This is one of those long papers posted in pilipinasforum yahoogroups -- a fantastic online discussion group that I co-founded and moderated -- more than 10 years ago. I was not fully convinced of the free market philosophy then. Otherwise, I would have posted a long counter-rebuttal to the author of this paper and a good friend, Citizen Kori. I'm posting this because a number of the ideas he raised then still ring a bell up to this time.
-- Nonoy Oplas
Counting the Cost of Corruption in the Philippines
by citizen kori
June 29, 2001
We must however not only limit the cost of corruption to the monetary value. We must also bear in mind the tremendous hardships of those who rely on state monies for survival have to go through. The plight of the children, the plight of the aged and the plight of the homeless and destitute are but a few that I can mention. This in turn influences the socio-economic climate in the country affecting the unemployment rate and resulting in a rise in the crime statistics.
The message is clear - if we cannot manage our own money and assets, how can we be expected to manage investment from 1st world countries. This was clearly demonstrated by the International Finance Corporation - who in February this year identified corruption as the most serious government-related constraint on doing business in South Africa.
Judge W H Heath Institute for Security Studies Seminar 5 November 1998
Among my very first lessons in business is that there is no such thing as a free lunch. Somebody is bound to pay. Always. Especially when it comes to corruption. So how does corruption get to us? Let us count the ways.
1. Loss of government revenue
The first victim of corruption is government revenue. In a developing economy like the Philippines, this can be extremely debilitating. The continuing budgetary deficit of the government results in to cutbacks in expenditures for much needed social services.
The gap of classrooms in public elementary schools is estimated to be about 30,000 by this school year. The case of books is even more pathetic, as the lack of qualified teachers further confound the problems. While the population of students keep on growing year after year, these gaps in classrooms, books and teachers keep widening. What do these lead to? Poor quality education in the basic education of the future citizens of the Republic, further undermining their prospects of contributing to nation-building. That is a very high price to
pay for corruption.
With tightening sources of funding for infrastructure development, government has to resort to partnerships with the privates sector. A public good like roads, bridges, ports and airports will necessarily be charging user fees to recover the profit of private capital. Nothing wrong with because he who benefits should share the cost. But a lot of these projects require performance undertaking from government to be financiable to lenders. This result into the contingent liabilities of the national government burgeoning to levels no one wants to even find out. Last count by end of March 2001 it stood at Php465.6 billion. That's about Php30,000 per Filipino household. That is no loose change to pay for corruption.
Because government resources are constrained, environmental protection programs are neglected. We passed a Clean Air Act and we cannot put our acts together in ensuring clean air. The law is toothless. Government has no money to invest in monitoring equipment. Even garbage it cannot collect. Meanwhile, to be able to generate power and power heavy industries, less desirable industries are allowed to be established. All these contribute to withdrawals from our deposit of breathable air, potable water, and livable communities. The resource balance of our children's future is rapidly depleting, a cost of corruption that we may never be able to account for.
5. Government Debt and Poverty
Again due to budget deficit, government keeps on accumulating debt, which at end of March 2001 stood at Php2.178 trillion. That's about Php30,000 for every Filipino man, woman and child. At an average interest cost of 10% per year, that is equivalent to Php218 billion in interest payment alone every year. That is the amount of money taken away from the mouth of the poor, who account for roughly half of the Philippine population. Turning our backs from our marginalized citizens is a steep price to pay for corruption.
6. Political Patronage
Corruption does not prosper without protection. Those who practice realize that to keep themselves in their lucrative posts, somebody politically powerful should be able to stop any attempts to cut him from illicit money flow. In return, he lavishes his patrons with gifts. Gifts in no small terms, which further corrupt him and his patron. His patron, in order to accumulate more gifts has to increase his influence. To increase his influence, he needs to milk his corrupt benefactors. And it goes on deeper and deeper.
Elections are like a sponge. It sucks up all the money, most of it from corruption. Elections in the Philippines are nothing but patronage politics. How else does one explain the millions spent in a campaign in exchange for a few measly thousand pesos in the salary of a public servant? There is only one explanation I have - there is no such thing as a free lunch. Someone is bound to pay for it.
How do campaign contributors expect to recover their investments? In the form of political protection to allow them to continue with their illicit activities. In the form of rigged government contracts. In the form of economic rents taxpayers eventually pay for.
Corruption corrupts and the deeper one gets into the mire, the more desperate one becomes in defending the well from where he draws his booty. He will be prepared to use trick, treat and threats to keep his business. And since corruption like stale food attracts flies and worms, criminal syndicates are not very far away from them. So do their violent means of doing business.
The problem of the proliferation of illegal drugs can be linked solidly to corruption. How else do drug lords and pushers do their business under the noses of law enforcers and local government executives except that they pay-off these public servants?
This social ill that has led to the commission of many a heinous crimes is prospering and multiplying in every barangay of this country because of corruption. Rapes, murders and kidnappings are too much to pay for corruption.
