PHILIPPINE SCHOOL OF BUSINESS ADMINISTRATION

1029, Aurora Blvd, Lungsod Quezon, Kalakhang Maynila

Final Output

In

Economics 2

“EFFECTS OF CALAMITY TO THE PHILIPPINE ECONOMY”

2nd Semester SY: 2018 – 2019

Submitted by: Kaizzer V. Bernardo

Submitted to: Sir. Johnlee Salvador L. Botor

Every year, 20 typhoons hit the Philippines, a country also threatened by earthquakes and
volcanoes. These natural disasters have grave economic consequences.

The Philippines is one of the country’s most prone to natural disasters. The German development
grouping, "Alliance Development Works," ranked the country third in its global risk report index
2013, after Vanuatu and Tonga. The country is not just threatened by storms, but by flooding,
earthquakes and volcanic eruptions, too.

The cost of disaster

This has severe consequences for the country's economic development. The direct costs resulting
from natural disasters lower annual gross domestic product by 0.8 percent, Jerry Velasquez,
coordinator for the Asia-Pacific region of the United Nations International Strategy for Disaster
Reduction (UNISDR), told Deutsche Welle. In addition, a study by the World Bank and the
Philippines' National Disaster Coordinating Council identifies "indirect and secondary effects
that further raise the costs," including major social and environment-related costs.

"The Philippines has consistently experienced financing gaps owing to disasters since 2000," the
UN's 2013 Global Assessment Report on Disaster Risk Reduction (GAR) reports. The country's
2013 national disaster budget, amounting to about 128 million Euros ($171 million

The mounting costs are due to different factors, Velasquez points out: "The Philippines have a
unique zero-victim policy. In the case of an ever-growing and increasingly exposed population,
zero victim’s means more people have to be evacuated." That increases costs. Strategies to move
people to safety differ: evacuation as soon as danger threatens, or shortly before the disastrous
incident occurs. The Philippines opt for early evacuation.

In that case, it can be difficult to persuade people of the necessity of evacuating, as the disaster is
still far away and it is not clear who will actually be affected. People will ask, Why am I here?
When can I go home? Some governors in the Philippines have been known to distribute five
kilos of rice to every family in the storm evacuation centers as an incentive. "That costs a lot of
money," Velasquez says. A million people were evacuated before Haiyan smashed into the
Philippines.

Economic growth increases the risk

Economic growth also increases the cost of disasters in the Philippines. It sounds paradoxical,
but according to Velasquez, the richer a country, the greater the loss. The UN's GAR report says
investments aimed at increasing competitiveness and productivity inadvertently also raise risk.
The Fukushima nuclear disaster is a good example: while nuclear energy boosts Japan's
competitiveness and productivity, it also increases the value of the risk because the disaster has
resulted in human and economic losses that no one can specify as of yet.

The same effect is noticeable in the Philippines, though on a smaller scale. Economic growth of
almost 7 percent is based on the rapid growth of the productive population. At the same time, the
population is increasingly in danger "because people are willing to accept risk for short-term
profits," Velasquez says. Industries choose production sites on rivers and in coastal regions, and
workers follow suit. As a result, more people are affected by storms and floods. The
infrastructure and industrial facilities in emerging countries are also more easily damaged, says
the UN report, due to weaker building structures and materials.

Prevention instead of reaction

To reduce the number of victims and the exploding costs, the Philippines in 2010 passed a
National Disaster Risk Reduction and Management Plan. It proposed changing the reactive
strategy to a preventive one. The national disaster budget was re-distributed: 30 percent is now
earmarked for emergency aid, while 70 percent goes to prevention and risk reduction.

It hasn't quite been implemented yet, however, Velasquez says. Despite the plan, the government
still puts too much money into emergency aid. It should instead change its city planning and
investment policies so that it consistently takes account of the effects of natural disasters.

Over the past decades, Filipinos have flocked to risky, low-lying areas, havens for cheap and
crammed housing. Officials here say the Philippines must also improve emergency training for
distant local governments, enforce building codes and make sure that money earmarked for
infrastructure ends up helping those whose homes are the most vulnerable.

We are improving,” said Eduardo del Rosario, head of the National Disaster Risk Reduction and
Management Council. “In the next few years, we’ll be able to say that we are competent enough
and we are prepared.”

Located on the Ring of Fire and in a main alleyway for typhoons, the Philippines will never be
disaster-proof, experts say. But it can cut the risk. If cyclones of identical intensity were to strike
Japan and the Philippines, the Philippines would have 17 times the death toll, according to the
Geneva-based Internal Displacement Monitoring Center. Even in 2011, the year of Japan’s
mega-quake and nuclear emergency, disasters forced three times the number of people from their
homes in the Philippines.

Since 2000, according to the United Nations, the Philippines has experienced a financing gap. In
other words, the government doesn’t have the means necessary for rebuilding. Manila has
doubled its “calamity fund” — covering aid and relief — since 2009, but this year the fund ran
dry even before Haiyan hit. Whatever is needed for Haiyan that isn’t covered by international aid
will have to be borrowed or come from cutting other programs.

“The national government resources are stretched as is,” said Lucille Sering, secretary of the
Philippine Climate Change Commission, “and even before we could recover from one disaster,
here is another one.”

The Philippines already has risk-reduction laws that the United Nations calls among the best in
the world — at least on paper. Legislation passed in 2010 calls for 70 percent of disaster
spending to be used on long-term steps. Just 30 percent is used for emergency aid, a shift from
the earlier plan that put the emphasis on military-led relief after disasters hit.

But much of the responsibility for lowering disaster risk falls to local governments, some of
which operate like little fiefdoms in this nation of 7,100 islands. Local officials not only decide
how to spend the money but also oversee building codes and land planning.
A January 2013 report from the Internal Displacement Monitoring Center highlighted the
shortcomings of that approach, looking at the impact of Tropical Storm Washi, which struck the
east coast of the southern island of Mindanao in December 2011 and killed more than 1,500.

The storm hit hardest in Iligan and Cagayan de Oro, nearby cities where more than 300,000
people had their homes destroyed or damaged. In both cities, the governments “chose not to
carry out their official responsibilities regarding disaster preparedness,” the report said. The
cities ignored warnings from the Philippine Mines and Geosciences Bureau that many residents
were living in hazard-prone areas — particularly sand bar islets that could be easily flooded and
had been designated as “no-build zones.”

Some had built homes in that area under a poor-housing scheme of the Cayagan de Oro mayor,
who allowed people to settle in unsafe areas for 1 Philippine peso, or about 2 cents. More than
1,000 took up the offer, the report said, and ended up being among those most affected by the
storm.

In the Philippines, the report said, “decisions are based on electoral considerations rather than on
evidence or technical assessments.”

When disasters happen, Filipinos have little recourse. Only a fraction have insurance or any
claim to property ownership. Many of the buildings damaged by Haiyan, for instance, were
informal settlements made of lightweight materials — bamboo and wood, with corrugated metal
roofs.

In theory, a major disaster opens the way to improvements. Cities can be rebuilt using more
concrete. Certain areas can be marked off-limits, based on scientific hazard mapping.

For as problematic as climate change is, poor planning — cutting forests, ignoring building
codes — is many times deadlier, said Jerry Velasquez, the United Nations’ head of disaster risk
in Southeast Asia.
“We hope that something like [Haiyan] will turn the tide,” Velasquez said. “Our argument is, it’s
not a cost, it’s an investment. Right now, you have all this international aid flowing in. I hope it
will go into building resilience, so things aren’t rebuilt just as they were.”