; and

• 1,355,000 housing units needed for upgrading substandard houses, tenure status,

etc.



Funding Requirements

At an average cost of P150,000 per dwelling unit, a total of P558.6 billion pesos were needed

to finance the housing need of 3.72 million units.

The Housing and Urban Development Coordinating Council (HUDCC) decided to target

1,239,702 homes for the same period.

Legal Mandates

The implementation of the National Shelter Program (NSP) was guided by the following

Executive Issuances, Laws, etc.

Executive Order No. 90

Executive Order 90 issued on December 17, 1986 created the Housing Urban Development

Coordinating Council (HUDCC) and identified the government agencies essential in the

implementation of the NSP and defined their respective functions. EO 90 mandates the HUDCC

to formulate goals and strategies for housing at the national level; coordinate agencies in

housing; monitor housing projects; encourage private sector participation; propose new

legislation; formulate policies for asset disposition; and ensure the implementation of the

National Shelter Program (NSP).

The National Shelter Program was a comprehensive program that aims to provide the lowest

30 percent of the income population with adequate housing facilities through affordable housing

packages.

Executive Order No. 357

Executive Order No. 357 signed on May 24, 1989 further strengthens the existing

coordinating mechanism of the National Shelter Program. This order mandates the HUDCC to

exercise overall administrative supervision over the housing agencies, i.e. the National Housing



Authority (NHA), National Home Mortgage Finance Corporation (NHMFC), Home Insurance

Guaranty Corporation (HIGC), Housing and Land Use Regulatory Board (HLURB) subject to

the control and supervision of the President of the Philippines.

Urban Development and Housing Act of 1992

The Urban Development and Housing Act of 1992 became effective on March 29, 1992. This

Act aims to address the housing shortage of the country. It lays down the groundwork for a

comprehensive and continuing urban development and housing program. It is envisioned to:

1. prioritize provision of decent shelter to the poorest of the poor;

2.

provide the framework for the development and use of urban lands;

3. encourage people and community involvements and initiatives in urban development

and shelter construction;

4. improve and maximize local government unit participation especially in socialized

housing; and

5. tap private sector resources for socialized housing.

Comprehensive and Integrated Shelter Financing Act of 1994

The Comprehensive and Integrated Shelter Financing Act of 1994 (R.A. 7835) was signed on

December 16, 1994 which aims to provide sustained funding to the NSP through increased

annual appropriations, strengthen the financial capability of the government housing institutions

and effect more efficient housing delivery, and encourage private sector funds into the

mainstream of housing finance. The five major components of the Act were as follows:

1. increase in the capitalization of NHMFC from P500 million to P5.5 billion;

2. increase in the capitalization of HIGC from P1 billion to P2.5 billion;



3. increase in the appropriations for the NSP, specifically Resettlement Program,

Community Mortgage Program, Medium-Rise Public, and Private Housing Program;

4. creation of the Local Housing Program; and

5. Abot-Kaya Pabahay Fund Program

Organizational Structure

The agencies involved in the government housing delivery system were as follows:

• The Housing and Urban Development Coordinating Council acted as the highest policy

making body on shelter and provided overall direction in the implementation of the

National Shelter Program.

• It was a 19-man Council which was composed of the heads of the four key housing

agencies, heads of the three fund source agencies and six representative of the private

sector.

Key Housing Agencies

• National Housing Authority (NHA) - the sole government producer of shelter for low and

marginal income groups;

• National Home Mortgage Finance Corporation (NHMFC) - the major home mortgage

finance institution;

• Home Insurance Guaranty Corporation (HIGC) – the guaranty and credit insurance arm

to mobilize private sector funds;

• Housing and Land Use Regulatory Board (HLURB) – the sole regulatory board for

housing and land development.



Government Financial Institutions/Fund Source Agencies

• Home Development Mutual Fund (HDMF) - mandatory savings scheme for those earning

P4,000 and above. Otherwise known as the Pag-IBIG Fund, it is considered as the

premier housing institution in the country;

• Social Security System (SSS) – primary provider of funds for home mortgages of private

sector employees;

• Government Service Insurance System (GSIS) – primary provider of funds for home

mortgages of government sector employees.

Government Housing Programs/Projects

Under the National Shelter Program, several programs were implemented which addressed

the needs of various groups. These were:

1. Development of Resettlement Sites – This involved the development of sites to generate

serviced home lots by the National Housing Authority for families displaced from sites

earmarked for government infrastructure projects and the Mt. Pinatubo eruption or those

occupying danger areas such as waterways, esteros, railroad tracks, and the likes. Under

Presidential decree 2015, the beneficiaries pay only a minimum of P30.00 to P50.00 a

month for a 60 square-meter lot.

2. Community Mortgage Program – It was a financing scheme which enabled slum dwellers

and residents of blighted areas, or areas for priority development to own the lot they

occupy where owners were willing to sell, reblock their structures and introduced

facilities or utilities like water, electricity, drainage, and sewerage through a community

mortgage. Under the scheme, whole plots of privately owned and publicly held lands

were subdivided among qualified beneficiaries of the area which were organized into a



community organization. The loanable amounts under this scheme were P30,000 per

underdeveloped lot at 6 percent interest per annum, P45,000 per developed lot at 6

percent interest per annum, and P80,000 per house and lot at 6 percent per annum.

3. Direct Housing Provision – This involved the provision of financial assistance directly to

the target beneficiaries of the National Shelter Program who were either members of SSS,

GSIS, or HDMF.

4. Indirect Housing Provision – This involved the provision of development loans to private

developers and land owners who were in need of fund augmentation enabling them to

mobilize their land and other production resources for shelter delivery. This mobilizes

financing for shelter either via direct loans or through a system of guarantees to financial

institutions for the use of their funds. This was possible through Developmental Loan and

Government Pabahay Fund Program of HDMF and the Guaranty and Municipal Finance

Program of the Home Insurance Guaranty Corporation (HIGC).

Housing Policies and Strategies

Policies

The Housing and Urban Development Coordinating Council (HUDCC) had adopted an eight

(8) policy thrusts to guide the delivery program as follows:

1. Housing as a means of social intervention and catalyst for economic activity;

2. People-centered and aided self-help approach to housing;

3. Maximum multi-sectoral participation;

4. Easier land access for housing;

5. Development of regional growth poles;

6. Sustainability and matching of housing finance with beneficiaries affordability;



7. Maintenance of ecological balance in urban development and housing; and

8. Improvement of housing delivery system.

Strategies

With the policy thrusts mentioned above as the guide, the Housing and Urban Development

Coordinating Council (HUDCC) enumerated the following as their strategies:

1. Long-term and continuing financial support for social housing production;

2. New and appropriate housing technology;

3. Linkages with livelihood programs;

4.

Creation of housing cooperatives;

5. Incentives and enabling mechanisms for all private sectors/NGO participation;

6. Capability building of Local Government Units and other sectors in housing

development;

7. Land banking;

8. Rationalized land use and town planning;

9. Streamlining of procedures on and related to land access;

10. Provision of housing support services;

11. Creation of enabling conditions supportive to development of growth poles;

12. Conversion and coverage broadening of Abot-kaya Pabahay Fund;

13. Reversion of Pag-IBIG Fund to mandatory membership;

14. Automatic 5-year loan agreement with United Home Lending Program (UHLP) agencies;

15. Active participation of private banks as mortgage originators;

16. Adoption of alternative non-traditional and innovative fund sourcing mechanisms;

17. Integration of environmental concerns in planning and development;



18. Establishment of monitoring and feedback mechanisms;

19. Establishment of one-stop shops; and

20. Regionalization.

The flow of funds for government housing programs among the Government Financial

Institutions and other government agencies is illustrated in Figure 1.



Chapter 3

THEORETICAL FRAMEWORK

Walt W. Rostow’s (1962) dissatisfaction with Karl Marx’s explanation of the evolution of

society and the cause of change therein, compelled him to try another dimension which

integrates the relation of economics to social and political forces in the development of societies.

According to him, growth and development to economic maturity would follow through the

following stages:

1. The Traditional Society. It is one which structure is developed within limited production

functions based on pre-Newtonian science and technology and pre-Newtonian attitudes

towards the physical world. Such a society is characterized by a limited level of

productivity, pre-occupation with agriculture, a social structure with slow or no mobility

and a value system that evolves on fatalism. The dynasties in China, the civilizations of

the Middle East, and the world of Medieval Europe are typical examples.

2. The Preconditions for Takeoff. This is the traditional era which society prepares itself or

is prepared by various forces for sustained growth. Economically, the significant changes

are the development of extractive industries, increase in agricultural production, and

building of social overhead capital as part of increases in total investments. Socially or

politically, a new and more aggressive leadership arises and a strong sense of nationalism

develops.

3. The Takeoff. This pertains to that decisive interval in the history of a society when

growth becomes its normal condition. It is characterized by: a rise in the rate of

productive investment; the development of one or more substantial manufacturing sectors



with a high rate of growth; and institutional frameworks which exploit the impulses to

expansion in the modern sector and the potential external economy effects of the takeoff.

4. The Drive to Maturity. This is the time when society has reached the stage of developing

a range of modern technology for the harnessment of its resources. It is where the leading

sectors of the take off stage are being supplanted by new ones and therefore the industrial

process becomes differentiated. Countries that have reached technological maturity are

Great Britain (1850), United States (1900), Germany (1910), France (1910), Sweden

(1930), Japan (1940), Russia (1950), and Canada (1950).

5.

