De-institutionalizingCorruption in the PhilippinesIdentifying Strategic Requirements for ReinventingInstitutions

E r i c C . B a t a l l a , P h D 1

A s s o c i a t e P r o f e s s o rP o l i t i c a l S c i e n c e D e p a r t m e n t

D e L a S a l l e U n i v e r s i t y

Institutionalizing Strategies to Combat Corruption: Lessons from East AsiaConference Sponsored by the KAS and the DLSU-YCEA

Makati, Philippines, August 12-13, 2000

ABSTRACT

This paper assesses corruption and the institutional strategies to fight it in thePhilippines. The objective is to identify areas for consideration in devising policy optionson the basis of empirical data and theoretical perspectives. The paper also examinescorruption in road construction projects.

The paper is divided into four sections. The first is a description of corruption in thePhilippines. This section starts with the general definition and nature of corruption andfocuses on systemic or institutionalized corruption for the discussion. Then, it proceedswith the perceptions, historical evidences, traditional anti-corruption approaches andmechanisms, the costs and magnitude of corruption, initiatives from various sectors, andthe persistence of the problem. The second part describes corruption in public roadsprojects. Various corrupt practices in two stages of road building are identified andindications of the magnitude of financial losses are provided. The third section brieflydescribes an NGO fighting corruption, particularly in road projects. The casedemonstrates the potential of curbing the problem nationwide. The section also appliesinstitutional and agency theory perspectives to identify key requirements for anti-corruption strategies and programs. I argue that victory against systemic corruptionshould go beyond existing strategies and programs. Instead, change in the overall nationalstructure for profit and income as well as the necessity of leadership are seen as urgentrequirements. The final section contains the paper’s conclusions and recommendations.

1 The author expresses his gratitude to Konrad Adenauer Stiftung and the Yuchengco Center for East Asia for theirsupport in the preparation of this working paper. Acknowledgements are also due to Lord Byron Abadeza and DaniloM. Agoncillo, both project research assistants of the Social Development Research Center, De La Salle University.

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CORRUPTION IN THE PHILIPPINES

1. Definitions and Nature of Corruption. Corruption has been defined as the misuseor abuse of public office for private gain (World Bank, 1997; Jayawickrama, 1998;UNDP, 1999). It involves members of government and the private sector. It comes inseveral forms or as Klitgaard2 puts it, “a wide array of illicit behaviors including bribery,extortion, fraud, nepotism, graft, speed money, pilferage, theft, embezzlement,falsification of records, kickbacks, influence-peddling, and campaign contributions.” Areport of the United Nations Development Programme (UNDP) identifies two types ofcorruption, petty and grand. However, I would like to use a tentative typology based onits pervasiveness in society, to wit: spontaneous and institutionalized (or systemic). Thespontaneous type can be found in societies observing generally strong ethics and moralsin public service. Individual acts of corruption are minimal although they can be bothpetty and grand. When corrupt behaviors are perennially extensive or pervasive insociety, it can be said that corruption has been institutionalized. It has become a way oflife, a goal, and an outlook towards the public office.

Institutionalized corruption is a problem that thrives in the weakness of both publicand private institutions to act as effective fiscalizers for the greater public good.Opportunities for corruption abound in the absence or lack of order, transparency andaccountability. These characteristics and the problem of institutionalized corruption ingeneral appear to be more pronounced in developing countries. In these countries, thenumber of corruption cases settled is far lower than what it ought to be based on broadperceptions of its prevalence.

