Author: Gilberto M. Llanto, PIDS

A growing number of developing countries have implemented conditional cash transfer (CCT) programs, a new intervention funded by donors that seeks to improve the health and education status of mothers and poor children, respectively, and reduce poverty in the long run. The CCT is a targeted transfer program whereby cash is directly transferred to poor household beneficiaries on condition of doing certain activities such as keeping children in school. This intervention rests on the importance given to human capital in stimulating growth and social development.

Recently, the Philippine government has designed its own version called “Pantawid Pamilyang Pilipino Program” (4Ps), allocated a budget and knocked on the doors of donors such as the World Bank for supplemental funding.

The 4Ps will provide cash to targeted poor households on condition of regular school attendance by the households’ children and visits to health centers by family members.

The 4Ps are based on the following rationale:

• Investment in human capital (e.g., basic education, health) leads to long-run poverty alleviation. Early interventions provide much higher returns over the lifecycle, and
• Cash transfers have an immediate impact on the poverty situation.

That poor households—which do not have the means to improve their education and health status—need some form of subsidies is undeniable. That cash transfers provide immediate relief, especially to poor households suffering from hunger and various deprivations, is obvious.

The policy question, however, is whether or not the 4Ps constitutes an efficient and effective instrument for providing subsidies. More importantly, will conditional cash transfers yield the expected outcomes on education, nutrition, and health? Will the expected human capital investment outcomes be realized?

The budgetary implications of this program are staggering and more so if funded by borrowing. In the next five years, the government hopes to transfer cash to 500,000 poor households. It cannot do this, though, without passing the hat to donors since it simply does not have the resources to fund the envisaged massive program of conditional cash transfer.

Conditional cash transfers have an intuitive appeal because poor households are given the choice on the composition of their consumption bundles. They can choose what they think is best, in contrast to price subsidies, and are simpler than vouchers. They are also far more transparent than subsidies, which are often hidden under earmarks or lumpsum items. There is little chance of leakage, provided there is an effective targeting mechanism.

However, even if the government wants a rapid expansion of the 4Ps, infrastructure bottlenecks may stand in the way of a successful implementation. As such, should the national government not lay down the requisite infrastructure first before it distributes cash to hundreds of thousands of poor households?

We recommend to proceed with the program but with due caution. There is no need to rapidly expand coverage when crucial program components have yet to be tested and proven, like an efficient targeting and monitoring system. While the political calculus seems to favor a rapid expansion of coverage, this Notes argues that it is paramount to first establish empirical evidence about the significant role that the 4Ps plays in producing the expected human capital outcomes crucial for growth and poverty reduction before a rapid expansion is even contemplated.

The full version of this article can be found here.

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This entry was posted on Tuesday, February 3rd, 2009 at 10:00 pm and is filed under Country, Development, PIDS. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.