The age of High Mass Consumption. At this stage, there will be a shift of attention from

supply to demand, from problems of production to problems of mass consumption, and of

welfare in the widest sense. In this post-maturity stage, and of welfare in the widest

sense. In this post-maturity stage, three directions maybe pursued: the national pursuit of

external power and influence, that is the allocation of increased resources to military and

foreign policy; the use of resources of a mature economy in the attainment of a welfare

state; the expansion of mass consumption levels into the range of durable consumers’

goods and services. The United States is the first of the world’s nations to move from

maturity into the age of high mass consumption. Rostow emphasized the significance of

technology, and investment in the growth of the economy. This became the basis of the

claim that developing countries, lacking both advanced technology, and capital

investments have to depend on industrialized countries to support their growth (Rostow,

1962).

The linear stages of economic growth theory have been supported by two economists Harrod

and Domar (Todaro 2000, pp. 80-83) which later formulated the Harrod-Domar Growth Model



which basically reemphasized the importance of savings, and investment in the development of

an economy. This position of emphasizing technology, and investments in a nation’s competitive

advantage have also been reiterated by Michael Porter (1990) of Harvard University.

Rostow’s theory had been questioned by Andre Gunder Frank basically on the fallacy that the

conditions of the development stages of the West such as Great Britain were different as to the

situation of Third World countries who were mostly former colonies, Aidan Foster-Carter (1985)

and Frank argued that in the first place when the west developed, there were no industrialized

countries, Thus, they concluded that the playing field in the world today is not equal due to the

emergence of industrialized countries ahead as strong and powerful competitors in the global

economy. Why is it that there is widespread poverty and homelessness in the Philippines despite

government’s claim of economic growth patterned after Rostow, Harrod, Domar, Kuznet, and

Chenery which Hunt (1989) coined as the Expanding Capital Nucleus Paradigm? Let us consider

the “dependency theory” of Andre GunderFrank (1967) as a framework. Frank’s approach to

development was different from Rostow in the sense that instead of taking society as a unit of

analysis, he saw national economies as structural elements in a global capitalist system. It is this

system, not individual societies, which is the necessary unit of analysis. He characterizes it as a

whole chain of metropolis-satellite relations. This chain links the entire system: from the ultimate

global metropolis which is no one’s satellite (e.g. Latin American cities, which Frank sees as

both exploited by the United States and themselves exploiting their own hinterlands); right down

to the ultimate satellite – e.g. a landless rural laborer, who has nothing and no one to exploit. In

the overall, Frank formulated a number of more specific hypotheses. First, the development of

satellites is limited simply because they are satellites. Development along metropolitan lines is

precisely not possible for satellites, given their subordinate position in the system. What satellites



(like African countries) experience is underdevelopment; which crucially he redefines as an

active process of distortion, characteristic of the relatively modern fate of the Third World. His

second hypothesis states that satellites can only develop when their ties with the Metropolis are

relatively weakened. He concluded that if a country avoid satellization, self generating

development is possible. The structuralist theory of Furtado (1976) also were formulated on the

basis of the underdevelopment experience in Latin America, however, his theories differs from

Frank although there were some points where their theories would meet. The basic tenets of

Furtado’s theory are as follows:

1.

An underdeveloped economy is characterized not only by a low per capita income but by

certain critical structural factors such as the sectoral composition of output, employment,

and the capital stock; economic institutions, including agrarian systems; the joint effect of

the foregoing on elasticities of supply and demand.

2. Key structural features of third world economies are: (a) the juxtaposition of a traditional

largely agricultural sector using a technology with low levels of productivity and a

modern sector using much more advanced technology ; (b) the modern sector is usually

established by foreign capital engaged in the primary production for capital; (c) the

modern sector is characterized by a high degree of openness (a large part of its output is

exported and also a large proportion of its requirements for equipments and materials are

imported; and (d) underdeveloped economies themselves are not able to design and

manufacture the capital goods required by the modern sector.

3. The characteristics mentioned above inhibit the generation of an internal growth

dynamic. Meanwhile, low elasticities of supply and demand also create inherent

tendencies towards inflation and balance of payments crisis.



4. Economic development consists not only of raising per capita incomes but also in

structural transformation, i.e. the transformation of the economic structure of

underdeveloped economies so that they acquire the internal capacity to initiate and

sustain economic growth.

5. The main constraints to economic development are those outlined above, and the unequal

distribution of income caused by the monopoly of elites in the economy. Policy

recommendations center on finding ways in which government can intervene to help

private producers change these structural characteristics via the promotion of import

substitution in individual underdeveloped countries and the establishment of common

markets among them (Furtado: Hunt 1989), pp. 123-128).

The works of Simon Kuznets (1964), and Hollis Chenery (1981) are similar with each other

and in a sense with the same directions as Rostow. Kuznets studied the developing countries

looking at their growth rate patterns especially in national income. The analysis would look at

the transformation of underdeveloped countries structure from agriculture towards industry, and

services. The same is true with Chenery’s analysis that a country’s development lies in the

structural change from agriculture to industry and services. In one of Kuznets findings, he

mentioned that a country was less developed because of the low initial levels of their per capital

product as they entered modern economic era or because of low rates of growth in per capita

product during the past century or so -- or both reasons. He also added that the size of a county

has a profound effect on the structure of its economy, and particularly the degree to which a

country will be involved in foreign trade.In the early stages of growth, the rate of savings and

capital formation as a percentage of national income, and product rises, but after reaching a



certain level those percentages no longer exhibit any clear trend that diverges significantly from

the rise of Gross National Product (GNP) (Kuznets 1973, pp. 247-258).

Both Chenery’s and Kuznet’s findings are similar in their conclusion that as an economy

develops there would be a swing from heavy agriculture to industrialization.

State Theories of Development

In this sub-section, another cluster of theories in development classified as state theories will

be discussed. These group of theories are concerned with the role of the state in socio-economic

development.

Various and contrasting paradigms on the state ranging from Weberian to Marxist

frameworks will be discussed as there is revival on researchers in their interests on the study of

“the state”.

As Skocpol writes:

A sudden upsurge of interest in “the state” has occurred in comparative socialscience in the past decade. Whether as an object of investigation or as something

invoked to explain outcomes of interest, the state as an actor or an institution hasbeen highlighted in an extraordinary outpouring of studies by scholars of diverse

theoretical proclivities from all the major disciplines. The range of topics exploredhas been very wide. Students of Latin America, Africa, and Asia have examined

the roles of states in instituting comprehensive political reforms, helping to shapenational economic development, and bargaining with multinational corporations

(Skocpol 1985, p. 457).

This revival of interest in state theories had become a very useful framework of analysis in

explaining societal development. “State”, as based on the definition of Max Weber (Roth 1968)

argued that states are compulsory associations claiming control over territories and the people

within them. Administrative, legal, extractive, and coercive organizations are the core of any

state. These organizations are variably structured in different countries, and they may be



embedded in some sort of constitutional-representative system of parliamentary decision making

and electoral contests for key executive and legislative posts.

Skocpol (1985) discussed that states conceived as organizations claiming control over

territories and people may formulate and pursue goals that are not simply reflective of the

demands or interests of social groups, classes or society. This is what is really meant by “state

autonomy”. Unless such independent goal formulation occurs, there is a little need to talk about

states as important actors. “Furthermore, one may then explore the capacities of states to

implement official goals despite the actual or potential opposition of powerful social groups or in

the face of recalcitrant socio-economic circumstances.

On the one hand, Marxist theorists (Althusser 1984) viewed that the state is a captive of the

oligarchy in Capitalist countries because the economic base which is controlled by the elites

dictates the policies of the state. Thus, there is no relative autonomy of the state in these

countries. On the other hand, from the Weberian perspective, the capacities of states and its

relative autonomy in relation to the bourgouisie varies from one country to another. As Migdal

(1988) amptly explains:

Capabilities include the capacities to penetrate society, regulate socialrelationships, extract resources, and appropriate or use resources in determined

ways. Strong states are those with high capabilities to complete these tasks whileweak states are on the low end of a spectrum of capabilities. (Migdal 1988, pp. 4-

5)

For Migdal, it is clear that only a strong state can be effective in transforming society, on the

other hand, a weak state is ineffective, and in a sense, it has no relative autonomy to effect much

needed change in a given country. This can be exemplified with the existence of power elites in a

given society which would tend to predominate politics, and economic policies particularly in

many underdeveloped countries such as the Philippines.



In another school of thought, Evans’ (1989) predatory to developmental states continuum is a

heuristic tool in determining the degree of the state to effect socio-economic development. As

Evans (1989) explains:

Some states may extract such large amounts of otherwise investable surplusand provide so little in the way of “collective goods” in return that they indeed

impede economic transformation. It seems reasonable to call these states“predatory”. Zaire might be considered an archetypal case of such a state…Other

states, however, are also able to foster long-term entrepreneurial perspectivesamong private elites by increasing incentives to engage in transformative

investments, and lowering the risks involved in such investments. They may notbe immune to rent seeking or to using some of the social surplus for the balance,

the consequences of their actions promote rather than impede transformation.They are legitimately transformation considered as “developmental states” (Evans

1989, pp. 562-563).

The predatory state is basically one that exploits the country’s resources for the good of a few

and not for the well being of the majority (Evans cited Zaire as classic example of such a state)

while the developmental states are those that utilized the surplus of society for the improvement

of its constituents. Evans theorized that embedded autonomy is the key to a state’s

developmental effectiveness. Embedded autonomy points to the state’s capacity of mixing two

contradictory features which is a “Weberian bureaucratic insulation with intense immersion in

the surrounding social structure. This autonomy depends on the existence of a pact between the

state’s bureaucratic machinery and the private sector to go into shared development projects for

the common good.