2. Perceptions of Corruption in the Philippines. In the Philippines, there is a strongbelief that corruption is prevalent. In a 1998 Social Weather Station (SWS) survey, over70% of the respondents think that, in government, corruption exists. Nearly 40% believethat there is “a great deal” of corruption. Even the Office of the Ombudsman admits thatbillions of pesos are being lost to corruption. Based on its Corruption Perceptions Index(CPI) for 99 countries, Transparency International has also rated the Philippines as the54th most corrupt countries in 1999. The Philippines has scored 3.6 based on the CPI’sscale of 1 (high perception) to 10 (negligible perception).3

According to Vinay Bhargava (2000), World Bank country director for thePhilippines, “Our analysis so far reveals a broad consensus that corruption in the publicand private sectors in the Philippines is pervasive and deep-rooted, touching even thejudiciary and the media.”4 Indeed, in a society with a long history of state and elitepredation as well as mass powerlessness, the use of public office has been identified withgaining and maintaining economic, political, and social power. Both private citizens and

2 See Robert Klitgaard, “Strategies Against Corruption”, http://www.clad.org.ve/klitg3.htm, p. 1.3 Vinay Bhargava (2000), World Bank country director for the Philippines, provides a good summary of the mostrelevant indicators based on latest surveys and studies. See Vinay Bhargava, “Combating Corruption in thePhilippines”, paper delivered at the Summit Against Graft and Corruption: An NGO Initiative, hosted by theVolunteers Against Crime and Corruption (VACC), 30-31 May, 2000.4 Ibid.

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government employees habitually use this office to further their self-interest at theexpense of the common good. This custom has prevailed the Philippines under a long andcontinuing regime of rent capitalism (Hutchcroft, 1998). This is in contrast to theproduction-oriented capitalism following Max Weber’s classification of capitalism.

3. Corruption at Various Points in Philippine History. The use of the public officefor private ends by government officials and private businessmen has been evident sincethe Spanish period. De Jesus (1980), for example, writes that around the 17th century theChinese population often exceeded the immigration quota in Manila. “Royal ordersperiodically attempted to impose an immigration quota. But the fees that the Chinese paidto obtain a residence permit encouraged officials to ignore the limits so that they couldpocket the additional collections” (De Jesus, 1980:19-20). In the same work, De Jesusalso documents unethical practices in the management of the government’s tobaccomonopoly even under the enlightened, liberal administration of Governor Jose Basco.

A summary report by Elizabeth Medina (1998) of the conference proceedings of theAsociacion Española de Estudios del Pacifica held from November 26 to 29, 1997 alsodiscusses Xavier Huetz de Lemps’s research synthesizing the kinds and causes ofcorruption in 19th century Philippines.5 Medina’s report goes as follows:

The most important practices were the falsification of accounting documents. Theevidence of embezzlement of funds were destroyed and the cabezas de barangay(barangay leaders) were obliged to sign blank financial statements. Corruptgovernors hid monies from the administration in Manila. They also found waysto discourage the natives from working so that they would do so and thus beliable to fines. Taxes and fees were arbitrarily set and excessively high, andillegal fines were often collected. Governors could embezzle the salaries ofpublic officials and often demanded gifts from their hosts whey they made officialvisits. Gifts were also necessary so that false documents would not be issued. Thereasons for corruption were many: the governors had executive, legislative andjudicial powers. No checks and balances were built into the system, and whenthere were, they were unenforceable. There was a vague limit between what werepublic goods and what were private ones. Turnover was high and governorsoften did not stay long enough in their posts to establish and develop healthyrelationships with their constituents. The salaries of public officials werelow…There was a monetary crisis in the 19th century…The laws were so complexas to easily hide misappropriations and fraud…Finally, the common people hadno idea of the law and submitted meekly to the injustices and abuses…What wasthe price of corruption? Very high. In monetary terms, in the province of Negrostowards the end of 1860, approximately twenty-five thousand pesos weresiphoned away from the government (probably equivalent in modern currency tohundreds of thousands of dollars). The political price was even higher: thepopulation’s increasing alienation from the colonial regime…The Americans’later efforts to eradicate corruption at the local level during their own colonialgovernment would prove futile.