8. High Cost of Doing Business
It is sometimes beyond imagination for a businessman to spend three full days in the crowded city hall of a highly urbanized city trying to get a business license. And he was just going to buy and sell eggs. How much more if he was opening a mining project. If there are 48 government offices he need to go through for various permits, licenses, certifications, approvals and signatures, he needs an entire army of fixers to handle them. Precious hours are lost among senior officers of the firm who have to wine and dine to the whims and caprices of government officials.
Those companies whose code of conduct does not permit them to provide bribes and pseudo-bribes end up spending tons of money just to end up deciding to leave the country in exasperation.
On the other hand, many of those who stay to do business have gotten used to government people scratching their heads as they show-up in their offices asking for all sorts of gifts for every known relative of a mayor, congressman, senator, department secretary, bureau director or chief of police. What does the businessman do? He just passes on to his customers this extra cost incurred in doing business in the Philippines.
9. Loss of Investor Confidence
And as Judge W. H. Heath said, if we cannot manage our money and assets, how can we be expected to manage other people's money? Investors demand that there be a reasonable level of assurance that they will get their investments back. And that their investments will in fact make money. And that it will not be taken over by political forces.
It becomes extremely challenging to attract investors to do business in country where a fugitive from the FBI gets elected to congress. Or where a tax evasion case with very clear outcomes is lost to technicalities.
Multilateral donors find it hard to give us loans and technical assistance grants when they know that a large portion of their money will be used to line up the stomachs of politicians. They will have to invest in additional personnel, incur additional costs just to watch us spend their money. Every time we submit receipts they spend thrice the time just verifying whether they are genuine or not. Believe me it can be tiring to do these things.
When many in the international community consider your country as corrupt, it does not feel good. It does not buy you goodwill. Jeers and sneers yes. But respect? No. That is what widespread corruption is also costing us.
We have only just begun counting the cost of corruption. In summary, corruption costs us trillions of pesos. It costs us the prostitution of our political institutions. It costs us many lives and honor lost to crime. It costs us our self-respect. And it costs us lost opportunities for a better future for our children.
If you ask me, that is too much to pay for a free lunch.
- * -
People who talk about corruption in the BIR have no idea what they are talking about.
It is the nature of corruption in the BIR to be hidden.
Much like an iceberg where only about 10% of it visible, the great bulk of it is below the surface. Corruption in the BIR hides behind exorbitantly high tax assessments and a demand for a meeting at the lobby of a 5-star hotel. Don't forget to bring cash. Plenty of it.
And corruption in the BIR takes root deeply.
Those who profit from it started with loose change. With which they could buy a few extra drinks. Then it gradually grows into some significant amount that is used to buy the latest sports utility vehicle. It is only a matter of time when a brand new house in a plush neighborhood comes next. The children are sent to exclusive schools. Of course there is the usual trips abroad. And you'd think a corrupt government official would just turn his back from his evil ways because he has had his share? Or just because government issues a crackdown?
No way. He is going to resist it. He is going to buy media mileage. He will shed crocodile tears before an unsuspecting columnist to decry the injustice being committed against him and his colleagues. He will consolidate ranks with other corrupt personnel. They will appeal to their political patrons. Particularly those whose election to public office or appointment were made easier with their contributions. They will ask that the patron write a handwritten note to the powers that be, as a cover note of their petition against reorganization.
He will do more than that. He will meet with the militant labor unions. If he cannot wine and dine them, he will put on a cara de pobrecito and solicit sympathy. He will use buzzwords to paint himself as a victim of government re-engineering, reorganization, privatization and reforms. And all of these injustice and harassment are waged against him despite his efforts to meet the target of his office.
Now, let us talk about getting rid of corruption at the BIR. You will have to start with a good data-gathering team. They need to operate as miners to determine the most cost-effective, least disturbing way of getting down to the bottom of it. Latest technologies in sleuthing, asset tracing, surveillance and investigation will have to be deployed. They may use the tricks of their target, i.e. bribe the small fry to betray the bigger fishes. It works particularly with
criminals caught with the loot.
Then, a select team of razor-sharp lawyers and prosecutors need to be organized. They have to prepare the case to be airtight. They will need to use every available trick to get evidence and witnesses. They need a friendly judge to issue the necessary warrants. And they should be able to knock on the doors of their targets at 6:00 in the morning and handcuff him out of his bedroom before he can dial the number of his patrons.
Conviction-guaranteed or your career is over. Do not even think of relying on the Department of Justice. It is the next likely target. File the case with the entire media behind you. It is the only thing politicians and corrupt people fear these days. If you cannot trust the local media, bring in FOCAP and the foreign boys - live report to CNN.
Oh, by the way. Be sure to watch your back. The guys you're up against are not exactly scholars and gentlemen. And they have very interesting friends. They're called torturers in newspaper editorials. Or Honorable Secretary in others. Or Chief Superintendent in some. Some of them work in an old, big, powerpacked place beside the Pasig River.
These people talking about corruption have no idea what they are talking about. Because if they do, they'd be bringing in the Marines. Forget Abu Sayyaf. This one's worth the future of this country.