The view of the state from a Marxist point of view is related to the relative autonomy of the

state as non-existent in capitalist countries as it looked at society as constituted by two basic

layers: 1) the infrastructure, or economic base (the unity of the productive forces and the

relations of production) and 2) the superstructure which comprises also two levels which are: the



politico-legal (law and the State) and ideology (the different ideologies, religious, legal, political,

etc.). Althusser writes:

It is easy to see that this representation of the structure of every society as an

edifice containing a base (infrastructure) on which are erected the two ‘floors’ of the superstructure, is a metaphor, to be quite precise, a spatial metaphor: themetaphor of a topography (topique). Like every metaphor, this metaphor suggests

something, makes something visible. What? Precisely this: that the upper floorscould not stay up (in the air) alone, if they did not precisely on their base

(Althusser 1984, pp.8-9).

Thus, the object of the metaphor of the edifice is to represent above all the ‘determination in

the last instance’ of what happens in the upper floors (of the superstructure) by what happens in

the economic base (Althusser 1984, pp.-8-9).

The state (superstructure) is not a final determinant for efficacy in socio-economic

development but is influenced more by its base. Althusser explains further:

We can therefore say that the great theoretical advantage of the Marxist

topography, i.e. of the spatial metaphor of the edifice (base and infrastructure) issimultaneously that it reveals that questions of determination (or of index of

effectivity) are crucial; that it reveals that it is the base which in the last instancedetermines the whole edifice; and that, as a consequence, it obliges us to pose the

theoretical problem of the types of ‘derivatory’ effectivity peculiar to thesuperstructure, i.e. it obliges us to think what the Marxist tradition calls conjointly

the relative autonomy of the superstructure on the base (Althusser 1984, pp. 9-10).

In the Marxist tradition, the State is explicitly conceived as a repressive apparatus, the state is

a machine of repression which enables the ruling classes to ensure their dominance over the

working class and in the process extract surplus value.

The state is what is termed as the ‘State Apparatus’. This term means the inclusion of the

government bureaucracy, police and military forces that intervenes directly as a repressive force

in the last instance.



The Marxist-Leninist theory of the state has its finger on the essential point that the State

apparatus is a force of repressive execution and intervention in the interests of the ruling classes.

Althusser further writes:

…in the class struggle conducted by the bourgeoisie and its allies against theproletariat, is quite certainly the State, and quite certainly defines its basic

‘function’ …To summarize the ‘Marxist theory of the State’ on this point, it canbe said that the Marxist classics have always claimed that (1) the State is the

repressive State apparatus, (2) State power and State apparatus must bedistinguished, (3) the objective of the class struggle concerns State power, and in

consequence the use of the State apparatus by the classes (or alliance of classes orof fractions of classes) holding State power as a function of their class objectives,

and (4) the proletariat must seize State power in order to destroy the existingbourgeois State apparatus, then in later phases set in motion a radical process, that

of the destruction of the State…(Althusser 1984, pp. 14-15).

As explained by Althusser, the state is composed of two basic components and these are: 1)

state power, and 2) the state apparatus. The state is a captive of the oligarchy in capitalist

countries even in developing countries like the Philippines.

The state was defined by Lenin the way Marx and Althusser did as he explains:

The state is a special organization of force; it is an organization of violence for

the suppression of some class. What classes must the proletariat suppress?Naturally, only the exploiting class, i.e., the bourgeoisie. The working people

need a state only to suppress the resistance of the exploiters, and only theproletariat is in a position to direct this suppression and carry it out…The

exploiting classes need political rule in order to maintain exploitation i.e., in theselfish interests of an insignificant minority, against the vast majority of the

people…(Lenin 1976, p.30).

Lenin defined imperialism as the “role of finance capital”, the highest stage of capitalism in

which there is no separation of the ownership of capital from the productive application of

capital. Imperialism developed from the rapid concentration of capital in the hands of few

monopolies. This is due to the division of markets in the home base of industrialized countries



and then through the export of capital and the formation of international cartels which divided

control over the world markets (Lenin 1975).

Imperialism as related to the state in a given developing country refers to the infrastructure or

base which dominates the superstructure in Marxist theory. However, according to Lenin, this

infrastructure is expanded to foreign capital which acts as an external force in influencing the

state.

According to Lenin, imperialism has certain characteristics: (1) there is a monopolistic control

of production and capital which is crucial in the firming and expanding of the economic base; (2)

the creation of “finance capital” by a financial oligarchy as a result of the merger of bank capital

and industrial capitals; (3) the export of capital which has become very essential to the oligarchy;

(4) the formation of international capitalist monopolies which share the world among

themselves; and (5) the completion of the territorial division of the world as a whole among the

greatest capital powers.

Lenin viewed that in the event that the exportation of capital by developed countries has

reached large proportions, stagnation sets in. This is because export capital isolates the rentiers

from production more completely which develops into a parasite which thrived on the

exploitation of labor in several countries and colonies. The rentiers create and accumulate more

wealth with the use of cheap labor in the underdeveloped countries. Capital is invested or

channeled from the home country of transnational corporations where labor is expensive to the

foreign colonial investment where there is cheaper labor and thus promises higher returns.

State and Financial Institutions

Richard Edward Deeg (1992) in his dissertation entitled, “Banks and the State in Germany:

The Critical Role of Subnational Institutions in Economic Governance”, argued that the capacity



of the German Banks to influence the decisions of non-financial firms and coordinate the

activities of industry is significantly more circumscribed than is widely assumed in the

comparative political economy literature. The weakening influence of the banks over industry is

the result of several factors: the growing competiton since the late 1960s between commercial,

cooperative and public savings banks; the growing financial independence of large non-financial

firms; the increasing importance of small and medium-sized firms as customers group for the

banks which has favored savings and cooperative banks as sources of industrial finance; and the

growth of state economic intervention, especially by the federal states. The institutional role of

the banking system in the German political economy is increasingly better characterized as one

of information mediation. In this role banks supply firms, especially small and medium-sized

firms, with an ever wider range of non-financial information and services. The banks and the

state must be understood as increasingly complimentary, not alternative institution for industrial

policymaking.

Deeg further argued that the state played a crucial role in promoting the competitiveness of

local and regional savings and cooperative banks partly in order to limit the economic power of

the large commercial banks. Strong competition among the three banking groups inhibits banks

influence over industry and foster the growth of their information mediation role. His study also

showed the changing role of the banks in the economy and the growing importance of

subnational institutions, including governments, in promoting the economic adaptation of small

and medium-sized firms.

Osman Babikir Ahmed (1990) in his dissertation, “The Contribution of Islamic Banking to

Economic Development: The Case of the Sudan,” showed that the contribution of Islamic banks

in financing productive projects in development were minimal. The attitude of the Islamic banks



managements, state policies, and the structural rigidities characterizing the Sudanese economy

contributed to this dismal performance. His study also showed that the financial facilities

provided by the commercial banks, and the pattern of allocating these facilities provide evidence

that smaller firms in the Sudan are at a disadvantage in terms of type, volume, and conditions of

financing. Thus, commercial banks contributed partly to the smaller business finance gap in the

Sudan. Banks have been highly security-conscious and profit-oriented.

Michael Todaro (1985) discussed the role of the state in developed countries through

monetary and financial policy caused a major impact to expand economic activity. The ability of

these developed country governments to expand and contract their money supplies and to raise

the cost of borrowing in the private sector is made possible by the existence of highly organized,

economically independent, and efficiently functioning money and credit markets. Financial

resources are continuously flowing in and out of savings banks, commercial banks, and other

nationally controlled public and private financial intermediaries with a minimum of interference

(Todaro 1985, pp. 502-503).

On the contrary, markets and financial institutions in most developing countries are highly

unorganized, often externally dependent, and spatially fragmented. As Todaro writes:

Many LDC commercial banks are merely overseas branches of major privatebanking institutions in developed countries. Their orientation therefore, like that

of multinational corporations, may be more toward external and less towardinternal monetary situations. The ability of third world governments to regulate

the national supply of money is further constrained by the openness of theireconomies and by the fact that the accumulation of foreign currency earnings is a

significant but highly variable source of their domestic financial resources (1985,p. 502).

Thus, the orientation of foreign bank branches in developing countries are outward in

orientation and not focused for the benefit of domestic economic activities. Todaro further

explains:



Most important, the commercial banking system of the LDCs restricts itsactivities almost exclusively to rationing scarce loanable funds to “credit worthy”

medium and large scale enterprises in the modern manufacturing sector. Smallfarmers and indigenous manufacturing and service sectors must normally seek

finance elsewhere-usually through local money lenders and loan sharks who

charge exorbitant rates of interest (1985, p. 503).

Thus, most developing countries operate under a dual monetary system, a small and largely

externally controlled money market catering to the financial requirements of the middle and

upper-class foreign and local enterprises in the modern industrial sector, and a large unorganized,

uncontrolled and usurious money market wherein low-income people are obliged to borrow in

times of financial need.

In terms of the state’s autonomy in banking as important, Harris (1990), contend that

successful states in Asia and in Latin America control or mostly own the banks in their countries.

He writes:

As in South Korea and Taiwan, the control of credit gave great power to the

Brazilian. At its peak, two thirds of all loans were made by the state-controlledbanks (and 40 per cent by the giant Banco de Brasil, the assets of which were

equal to the combined assets of the top twenty private banks. The expropriation of public spending and activities was also the key factor in sustaining high domestic

demand…(Harris 1990, p. 84).