5 Huetz de Lemps’ research was based on documented cases of corruption in provincial governments.

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Many Filipinos today would think that corruption was negligible during the Americancolonial era. However, as suggested in Medina’s report, corruption in the provinces wasnot altogether eradicated. According to McCoy (1994), the Americans even “used theterm cacique to describe the provincial elites who combined local office with landedwealth to gain extraordinary control over the countryside.” Nevertheless, he added,“Similarly, the colonial executive tried to use insular auditors to restrain rent seeking byan emerging national elite. Although it was effectively penetrated and manipulated bythese elites from the outset of American rule, the colonial bureaucracy managed tomaintain its influence until the Commonwealth period of the 1930s” (McCoy, 1994:12).

Although American colonial rule tried its best at eradicating, there were incidents thatalready indicated prevalence. Hutchcroft (1998: 67-68), for example, cites the solvencyproblems faced by the Philippine National Bank (PNB) less than five years after itsestablishment in 1917. Loans were given out without consultation and went to well-connected agricultural families, directors, or interests controlled by directors. In 1921, anaccounting firm reported that the PNB had squandered the entire capital stock contributedby the government as well as half of all government deposits in the bank (Hutchcroft,1998:68).

American colonial rule also helped develop another building block for the nationalspread of corruption. It maintained and expanded a big and interventionist governmentwithin a democratic framework. At the start, the colonial administrators promoted aneconomy led by private enterprise, and big business in particular following the trend inthe United States at that time (Corpus, 1997:223). However, beginning in 1913, thegovernment took an active role in the promotion of economic growth. Then, in 1916, thecolonial administrators increasingly interfered in business. The consequent “growth ofgovernment”, as leader, large-scale development promoter and employer, laid the groundfor massive and systematic corruption later in the country’s history. With this legacycame expanded opportunities for corruption. These included granting individuals andorganizations of special favors, policy changes, licenses, business contracts, and evenemployment (which in a patron-client system redound to personal gain). Such practiceshad effectively destroyed the development of a merit system in the Philippines.

After political independence in 1946, writers like nationalist Renato Constantinobewailed of the pervasiveness of corruption in Philippine society. “Daily, in the halls ofcongress, through the printed word and over the airwaves, our politicians and our civicleaders expose, denounce, or deplore this or that government’s anomaly. During electiontime the principal issue is always graft and corruption. No wonder public concern isalmost exclusively centered on malfeasance in government. But with every change ofadministration, the problem only becomes aggravated. The panaceas and the grandiosepromises fizzle out. The accusers become the accused; the halo of righteousness changesheads. The list of dishonor is different but corruption remains the same. Graft andcorruption persist, like a cancer gnawing at our entrails, showing no signs of abatementand consigning us to a state of helplessness and hopelessness.” (Constantino, 1966: 81-82)

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The Marcos government has been often regarded as the most systematic and corruptof all government administrations in the Philippines. This is somewhat justified by theconcentration of State powers in the President. Unlike in previous administrations thatmore or less observed the independence of the executive, legislative, and judicialbranches of government, the late president effectively controlled these three branches.Eventually, crony-capitalism in the country reached its zenith with the centralization ofpolitical power and the realignment of concentrated economic power from the old elitesto favored associates.

Centralized the political power notwithstanding, graft and corruption have been notedeven at the lowest levels of government. Although the Marcos government has beenconsidered as the most corrupt of all, succeeding political administrations had their ownshare and have not effectively controlled the problem. In fact, with the return todemocracy, the perception is that the floodgates of corruption have been opened for morepeople at various levels of government and society. The vacuum left by the Marcosregime has been filled and even widened; opportunities have simply become available toa broader population.

4. Traditional Anti-Corruption Approaches and Mechanisms. Sinceindependence, numerous mechanisms have been designed to counteract corruption in thePhilippines. The traditional approaches include setting the legal framework andestablishing anti-graft and corruption bodies like presidential committees, commissions,task forces, and other units.