The control and ownership of banks in South Korea, Taiwan, Brazil and other Latin

American countries by the state played a crucial role in the socio-economic development of these

countries.

Theoretical Framework

This study is influenced by many of the concepts and ideas of the authorities that were

reviewed. Theories of development from modernization to dependency are not appropriate for

the problem of this paper. Although, Furtado’s structuralist paradigm is helpful in the analysis of

structures of the economy particularly the uneven structure of income distribution, it cannot fully



capture the analytical needs of this study. Since the central problem of this study concerns the

Philippine state, deem it proper and correct in choosing state theory as a framework. Thus, this

study is anchored on Hutchcroft’s Weak and Developmental States as well as on Migdal’s strong

and weak state theory.



Chapter 4

THE NATURE OF THE PHILIPPINE STATE

Temario Rivera (1994) discussed the historical role of the state in the Philippines from 1950

to 1986. According to him, “protracted colonial rule in the Philippines engendered four enduring

social features that have shaped the dynamics of the modern state: 1) a resilient oligarchy rooted

in land and export agriculture; 2) a tradition of authoritarian-clientelistic political leadership in a

politically fractured polity; 3) a history of significant popular opposition movements erupting at

critical conjunctions; and 4) continuing marked dependence on foreign external resources

(Rivera 1994, p. 112).” Rivera writes further:

The social roots of the problem, however, go back to the traditions of spoils

and patronage that has turned the state bureaucracies into fiefdoms of particularistic interest mediated into fiefdoms of particularistic interest mediated

by the oligarchy and dominant political families. Under the Marcos government,the dispensation of these privileges became concentrated, in fact, in a narrower

circle of interests. In a very real sense, therefore the state was a captive of thesevested interest, unable to exercise any significant degree of autonomy for

transformative, and economic projects (Rivera 1994, p. 117).

As such, Rivera argued that the Philippine state was not autonomous from the pre-colonial

period up to the Marcos government since the power elites were influencing state policy-making

in favor of their vested interests.

This lack of autonomy is not only internal (influence of the elites) but also external with the

state being pressured and influenced by the United States indirectly through the Word

Bank/International Monetary Fund loans which were given with conditionalities as exemplified

by the Structural Adjustment Loans (SAL) which influenced the economic policies of the

country to open up to the outside world and in the restructuring of the Financial System which

suited the needs of American multinational corporations. In short, these loans, and policies led to



huge bad debts which disrupted government’s budget for social housing and to further

concentration of the banking industry.

According to Villacorta (1994), the root of the weakness of the Philippine state is its

incapacity to severe itself from the interests of the affluent class. The dominance of this ruling

class supported the view that the state is not autonomous in a capitalist system. Villacorta states:

At the root of the weakness of the Philippine state is its inability to dissociateitself from the interests of oligarchy. In the Philippines, the landed elite also

dominate the industrial sector. This oligopolistic control of the economyreplicates itself in the political system. Most law-makers have either come from or

have been supported by the landed-capitalist elite. The bureaucracy is likewise notinsulated from these vested interests (Villacorta 1994, p. 67).

Villacorta (1994) also using the findings of the Ateneo Center for Social Policy regarding the

predominance of oligarchs in the Philippine House of Representatives mentioned 25

congressmen owned or partially owned rural banks; 27 were connected with commercial banks;

with 17 having insurance businesses; and 28 had investments in holding, management and

investment companies, Villacorta continues:

The career and economic backgrounds of congressmen in the House of

Representatives prior to the May 1992 elections is illustrative of the dominationof the economic elite. Of the 200 elected members, 137 were landowners and

agricultural businessmen…the congressmen elected in 1987: 38 congressmenwere businessmen prior to their election; 25 were top officials of corporations and

big-business enterprises; 94 congressmen directly owned agricultural and pasturelands; 36 were major league landlords, owning farmlands and pasturelands worth

more than P1 million; about 53 congressmen were owners or officers of realestate agencies; at least 42 were controlling owners of manufacturing enterprises

and factories…25 owned or partially owned rural banks; 27 were connected withcommercial banks…(Villacorta 1994, p. 76).

As such, Villacorta concluded that because of the elitist background of most congressmen,

the House of Representatives had become the power base of elite agenda.

And so the state’s role in terms of its relative autonomy over the economic base is weak.

Thus, this affects the policies, and programs for social housing because funds which could be



allocated for the poor are in competition with the financing needs of businessmen and law-

makers with access to the state machinery especially Government Financial Institutions (GFIs).

Buendia (1993) also supported this position and also added colonialism as a major factor in

Philippine underdevelopment. He explains:

Philippine political development has been shaped by its colonial history andpostcolonial elitist political system. As the country is ushered into the 21

st

century. The problems of underdevelopment remain. These problems are rootedon the unresolved question of nationhood, skewed concept of public service,

alienated political system, and ambivalent political culture. These problemscontributed significantly to the weakness of the country’s political and economic

instiutions…(Buendia 1993, p.141).

As such, Buendia concludes that the political and economic institutions in the Philippines are

both weak in the sense that the latter dominates over the former. This is further compounded by

post-colonial influences in our state and economic policies which disrupts the country’s socio-

economic development.

Simbulan’s 1965 dissertation listed 169 family dynasties, found in every province and in

Manila that produced 584 public officials, or an average of 4.5 officials per family. These

officials included seven presidents, two vice-presidents, 15 cabinet members, 42 senators and

127 representatives, and 10 justices of the Supreme Court. The remainder were provincial

governors, ambassadors, ministers, generals and mayors (Simbulan 1965).

Even after an uprising two decades after the study of Simbulan, Gutierrez (1992) found out

that many of the families in Simbulan’s study remain in control of political and economic power.

Over the years, these families have grown in size and expanded their following and many have

entrenched their economic interests.

Wolters in his study attempted to explain the political elite in relation to the Philippine state.

He concluded that the Philippine state which emerged during the late Spanish and early



American colonial periods, was characterized by a limited degree of centralization and a weak

state apparatus.. The landowning elite in the provinces, which had an independent basis of power

in their landholdings, prevented the development of a strong central state (Wolters 1983).

According to Wolters (1983), the weakness of the state is evident in the fact that the

government does not have a monopoly on taxation or the use of violence. As such, the state or

government have had to forge with local elites who are so powerful and influential they could

ignore government orders.

As regard to the powerful sugar bloc which controlled the state, McCoy (1980) pointed to the

fact that American colonial authorities set up the Philippine National Bank (PNB) in 1916 for the

sole purpose of providing credit to the sugar industry. PNB had always been a sugar bank up to

the early 1980s. His study on the industry’s political influence on the nation noted that although

sugar lands were only 6.5 percent of the agricultural labor force, the sugar industry was the most

heavily capitalized of all primary industries receiving three times the government banking credit

for rice and coconut combined (McCoy 1980, p. 51).

In his study of the Philippine state, Hutchcroft (1994) contends that powerful elites who are

autonomous and independent of the State resisted change. He explains:

…Political administration—whether in pre-martial law, martial law or in theAquino years—is often treated as a personal affair. The state apparatus is choked

continually by an anarchy of particularistic demands and particularistic action onbehalf of those oligarchs and cronies who are currently more favored by its top

officials. One will obtain a highly coveted loan, another will enjoy a stake in acartelized industry unfettered by effective state regulation…(Hutchcroft 1994, p.

66).

Hutchcroft (1991) argues that this elitist and patrimonial aspect of Philippine politics were

entrenched after the World War 11 period because: (1) personal contacts became even more

important for entrance in the central bureaucracy; (2) patrons, who historically relied on their



own local resources, found expanded opportunities in enriching themselves through the

bureaucracy. This did not diminish the power of local elites, but merely increased the role of

state resources within long standing patron-client relationships; and (3) as the oligarchy

diversified its economic holding beyond agriculture to include commerce, manufacturing and

finance, access to state machinery become more important than ever for the creation of wealth

(1991, pp. 414-450).

Hutchcroft (1994) clarified that Evan’s predatory state in Zaire and also in Thailand in the

1950s was a state that was predated upon by powerful bureaucrats of the government but not by

the oligarchy plundering on a weak state based on patronage. The stagnation of socio-economic

development in the Philippines requires a clearer understanding of the persistent power of the

predatory oligarchy in a weak foreign dependent state (1994, p. 70).

As the other theories of the Philippine State did touch on state autonomy particularly as

regard to the local ruling class and foreign actors, it did not undertake a comprehensive and

updated study of the relation of the state and the housing finance sector. These study argues that

the path to sustainable development is taking a hard look into the nature of the Philippine state

and its efficacy in financing the social housing program vis-à-vis a favored particularistic class

with particularistic demands in the housing sector.

The Philippine Financial System

Hutchcroft (1994) in his study of the Philippine state in the banking industry concluded that

the state was weak in terms of its poor performance and efficacy in the financial system.

However, he discovered that the state as represented by the Central Bank was a captive of

powerful elites who were autonomous and powerful. It was a also a source for cheap loans vital

to their further accumulation of wealth. He further contend that the Philippine state is continually



bombarded with demands of favored elites with particularistic demands such as favored loans or

licenses in the banking industry.

According to him, the Philippine Financial System is defective and it does not work for the

greater benefits of those who need it in society. Hutccroft explains further: “If the system

genuinely worked for the greater good, perhaps weak state regulation and rampant favoritism

could be overlooked. But it does not: there are four major areas in which the Philippine financial

system performs poorly and hampers larger developmental objectives. First, it discourages the

efficient allocation of credit. There are three major types of commercial banks: patronage-

infested government banks (most importantly, the Philippine National Bank, but formerly two

small banks as well), a large number of private banks, most of which are family-dominated, and

four highly profitable branches of foreign banks, all of which have been in operation since at

least the late 1940s (1994, p. 66).

According to Hutchcroft (1994), the other major areas in which the Philippine financial

system are weak and which hampers growth are the following:

1. First priority in loan allocation by government banks generally goes to those with

greatest proximity to the political machinery. Within private domestic banks, first priority

on loans commonly goes to related enterprises of the extended family owning the bank.

The basic building blocks of the Philippine business community are extended family

conglomerates, and the surest means for such groups to secure a credit is through

ownership (or partial ownership) of a commercial bank. If an entrepreneur lacks access

through either of these channels, credit is very hard to obtain no matter how well it might

be put to use (1984, p. 66).



2. The banking system has a weak record of mobilizing savings, a key element in most any

successful program of economic development. In part because real savings deposit rates

have generally been negative over the past two decades, the Philippines has by far the

worst record of promoting financial intermediation M3/GNP have been very weak: .20 in

1970, peaking at .31 in 1983, and falling to .23 in 1988. This has led to considerable

reliance on foreign savings, which may have been allocated even more inefficiently than

domestic savings (1994, p. 66).

3. The banking system has created a high degree of financial instability, the root cause of

which is regulators’ inability to curb the milking of loan portfolios by bank owners,

directors, and officers for related family enterprises. Banks have occupied a central role

in profit-making strategies of the large family-based conglomerates that control much of

the Philippine economy. In the 1980s and particularly in the early 1960s, oligarchs

acquired banks to serve the credit needs of their family business empires; by 1965, nearly

every major family had gotten in on the act. Among bank owners, loyalty is rarely to

banking per se, but rather to the family conglomerate that the bank is meant to serve. In

some cases, banks have been literally milked to death (1994, pp. 66-67).

4. Finally, the banking system provides enormous profits to those banks that are primarily in

the business of banking for the sake of banking profits. Bankers enjoy oligopolistic power

that is unchallenged by the Central Bank, and the head staffers at the Bankers Association

of the Philippines actually admitted that prices for banking services are set by the actions

of a cartel. The large interest rate spreads guarantee high levels of profitability for those

banks whose loan portfolios are less fragrantly milked by their directors, officers, and



stockholders. As a result, the four foreign banks find profits from their Philippines

branches to be among the highest in their international branch network (1994, p. 67).

Rivera (1994) in his study also recognized the existence of a cartel in the banking system

where a few banks control the financial system and wherein there was a web of complex between

the industrial and banking sector. He writes: “ Not only do the landed families dominate the

manufacturing sector; they also control the leading private commercial banks in the country. Of

the top 10 local private banks in 1986, six, including the largest private banks in 1986, including

the oldest and largest, the Bank of the Philippine Islands, were controlled by landed capitalist

families (1994, p.50).

Government Financial Institutions

Rivera also mentioned in his study that the affluent class as represented by local

manufacturers availed of low-interest, long-term loans offered by government financial

institutions (GFIs) and these have proven to be an indispensable source of capital for them. He

writes: “Both the landed and non-landed segments of the manufacturing class, including

Chinese-Filipino capitalists have availed themselves of this important resource. In particular, a

number of textile, cement, fertilizer, and pulp and paper companies received substantial loans

from GFIs like the Development Bank of the Philippines (DBP), the Philippine National Bank

(PNB), the National Investment and Development Corporation (NIDC), and the Government

Service Insurance System (GSIS) (1994, pp, 57-58).

Rivera further explains the abuse of the use of GFIs both by the state and by the aristocracy:

“While there exists a long tradition of borrowing from GFIs, it was grossly abused during the

Marcos regime through cronyism and the state practice of guaranteeing loans incurred by private

corporations, particularly of the cronies, many of whom later defaulted on their payments



(Rivera 1994, p. 58).” For instance, by 1992, the Philippine National Bank (PNB) had loaned

over 60 percent of its equity to a single corporation, the crony-controlled Construction and

Development Corporation of the Philippines (CDCP), and was later forced to convert its loans

into company equity upon default by CDCP on its outstanding debts (1994, p.58).

GSIS Housing Financial Institution

In the case of a major housing financial institution which is the Government Service

Insurance System (GSIS), it was also the source of funds for pet projects of Marcos and his

cronies. Manapat (1991) writes: “ The majority of investments and loans of the GSIS in 1971

were policy, salary, and housing loans to GSIS members. These loans represented 82% of GSIS

investments. These loans to members, however, had dramatically declined by 1980. Housing

loans for members, for example, were phased out. But during the same period, loans and

investments of the GSIS in Marcos-connected companies and Imelda-inspired projects rose to

USD843 million or 65% of the USD 1.3 billion the GSIS earned as income by the end of 1980.

The CDCP conglomerate of Cuenca was a constant recipient of GSIS money, from the start of

the construction boom until the time that this conglomerate collapsed (Manapat 1991, p. 372).

Again, GSIS money, not available for housing for almost two thirds of the population of the

Philippines, were used to fatten the coffers of the Marcos cronies. Government Financial

Institutions (GFIs) were the favorite sources of low-interest and long term loans by a particular

class or group which had access to the state machinery.



Chapter 5

THE STATE AND PHILIPPINE HOUSING FINANCE: AN ANALYSIS

The performance and efficacy of the Philippine state in achieving its social housing targets

in relation to the financing plans and policies of the National Shelter Program during the Aquino

and Ramos administration will be analyzed in this chapter.

Planned Versus Actual Housing Units by Programs, 1993-1998

The planned Direct Housing Program output (see Table 1) by the United Home Lending

Program (UHLP) from 1993 to 1998 were 506,510 units but the actual performance were only

263,939 units. These resulted to a shortage or gap versus plan of 242,571 units or a staggering

poor output which were 68 percent short of the plan.

Table 1 PLANNED VS. ACTUAL HOUSING UNITS BY PROGRAMS

1993 to 1st

Semester of 1998

Program Planned Actual Gap/Excess % to Plan Direct Housing 506,510 263,939 -242,571 48

Indirect Housing 418,254 363,000 -55,254 13

Resettlements/CMP 315,388 175,059 -140,329 44 Total 1,239,702 800,002 -439,700 35

Sources of Primary Data: HDMF, HUDCC

In terms of the Indirect Housing Program, the planned output were 418,254 units but the

actual performance output were only 363,000 units. The shortage or gap were 55,204 units or 13

percent of the planned output. As far as the Resettlements/Community Mortgage Program

(CMP) were concerned the planned output were only 175,061 units. These resulted to a shortage

or gap vis-à-vis the plan of 140,327 units or 44 percent versus the plan. In all the programs, the

total planned output were 1,239,702 units but the actual performance were 800,002 units. These

showed a gap or shortage of 439,700 units or 35 percent versus the planned output.



Thus, in the over-all, the state failed in terms of achieving its housing targets and it was very

clear that the state is weak and ineffective in improving the social housing needs for millions of

Filipinos.

Housing Need, Planned Housing Units, and Actual Performance

The planned output for housing for 1993 were 118,713 units and the actual average of

133,333 units were higher by 14,620 units or 12 percent higher than the plan. However, in 1994,

the planned output of 147,176 units were not met because the actual performance in terms of the

actual average were only 133,333 units. These resulted to a shortage or gap of 13,843 units or 9

percent versus the plan.

Again, based on, the planned output for 1995 which were 214,591 units versus the actual

performance average which were only 133,333 units showed a gap or shortage of 81,258 units.

The shortage versus the plan further increase from 9 percent in 1994 to 38 percent in 1995. In

1996, the shortage between planned output of 234,000 units and average performance ballooned

to 100,667 units or 43 percent versus the plan.

From 1997 to 1998 the shortage increased much further to 46 percent, and 52 percent

respectively. The gap versus the plan from 1993 to 1998 were 439,702 units based on the

planned output of 1,239,702 units and the actual performance which were only 800,000 units.

Thus, the over-all shortage in percent were 35 percent versus the plan.

Comparing these figures versus the housing need, the picture were much worst. Based on a

housing need of 3,724,000 units from 1993 to 1998, the annual average for housing need were

620,666 units, as such, the gap or shortage versus the plan were much wider. Comparing the

average annual performance from 1993 to 1998 which were 133,333 units to the annual average

housing need which were 620,666 units, the gap or shortage were a staggering 365 percent. In



totality, for the same period, the actual performance output which were 800,000 units were short

by 2,924,000 units compared to the housing need.

As such, the state fell miserably versus its targets of providing houses for the poor majority

of its constituents. A strong or developmental state can achieve its targets and plans for its people

but here in the Philippines, the state was weak and its failure were not only minimal but

staggering as the figures showed.

Planned Versus Actual Expenditure-Direct Housing

The planned housing expenditure for 1993 (see Table 2) in the Direct Housing Program or the

United Home Lending Program (UHLP) were 10.06 billion pesos. However, the actual

expenditure for the same year were 2.536 billion pesos which resulted to huge gap or shortage of

7.524 billion versus the plan or 75 percent versus the planned expenditure.