Since 1950, various Philippine presidents, from Quirino to Estrada, have created anti-graft and corruption investigation units and agencies (see Table 1). These bodies areusually short-lived, with the exception of the present Presidential Commission AgainstGraft and Corruption (PCAGC), which was established in February 1994. Createdthrough Executive Order No. 151 in 1994, the PCAGC handles cases of graft andcorruption lodged against presidential appointees with "the rank equivalent to or higherthan an Assistant Regional Director"6. It also investigates presidential appointees with alower rank than Assistant Regional Director a) when the amount involved is at least 10million pesos, or b) when acts or charges threaten grievous harm or injury to the nationalinterest, or c) when investigation is assigned to the commission by the President. Thefindings of its investigations along with recommendations are then forwarded to theOffice of the President for executive action.

The other longest presidential anti-graft body, established by President RamonMagsaysay, had a lifespan of 4 years and 7 months (Venzon: 1993). The most recentpresidential body is the Inter-agency Anti-Graft Coordinating Coucil, which includes theCommission on Audit (COA), the Civil Service Commission (CSC), the Office of theOmbudsman (OMB), the PCAGC, the National Bureau of Investigation (NBI), and theDepartment of Justice (DOJ). The council was established through a memorandum ofagreement among these agencies on 11 June 1997 (the DOJ was admitted in 1998).

6 Executive Order No. 151, "Creating a Presidential Commission to Investigate Administrative Complaints involvingGraft and Corruption", January 11, 1994

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However, the council accordingly received presidential recognition only last August 1999through President Estrada’s Administrative Order Number 79, which allotted P5 millionfor anti-graft activities.7

Table 1. Presidential Anti-Graft and Investigation Agencies 1950-presentAgency President Period Duration

1. Integrity Board Quirino May 1950-Nov. 1950 6 months2. Presidential Complaints and

Action Committee (PCAC) Magsaysay Dec. 1955-July 19584 years and 7

months3. Presidential Committee on

Administrative Performanceand Efficiency (PCAPE) Garcia July 1958-Dec. 1961

2 years and 5months

4. Presidential Anti-GraftCommittee (PAGC) Garcia8 Feb. 1960-Dec. 1961

1 year and 1month

5. Presidential Anti-GraftCommittee (PAGCOM) Macapagal Jan. 1962-Jan. 1966 4 years

6. Presidential Agency onReforms and GovernmentOffice (PARGO) Marcos Jan. 1966-Sept. 1966 8 months

7. Presidential Complaints andAction Office (PCAO) Marcos Sept. 1966-Oct. 1967 1 year

8. Presidential Agency onReforms and GovernmentOperations (PARGO) Marcos Oct. 1967-Feb. 1970

2 years and 4months

9. Complaints andInvestigation Office (CID) Marcos Feb 1970-Feb. 1986 16 years

10. Public Ethics andAccountability Task Force Aquino 1986-19889 More than a year

11. Presidential CommissionAgainst Graft and Corruption(PCAGC)

Ramos topresent Feb. 1994 to present

More than 5years and still

operational

12. Inter-agency Anti-GraftCoordinating Council Estrada

August 1999 topresent Still operational

Sources: Data from 1-9 based on Venzon (1993). See Venzon, Regina Emily P. 1993. "Graft andCorruption and the Institutional Mechanisms Promoting Accountability under the AquinoAdministration: Focus on the Office of the Ombudsman and the Sandiganbayan". MA Thesis,University of the Philippines. 1993.

The other traditional approach is to strengthen the legal framework againstcorruption. Foremost in this framework is provided by Article XI of the 1987 Philippineconstitution, which covers accountability in the public service. Section 1 states, “Publicoffice is a public trust. Public officers and employees, must at all times, be accountable tothe people, serve them with utmost responsibility, integrity, loyalty, and efficiency; actwith patriotism and justice, and lead modest lives.” Article XI also provides for an anti-graft court and an Ombudsman (Section 5). The anti-graft court is called Sandiganbayanand the Office of the Ombudsman (OMB) is also known as the Tanodbayan. The latterhas the rank equivalent to that of a Constitutional Commission.