In 1994, the planned expenditure were 11.311 billion pesos but the actual expenditure were

only 4.72 billion pesos. These left a wide gap or shortage of 6.591 billion pesos or 58 percent

versus the plan. In 1995, the planned expenditure for the said program were 20.228 billion but

the actual expenditure fell very short again with only 7.034 billion. This resulted to another wide

gap which were 13.194 billion pesos or 65 percent short of the plan. From 1996 to 1998 the

comparison between planned the planned and actual expenditures revealed the same story. The

planned expenditure in 1996 were 21.871 billion pesos but the actual expenditure were only

13.586 billion pesos resulting to a wide gap which were 38 percent short of the plan. In 1997, the

planned expenditure were only 17.156 billion pesos. These left a big shortage or gap of 11.8

billion pesos or 41 percent short of the plan. The worst year was in 1998 where only 7.261

billion pesos were actually spent for this program compared to the 34.725 billion pesos of



planned expenditure. These left the highest shortage or gap of P27.464 billion or 79 percent short

of the plan.

In summary, the total planned expenditure for the period 1993 to 1998 were 127.188 billion

pesos but the actual expenditure were only 52.293 billion pesos which left a heavy shortage of

74.895 billion pesos or 59 percent short of the plan.

Planned Direct Housing Units Versus Actual Performance

The planned housing units by the United Home Lending Program or direct housing program

(see Table 2) for 1993 were 43,792 units but the actual performance for the year were only

13,002 units. These resulted to a shortage of 30,790 units. In 1994, the planned housing units

were supposed to be 54,651 units but the program only produced 23,450 units for the year

resulting in a shortage of 31,201 units. In 1995, the planned housing units to be produced were

85,442 units but the actual performance were only 34,171 units resulting to a big shortage or gap

of 51,271 units.

In 1996, the planned production of direct housing were supposed to be 103,612 units but the

program actually produced only 57,518 units. Again, these left a shortage of 46,094 units. In

1997, the planned output were only 74,342 units which left a gap or shortage of 31,271 units. In

1998, the planned output were supposed to be 34,275 units but the actual output were only 7,261

units (data for the first semester of 1998). These resulted in a shortage of 51,994 units.



Table 2 Direct Housing Program, Planned Housing Units vs. Performance

Year Planned Actual Performance Gap

1993 43,792 13,002 -30,790

1994 54,651 23,450 -31,201

1995 85,442 34,171 -51,271

1996 103,612 57,518 -46,094

1997 105,613 74,342 -31,271

1998 113,400 61,456 -51,994

Total 506,510 263,939 -294,515

Sources of Primary Data: HUDCC, HDMF

In the over-all from 1993 to 1998, the planned output for direct housing were supposed to be

506,510 units. However, the actual performance were only 263,939 units for the same period.

These resulted in a shortage or gap of 294,515 units.

Again, government money intended for the housing needs of Filipinos were not available by

almost one half of its target since the weak state did not have the political will to achieve its

social housing program.

United Home Lending Program Expenditures and Social Housing

The planned and actual expenditures of the United Home Lending Program from 1993 to

1998 were analyzed above. In this section, these expenditures will also be analyzed in relation to

the social housing component of the program.

The actual expenditure that went to social housing from 1993 to 1998 (see Table 3) were

8.961 billion pesos. As compared to the total actual expenditure for the same period which were



52.293 billion, the social housing expenditures averaged only 1.494 billion pesos a year for the

same period.

Table 3 Comparative Analysis Between Planned and Actual Expenditures (in millions)

Year Planned

Exp.

Actual

Exp.

Ave. Social

Housing Exp.

Ave. Ave. Social Exp.

Vs. Actual Exp.

%

Ave.

Social

Exp.

Vs.

Plan

1993 10,060 2535 8,715 510.55 1,493 17% 14.80%

1994 11,311 4.720 8,715 613.32 1,493 17% 13.20%

1995 20,228 7,034 8,715 652.25 1,493 17% 7.38%

1996 21,871 13,586 8,715 2,657.15 1,493 17% 6.80%

1997 28,993 17,156 8,715 4,101.49 1,493 17% 5.15%

1998 34,725 7,261 8,715 426.21 1,493 17% 4.30%

Total 127,188 52,293 52,293 8,960.98 8,960 17% 7.04%

Sources of Primary Data: HUDCC, HDMF

Compared to the planned expenditure in the United Home Lending Program (UHLP), the

average social housing expenditure were only 14.80 percent versus the plan in 1993. In 1994, the

average social housing expenditure declined to only 13.20 percent of the plan while in 1995, it

further shrunked to only 7.38 percent versus the plan. The average social housing expenditure



versus the plan further declined to only 6.80 percent in 1996. In 1997, it further declined to 5.15

percent and the worst was in 1998 wherein the the ratio declined to the lowest at 4.30 percent.

In totality, the actual social housing expenditures from 1993 to 1998 were only 7.04 percent

versus the planned expenditure for the same period.

The state’s housing program which was meant to mainly benefit the poor through social

housing was allocated only a meager 7 percent of the total funds for housing. Indeed, it is

paradoxical to note that the weak state in the social housing program in the Philippines favored

the higher income groups rather than the poor majority which badly needed the funds for

housing. These weaknesses will further be discussed in the succeeding sections.

Government Financial Institutions: Commitment Versus Actual Released

The planned housing expenditure shortage can be explained through the failure of the state

banks or government financial institutions to stick to their commitment of funding the housing

program. As such, public funds intended to fund housing for the poor were intentionally not

released and diverted to other financial programs. The weak state in the Philippine housing

finance can be reflected through the government financial institution’s

reluctance to fund the much need housing which were much needed for shelter by millions of

Filipinos. As can be seen in Table 4, the Social Security System (SSS), the Government Service

Insurance System (GSIS), and the Home Development Mutual Fund (HDMF) committed to

release from 1993 to 1998 81.4 billion pesos but these government financial institutions released

only 41.9 billion pesos or only 51.5 percent (almost one half) of their commitments to the

Unified Home Lending Program.



Social Housing Production, 1993-1998

The social housing constructed in 1993 (see Table 3) were 4,903 units and increased

to 5,293 units in 1994. In 1994, the social housing units built increased to 6,098 units and in

1996 jumped to 17,650 units. In 1997, it further increased to 28,828 units. However, in 1998, it

dropped drastically to 2,896 units.

In comparing social housing production to total planned United Home Lending Program

production which totalled 506,510 units from 1993 to 1998, the total social housing production

of 65,673 units for the same period were only a meager 13 percent of the plan. In relation to the

actual housing units produced by the United Home Lending Program for the same period, social

housing housing were only 25 percent.

Housing Loan Takeouts By Interest Rate and Loan Value

The Home Development Mutual Fund (HDMF) housing loan takeouts by interest rate (see

Table 5) showed that in terms of the loan value from 1995 to 1998, the 9 percent interest



category (with loan value of P180,000 and below for social housing) were only 27.6 percent of

the total loan value of 23.205 billion pesos for the same period. The loan value for the percent

category were 652.258 million pesos in 1995.

Table 5 HDMF Loan Takeouts by Interest Rate, 1995 to 1st

Sem. 1998

(Loan Value in Millions)

P180T

and

below

Interest

Shar

e

%

>P180T

To

P220T

Interest

Shar

e

%

>P225T

To

P375T

Interest

Shar

e

%

>P375T

To

P500T

Interest

Shar

e

%

Total Shar

e

%

Year 9% 12% 16% 17%

1995 652.26 663.95 536.45 95.08 1,947.74

1996 1,250.1

0

1,759.1

9

1,177.8

8

238.69 4,425.87

1997 2,715.8

3

4,257.6

6

3,102.0

6

605.99 10,681.5

4

1998 1,789.0

3

2,153.7

7

1,768.9

3

438.87 6,150.60

Tota

l

6,407.2

1

27.6 8,834.5

7

39.6 6,585.3

3

28.4 1,378.6

4

5.9 23,205.7

5

100

Source of Primary Data: HDMF

These increased to 1.250 billion pesos in 1996 and in 1997 these further increased to 2.716

billion pesos. In 1998, however, these dropped to 1.789 billion pesos. These summed up to 6.407



billion pesos for social housing for the same period which were again only 27.6 percent of the

total loan value for the period.

The loan value for the 12 percent category (loan value ranging above P180,000 to P225,000

or economic housing) were 663.947 million pesos in 1995 and increased to 1.759 billion but

these declined to 2.154 billion pesos in 1998 which summed up to 8.835 billion pesos for the

period. These comprised 39.6 percent for the economic housing category out of the total loan

value of 23.206 billion pesos.

In terms of the 16 percent interest rate category (loan value ranging above P225,000 to

P375,000 or market housing category), the loan value in 1995 were 536.456 million pesos and

these increased to 1.178 billion pesos in 1996. In 1997, these increased to 3.102 billion pesos,

however, it declined to 1.769 billion pesos in 1998. These summed up to 6.585 billion pesos

from 1995 to 1998 and comprised 28.4 percent of the total loan value for the same period,

In the 17 percent interest rate category (above P375,000 to P500,000 loan range) which were

still considered under market housing, the loan value in 1995 were only 95.079 million pesos.

These increased to 238.695 million pesos in 1996 and further augmented to 605.988 million

pesos in 1997. These category decreased to 438.873 million pesos in 1998 and for the period

1995 to 1998 summed up to 1.379 billion pesos which comprised only 5.9 percent of the total

loan value for all categories. However, the combined market housing category in interest rates

(16 percent and 17 percent) posted a hefty 34.3 percent in all categories.

The Social Security System (SSS), and the Government Service Insurance System (GSIS)

under the United Home Lending Program (UHLP) contributed a loan value of 1.818 billion

pesos (see Table 6) in 1996 in the 9 percent interest rate category. In 1997, these declined to

1.386 billion pesos and drastically dropped to only 113.910 million pesos in 1998. These



summed up to 3.317 billion pesos which comprised 25 percent of the total loan value of 13.283

billion pesos for the same period.

In terms of the 12 percent interest rate category, 2.923 billion pesos of loan value were

released in 1996 and 1.946 billion pesos in 1997. In 1998, these dropped to 171.078 million

pesos. These totaled to 5.040 billion pesos from 1996 to 1998 which comprised 37.9 percent for

economic housing out of the total loan value for all categories for the same period. The 16

percent interest rate category (above P225,000 to P375,000 loan range) which were in the market

housing classification posted a loan value of 3.083 billion pesos in 1996. In 1997, these declined

to 1.682 billion pesos and much further went down to 160.439 million pesos in 1998. These

totaled 4.926 billion pesos from 1996 to 1998 which comprised 37 percent of the total loan value

for the same period. Thus, the share of social housing in terms of loan value averaged the lowest

share at 26.3 percent out of the total loan value from the Home Development Mutual Fund,

Social Security System, and the Government Service Insurance System from 1995 to 1998. The

economic housing category averaged a high of 38.75 percent share from the loan takeouts of the

three Government Financial Institutions (GFIs) while market housing also averaged a high share

of 35.65 from these institutions.

Thus, government housing money for the poor majority instead went more the coffers of the

higher income echelon of Philippine society. The weak state is indeed pro-poor only in words but

not in deed.

Housing Loan Takeouts By Interest Rate and Number of Accounts

Under the United Home Lending Program (UHLP), the Home Development Mutual Fund,

released loan takeouts (see Table 8) in 1995 to 6,098 accounts in the 9 percent interest rate or

social housing category. In 1996, these increased to 9,835 accounts and in 1997, these more than



doubled in increase to 19,709 accounts. However, in 1998, these totaled to 47,656 accounts

which comprised 41.8 percent of the total accounts for the same period.

Table 6 HDMF Number of Accounts Released by Interest Rate

Interest

Rate

Category

y

Shar

e

Interest

Rate

Categor

y

Shar

e

Interest

Rate

Categor

y

Shar

e

Interest

Rate

Categor

y

Shar

e

Total Shar

e

Year 9% % 12% % 16% % 17% % %

1995 6,098 3,267 1,729 229 11,323

1996 9,835 8,531 3,715 521 22,602

1997 19,709

20,443

9,760 1,325 51,237

1998 12,014

10,005

5,735 945 28,699

Tota

l

47,656 41.8

42,246 37.1

20,939

18.4

3,020 2.6 113,86

1

100

Source of Primary Data: HDMF

In the 12 percent interest rate or economic housing category, the Home Development Mutual

Fund released to 3,267 accounts in 1995. These soared to 8,531 accounts in 1996 and jumped to

20,443 accounts in 1997. In 1998, the release in loans in terms of accounts declined to 10,005.

The total number of accounts which benefitted from these category were 42,246 accounts for the



same period. The economic housing category posted a share of 37.1 percent out of the total of

113,861 accounts.

In the market housing or 16 to 17 percent interest rate category, the number of accounts which

benefitted in 1995 were 1,958 accounts. These increased to 4,236 accounts in 1996 and further

increased to 11,085 accounts in 1997. In 1998, these decreased to 6,680 accounts and totaled

23,959 accounts from 1995 to 1998. The market housing category posted a share of 21 percent

out of the total accounts granted by the premier housing institution in the Philippines for the

same period.

Although the number of accounts for social housing which posted a share of 41.8 percent

from 1995 to 1998, the loan value for the same period were only 27.6 percent out of the total

loan value released which were 23.026 billion pesos. The number of accounts released,

nevertheless pointed to a hefty 58.2 percent for both the economic, and market housing category.

The Social Security System, and the Government Service Insurance System under the United

Home Lending Program released loans to 12,079 accounts in 1996 in the social housing category

(see Table 6) or 9 percent interest rate loan bracket. However, the number of accounts which

benefitted declined to 9,119 in 1997 and further dropped to a meager 749 accounts in 1998.

These totaled 21,947 accounts from 1996 to 1998 which comprised 36.5 percent from a total of

60,050 accounts for the same period.

The 12 percent interest rate bracket (economic housing), posted 13,494 accounts in 1996 and

declined to 9,036 accounts in 1997. It further drastically dropped to 793 accounts in 1998. These

totaled 23,319 accounts which shared 38.8 percent from the total accounts from 1996 to 1998.

The Social Security System and the Government Service Insurance System (under the United

Home Lending Program) were able to release 9,343 accounts in 1996 in the market housing



category (12 percent interest rate bracket). In 1997, it declined to 4,954 accounts and in 1998

posted only a minimal figure of 487 accounts. These totaled 14,784 accounts for the market

housing category which shared 24.6 percent out of the total from 1996 to 1998.

In the over-all, from 1996 to 1998, the United Home Lending Program released accounts on

the average to social housing at 39.15 percent out of the total accounts granted by the

Government Financial Institutions. The economic and market housing category ate up 60.85

percent of the accounts and were able to obtain 73.7 percent of the loan value from 1995 to 1998.

These figures were not consistent or in contrast with the policy of the National Housing Program

to cater to social housing which mainly composed the lowest 30 percent echelon of the

population in the country.

Performance of the Aquino and Ramos Administration, 1987-1998

The Government Financial Institutions under the United Home Lending Program were able

to produced 91,858 houses from 1987 to 1992 during the Aquino administration. The average

production were 15,310 houses per year. The total loan granted for the same period were 14.124

billion pesos which averaged 2.354 billion pesos per year.

On the one hand, the Ramos administration from 1993 to 1998 posted a total of 263,939

houses built during the period. These averaged 43,990 houses per year which were almost three

times higher than the Aquino administration. In the over-all, a grand total of 355,798 houses

were built under the United Home Lending Program from from 1987 to 1998 which averaged

29,650 units per year built during the twelve year period. Also, a grand total of 66.417 billion

pesos of loans were granted during the same period.

Thus, the figures from 1987 to 1998 showed the performance of the Ramos administration in

terms of houses built and loans granted were much better than the Aquino administration.



However, its efficacy of producing and financing social housing for the poor versus its plan was

still below the level expected of a strong state.

Performance of the Home Insurance Guaranty Corporation (HIGC)

The policy of encouraging private banks to participate in the National Shelter Program led to

the creation of the Home Insurance Guaranty Corporation (HIGC). This Government Financial

Institution was responsible for guaranteeing mainly for the private banks to accommodate loans

or wholesale or retail in order to benefit the lowest 30 percent of the population. The figures in

this study showed that this was not the case.

The planned output of the Home Insurance Guaranty Corporation were 33,921 units in 1993

and 44,326 units in 1994. In 1995, 1996, 1997, and 1998, the planned output were 74,256 units,

73,167 units, 85,400 units, and 107,176 units respectively. These totaled 418,254 units from

1993 to 1998. The actual units produced were 363,000 units for the same period averaging

60,500 units per year. These resulted to a shortage of 13 percent versus the planned output.

The social housing component (P180,000 and below) figured 72,600 units from 1993 to 1998

averaging 12,100 units per year which shared only 20 percent of the total actual output for the

same period. The above P180,000 to P375,000 loan range showed a figure of 181,500 units

averaging 30,250 units for the same period. These category captured 50 percent of the total

housing output guaranteed by the program. The above P375,000 to P3,000,000 category posted

108,900 units averaging 18,150 units per year for the same period. These resulted to a share of

30 percent out of the total output of 363,000 units from 1993 to 1998.

From the 363,000 loans in peso terms generated by the program, only 7.5 percent went to

social housing (P180,000 and below) while the above P180,000 to P375,000 loan bracket were



able to get 19 percent of the total loan. The balance of the portfolio were loans ranging from

above P375,000 to P3million which captured a hefty share of 74.5 percent of the guarantee line.

In other words, the main beneficiaries which were supposed to be the social housing category

were only able to benefit a minimal amount or share of only 7.5 percent of the total guarantee

line while the bulk of the guarantee line went to the middle and upper class bracket of Philippine

society. Again, guarantee money designed for the poor went to the coffers of the upper classes

for housing.

Distribution of Loans Among Private Developers and Banks

The Home Development Mutual Fund, the National Home Mortgage Finance Corporation,

the Social Security System, and the Government Service Insurance System (under the United

Home Lending Program) granted a total of 42 billion pesos in loans to private developers, and

private bankers from 1987 to 1996. Ranked as the number one largest reciepient of loans was

C&P Homes owned by Manuel Villar with 7.8 billion pesos. Villar’s group captured 18.50

percent of the total loan released. Ranked number two largest recipient was the Extraordinary

Development Corporation with 2.7 billion and captured 6.8 percent of total loan released.

The E.B. Villarosa Group ranked as number three largest recipeint of loans received 2.5

billion pesos equivalent to 6.4 percent of total loan released. The Campos Group ranked as

number four largest recipient with .976 billion pesos equivalent to 2.3 percent of the total loan

released.

Urban Bank (already closed shop) owned by the Bartolome family received .862 billion pesos

and ranked as number five largest recipient. This bank received an equivalent of 2 percent of

total loan released. The Baes Group ranked number six received a total of .8 billion peso

equivalent to 1.9 percent of total loan released.



The Laxa Group ranked number seven and received .712 billion pesos equivalent to 1.7

percent of total loan released. The BPI Family Bank of the Ayala family ranked number eight

and received .498 billion pesos in loans equivalent to 1.2 percent of total loan released. Stateland

Investment ranked number nine with .476 billion pesos in loans received to 1.1 percent of total

loans granted.

The Choa Group received .417 billion pesos equivalent to 1 percent of total loan released. The

Group ranked number ten. The remaining balance went to other entities which were not

identified in the data and this is equivalent to 24.26 billion pesosor 57.10 percent of total loan

released.