7 Veronica Silva, “Graft Busters Set Up Electronic Database to Promote Transparency”, Businessworld, 12 December1999.8 President Garcia also formed a Presidential Fact Finding Committee (PFFC) to investigate on graft and corruptionbut was not included in Venzon's table.9 This agency ceased to exist upon the establishment of the Office of the Ombudsman in May 12, 1988.

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Aside from constitutional provisions, Congress has passed a number of laws, namely:

1. The Ombudsman Act of 1989 (Republic Act No. 6770);

2. The Anti-Graft and Corrupt Practices Act (R.A. No. 3019)

3. An Act Declaring Forfeiture in Favor of the State Any Property Found toHave Been Unlawfully Acquired By Any Public Officer or Employee andProviding for the Procedure Thereof (R.A. No 1739)

4. Code of Conduct and Ethical Standards for Public Officials and Employees(R.A. 6713);

5. Revised Penal Code (Title VII), Crimes Committed by Public Officers

The Civil Service Commission is the lead agency in implementing RA 6713 and in1989 issued that Act’s Implementing Rules. At present, the Tanodbayan and the PCAGCare the principal actors in government to act on complaints and cases of graft. Some ofthe cases are resolved by the Tanodbayan while the others upon determination ofprobable cause are elevated to the Sandiganbayan. As may be petitioned, cases where theaccused have been found guilty are sent to the Supreme Court or to the Court of Appeals.Currently, administrative cases are automatically sent to the Court of Appeals whilecriminal cases like the violation of the Anti-Graft and Corruption Practices Act godirectly to the Supreme Court.

5. Losses and Costs. Despite the existence of anti-corruption laws, bodies, andmechanisms, the Philippines continues to suffer from financial, social, economic,political, and diplomatic losses due to corruption. Various estimates of losses have beensuggested. But as Bhargava argues, “Most estimates of losses due to corruption areimprecise and not very rigorous.”10

In July 1999, Ombudsman Desierto declared that P100 million are lost daily since theTanodbayan was created in 1988. He said that about P1.4 trillion have been lost due tograft and corruption.11 In the same month last year, President Estrada announced that hisgovernment was able to reduce money lost to graft and corruption in allocatedgovernment projects from 50% to 20%.12 However, the World Bank estimated that lossesare at least 20% of the national budget.13 If the World Bank estimate were used, financiallosses due to corruption would constitute about 3.8% of GNP (see Table 2).

10 Bhargava, op. cit.11 Peter La. Julian, “P100M lost to graft every day—Desierto”, Philippine Daily Inquirer, 10 July 1999.12Martin Marfil, “Estrada: 20% of project funds lost to grafters”, Philippine Daily Inquirer, 10 June 1999. Also seethe editorial “Sleight of Hand”, Philippine Daily Inquirer, 11 June 1999.13Amando Doronila, “WB report targets Erap administration”, Philippine Daily Inquirer, 8 November, 1999.

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Table 2. Estimated Financial Losses Due to Corruption, 1995-2000Particulars 1995 1996 1997 1998 1999 2000

Total Budget, PhP billion 372.1 445.7 476.2 506.1 593.7 651.0 Nominal Gross National Product, PhP billion 1,958.9 2,261.3 2,522.9 2,794.1 3,100.8 3,478.4 Total Budget as % of GNP 19.0% 19.7% 18.9% 18.1% 19.1% 18.7%Losses Due to Corruption, % based on WB estimate 20% 20% 20% 20% 20% 20%Estimated Losses Due to Corruption, PhP billion 74.4 89.1 95.2 101.2 118.7 130.2Six Year Total Losses, PhP billion 609.0Estimated Losses as % of GNP 3.8% 3.9% 3.8% 3.6% 3.8% 3.7%Average Annual Loss as % of GNP 3.8% Note: Year 2000 figures are as projected.