The United Home Lending Program through the National Home Mortgage Finance

Corporation and the Home Development Mutual Fund provided loan takeouts amounting to 2.1

billion pesos to C&P Homes from 1987 to the first semester of 1992 despite a low collection

efficiency rating of 60.8 percent during this period. These Government Financial Institutions also

granted further loans to C&P Homes worth 5.6 billion pesos from the first semester of 1992 to

1996 despite the much lower collection efficiency ratio of 39.3 percent during this period.

The Extraordinary Development Corporation received a loan of 368.99 million pesos from

1987 to the first semester of 1992 despite its loan efficiency ratio of 59.1 percent from 1987 to

the first semester of 1992. However, surprisingly, it was given a huge loan takeout which jumped

to 2.498 billion pesos during the second semester of 1992 to 1996 despite its low collection

efficiency ratio of 38.2 percent. The Campos Group received .976 billion pesos in loans despite

its poor collection efficiency ratio of 58.2 percent from 1987 to the first semester of 1992 and

37.1 percent from the second semester of 1992 to 1996.



The E.B. Villarosa Group received 2.5 billion pesos in loans but buffling because it had the

worst collection efficiency ratio of 25.1 percent from 1987 to the first semester of 1992 and 24.9

percent from the second semester of 1992 to 1996.

The terms of the United Home Lending Program did not penalize originators who faltered in

their collection efforts. In fact, some of the originators mentioned received more funds at the

precise time their collection fell off.

As a result, the National Home Mortgage Finance Corporation suffered heavy

debts/collection receivables amounting to 43 billion pesos (see Table 11b) and it was almost

milked to death in 1995. The Home Development Mutual Fund also accumulated huge bad debts

and receivables amounting to 20 billion pesos because the loans given to these private

developers. These resulted to a staggering 63 billion pesos of bad debts/account receivables

being absorbed by these Government Financial Institutions.

The lending of large amount of government loans to private developers that proved futile

because of their low and poor efficiency ratio would strongly indicate that there were loans given

to rentiers preying on government patronage.

Indeed, access to the state machinery by these rentiers indicated that the Philippines was a

weak state being milked by a predatory oligarchy.

Profits and Interest Rates in the Philippine Financial System

In this section, the structure of the State and the Philippine Financial System from 1987 to

1998 will be analyzed as it relates to the Philippine housing finance sector.

The financial system in the Philippines provides enormous profits to those financial

institutions and banks that were primarily in the business of banking for the sake of banking



profits. According to a World Bank study (World Bank, 1988: iii 73), pre-tax profit margins in

the Philippines were roughly 300 percent higher than the average of such margins in eight other.

The World Bank’s analysis concentrates on the distinction that must be made between the profit

structures of the stronger and weaker banks in the Philippine banking system: the more efficient

banks priced their products and services with reference to the cost structure of the smaller banks,

a practice which effectively enabled them to capture higher profits. In early 1991, savings

deposit rates were at 11 percent per annum, while prime lending rates surpassed 23 percent (see

Table 13) interest per annum. Analysis of interest rates from 1987 to 1998 would show the same

pattern of high spreads as was in 1991. These large spreads guarantee high levels of profitability

for financial institutions and banks. The interest spread to savings ratio was 196 percent in 1987

and 290 percent in 1988. In 1989, the interest spread to savings ratio was 215 percent and

dropped gradually to 90 percent in 1997. Nevertheless, the spreads were still too high in the

banking system.

Philippine banks were highly profit-oriented from 1987 to 1998. As such, the policy of

encouraging private banks through guarantees by the Home Insurance Guaranty Corporation

only resulted to loan portfolios with higher loan range and higher interest rates. Moreover, the

state which was supposed to guarantee social housing for the lowest 30 percent income bracket

of Filipinos granted a huge majority of its housing loan portfolios to market housing (upper class

bracket) with higher interest rates. Thus, guaranteeing high profits for the state banks except for

the Home Mortgage Finance Corporation which was almost milked to death in 1995 by private

developers.

The Home Development Mutual Fund is considered as the premier housing financial

institution in the Philippines was the primary agency in implementing the United Home Lending



Program. Despite its huge bad debts, its profit and loss statement in 1996 showed a highly

lucrative income from interest on loans of almost 3 billion pesos. In 1997, its interest income on

loans jumped to almost 4 billion pesos. These resulted to a lucrative net profit of 3 billion pesos

in 1996 and 2.9 billion pesos in 1997.

As such, both the private and state banks were highly profit-oriented in the Philippines

resulting to the failure of the social housing program from 1987 to 1998.



Chapter 6

CONCLUSIONS AND RECOMMENDATIONS

CONCLUSIONS

Based on the findings presented in chapter five, this study concludes to accep the following

hypotheses:

1. Hypothesis number one which states that the state was weak as it was not effective

because there was a large gap or failure between the actual result or performance in terms

of housing units produced by the National Shelter Program versus its policies from 1993

to 1998 is accepted;

2. Hypothesis number two which states that the state was weak as it was not effective

because there was a large gap or failure between the actual result or performance in terms

of total housing expenditures, and number of housing units of the United Home Lending

Program versus its policy/plan from 1993 to 1998 is accepted;

3. Hypothesis number three which states that the state was weak as it was not effective

because the actual housing loan takeouts by interest rate/loan range granted by the United

Home Lending Program in terms of loan value, and number of accounts during this

period were minimal for social takeouts versus market housing in relation to the total

budget is accepted;

4. Hypothesis number four which states that the state was weak as it was not effective

because the mortgage financing takeouts for social housing of the United Home Lending

Program in terms of loan value, and number of accounts from 1993 to 1998 were minimal

in relation to the total budget is accepted;



5. Hypothesis number five which states that the state was weak as it was not effective

because the number of accounts, and loan value granted by the United Home Lending

Program from 1987 to 1998 were minimal in relation to the housing need of the

Philippines is accepted;

6. Hypothesis number six which states that the state was weak as it was not effective

because the policy of encouraging the participation of private banks under the Home

Insurance Guaranty Program from 1993 to 1998 in peso terms and number of loan

accounts benefitted minimally social housing, and more for market housing is accepted;

7.

Hypothesis number seven which states that the state was weak as it was not effective

because the policy of encouraging the participation of private developers, and authorizing

them as loan originators by the United Home Loan Program from 1987 to 1996 resulted

to the granting of loans with state patronage to a few particular class or interests as

indicated by their huge share in loans granted with corresponding low collection

efficiency ratio is accepted.

The official goals or policy targets of the National Shelter Program were not met with

tremendous shortages or variances between the planned and actual performance of the state. The

primary objective of providing social housing to the lowest income echelon of the population

were not accomplished. Market housing for more affluent members of society benefitted much

more than social housing as evident in the findings of this study.

Private banks as well as Government Financial Institutions were profit-oriented. The

beneficiaries of huge loans were a few favored particular private developers which had bad

collection efficiency ratios.



The findings and evidence would imply that the state was weak in terms of implementing its

official goals and it was not autonomous from a favored particular group who had been able to

benefit from the housing program at the expense of the state which accumulated huge bad debts.

It cannot be understood or reconciliable why the Government Financial Institutions persisted to

lend billions of pesos loans to a favored few who in the first place proved to be bad debtors as

evident in their poor collection efficiency ratios. Moreover, these particular interest groups

milked the funds of the state banks and it pushed the National Home Mortgage Finance

Corporation to the brink of bankruptcy.

In the present time, these practices continue in the Philippines, the state is still being milked

and influenced by a few oligarchs or interest goup in the housing sector and this is also

happening in other sectors and industries. The Philippine state was weak and is still weak and

continues to practice state patronage. Access to the state machinery is important for most of these

oligarchs in the creation of more wealth.

RECOMMENDATIONS

The following policy agenda are suggested for the government in the formulation of

development policy in the housing sector. These are the following:

1. The creation of a new housing organization which can be named Urban Poor Housing

Corporation which will mainly cater to the social housing needs of the poor;

2. The state should come up with a program that should emphasized the production and

financing of social housing rather than market housing;

3. The development of a saving/financial market program that will increase the availability

of long-term funds for housing such as housing bonds;



4. The program authorizing the private developers as loan originators should be abolished

and transfer this authority to the Urban Poor Housing Corporation;

5. The presence of the State or the government in providing housing for the poor must be

felt more strongly by its constituents and not just leave this responsibilty to the private

sector;

6. Favoritism and patronage in giving loans must be eradicated or minimized. Granting of

loans to private developers must be on the basis of efficiency especially in the collection

efficiency ratio;

7.

The Home Insurance Guaranty Corporation must guarantee more the financing of private

banks to social or low-cost housing. Its capitalization should also be increased so that it

will be able to expand its guarantee program;

8. Increase the allocation of government funds in the fiscal budget for housing especially for

the poor and make sure that government resources go to programs which benefit the most

number of people per peso spent. For example, the Community Mortgage Program would

only cost an average of P25,000 per family and the resettlement Program would cost a

little higher at P60,000 per family. As such, majority of Filipinos will benefit if the

Community Mortgage Program and the Resettlement Program will be given more priority

in the budget;

9. Improvement for a more efficient land use policy to make land more accessible to the

poor and encourage the people’s capacity for self-built housing by forming housing

cooperatives; and

10. Finally, the state should have a strong political will to pursue its policies and targets for

social housing and must isolated from certain particular groups or interests which are



detrimental to the housing program. A system of checks and balances must be created to

avoid favoritism in housing projects.



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