Source: Republic of the Philippines, Budget of Expenditures and Sources of Financing, Department of Budget and Management

For Fiscal Years 1997 and 2000.

Note that although in relative terms annual losses represent 3.8% of GNP, theaggregate amount of peso losses is staggering. From 1995 to 2000, the total amount offinancial losses due to corruption (PhP 609 billion) translates to more than the 1999nominal GNP. As the nominal GNP increases, so do the national budget and the financiallosses due to corruption.

It must be said however that the amount of financial losses does not constitute theentire cost of corruption to the Philippines. Yet this cost cannot be simply quantified infinancial terms. One must impute the effects of corruption on productivity, prices,incomes, and employment of an entire range of existing and potential economic sectors.It is tempting to argue and speculate that if not for corruption, the Philippines would havebeen an industrially developed country, with a GNP per capita in the league of say, Japan,Korea, Taiwan, Singapore, and Malaysia. The fact is however that corruption is prevalentand the Philippines remains a developing economy with a large mass of poor,unemployed, and uneducated people.

The relationship between corruption and underdevelopment has been suggestedbefore. Corruption is anti-development because it goes against efficiency, social equityand welfare. The full development of national systems of communication, transportation,trade and commerce all of which are essential to economic development is adverselyaffected because of the diversion and mal-distribution of domestic and foreign publicfunds. Further, the 1999 UNDP paper boldly declares that corruption threatens peopleand their governments, is uneconomical and is unsafe”14. The paper maintains thatcorruption effectively “diverts resources, reduces income from tax and custom fees,increases the costs of contracts, lowers quality, distorts policies, reduces investment andsubverts companies and NGOs. “Corruption damages the economy. It slows—and caneven reverse—development”(Ibid). The paper also contends that corruption makes it easyto ignore regulations about health and safety and easy to escape prosecution for damagingthe environment.

Perhaps, most important, institutionalized corruption damages the national psyche. Itmiseducates and tells people that there is nothing wrong in being corrupt. Wealth andpower have become the prime measures of individual Filipino success. Corrupt peoplehave not been punished even if the public knows them. Consequently, the energies of a

14-----------, “Fighting Corruption to Improve Governance”, United Nations Development Programme, February1999, p. 10.

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large number of people are attracted to government service in order to occupy positionsthat even at the lowest levels bear benefits based on monopolistic/monopsonisticadvantages. Similarly, large amounts of energies and resources are directed by the privatesector for exchange transactions with government.

6. Magnitude of Corruption. Indications of magnitude can perhaps better supportthe heightened perceptions of Philippine corruption. However, like other attempts atprecisely determining the costs, such measurements are only indicative in the absence ofample and qualified data.

Statistics from the Ombudsman would suggest pervasiveness of corruption in thegovernment. Based on an inter-office memorandum dated December 15, 1995, from 1990to June 1995, a total of 8,585 cases involving P6.35 billion were filed before the anti-graft court. Of the total number of cases, 78% involved malversation, falsification, andbribery and attempted bribery. Cases merely from these three offenses involved P5.4billion.

Of the total number of cases filed before the Sandiganbayan during the period, 8,502(or 99%) involved line agencies of government. These cases involved roughly P6.3billion, or 99.1% of the total amount involved. By 1998, the number of cases had risen to10,615 involving about P7.75 billion. Appendix 1 shows a breakdown of the cases filedbefore the Sandiganbayan from 1990-95. Appendix 2 provides a breakdown from 1990-98.

Of the top 10 departments in the 1990-95 period, the 1) the Department of Interiorand Local Government (DILG), including the Philippine National Police and variouslocal governments), 2) the Department of Finance (DOF) which includes the Bureau ofCustoms and the Bureau of Internal Revenue, and 3) the DOJ during the period had themost number of cases with the largest sums of money involved. Interestingly, the DPWH(ranked ninth) had lesser number of cases and yet constituted 14.2% already of the totalamount involved.

Under the DOJ, there were 71 cases filed before the Sandiganbayan involvingP685.68 million. Under the DILG, municipal governments had the most number of cases,followed by the Philippine National Police and the barangays. Present-day corruption inthe localities paralleled the situation in the 19th century, as earlier described. On average,larger amounts are involved per case in the barangays, the PNP, and the city governments(see Table 3).

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Table 3. Number of DILG Cases Filed At the Sandiganbayan and Amounts Involved,1990-95

% Amount involved %Bureau No. of cases of total (In Million Pesos) of total Ave. Amt/Case

Philippine National Police 621 17.2% 1,204.06 33.9% 1,938,898.55National Police Commission 5 0.1% 0.01 0.0% 2,400.00Municipal governments 1,941 53.7% 745.83 21.0% 384,248.84Provincial governments 393 10.9% 443.61 12.5% 1,128,776.08City governments 275 7.6% 457.88 12.9% 1,665,018.18Barangay 339 9.4% 680.98 19.2% 2,008,775.81DILG 9 0.2% 13.41 0.4% 1,489,777.78Bureau of Fire Protection 24 0.7% 1.48 0.0% 61,666.67Others 5 0.1% 0.16 0.0% 32,000.00 Total 3,612 100.0% 3,547.41 100.0% 982,117.11Source: Office of the Ombudsman, Inter-office Memorandum, 15 December 1995.

The latest statistics from the Ombudsman further shed light. As of December 31,1998 there were 339 bigfish cases—or big time officials accused—in pending casesbefore the Sandiganbayan (see Table 4). Forty nine percent of the cases filed (166)involved municipal mayors; 14% involved bureau and regional directors of line agencies.

Table 4. Bigfish Cases Filed by the Ombudsman PendingBefore the Sandiganbayan (As of Dec. 31, 1998)

Government OfficeNumber of

CasesCases involving Mayors 166Heads of State University 7City Engineers 5Provincial Board Member and other Provincial Officers 6Bureau and Regional Directors 48Other Heads of Agencies 22Agency Administrators 10Ambassadors 2Military/PNP Official 24Provincial Governors and Other Provincial Officials 26Judges, Prosecutors and Adjudicators 18Commissioners 5TOTAL 339

Source: The 1998 Annual Report of the Office of the Ombudsman

During the period 1990-1998 the Tanodbayan had filed 10,615 cases with theSandiganbayan involving about P7.75 billion. Again, violations of RA 3019, falsificationof documents, and malversation of funds constituted a total of 9,814 cases (92.4%)involving P7.1 billion (92%).

By location, the National Capital Region (NCR) is the biggest site of corruption in thePhilippines. As of 1995, it registered 25% of the total count and 81% of the amountinvolved in cases filed with the Sandiganbayan. As of 1998, NCR’s share dropped to24% and 72% of the count and amount involved, respectively. However, the count andamount involved increased by 20% and 8%, respectively, over the previous period.

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avail of free binding and printing of bound covers, and attend ongoing seminars. Thegrantee is further given access to personal interviews.

• Graft and Corruption Databank. A component of the research/thesis assistanceprogram, a mini-library has been established to serve as a data bank on graft andcorruption.

• Values Orientation Workshop. This workshop is part of the campaign for moralrecovery. In 1998, three batches with 55 participants from OMB offices underwentthis workshop.

• Information Dissemination. The OMB uses the mass media to help educate thegeneral public about graft and corruption.

• Junior Graftwatch Program. A mechanism involving the youth, the JuniorGraftwatch Unit (JGU) is an organization of students and community-based youthorganization. It is designed to serve as the OMB’s primary coordinating arm foreducational and motivational projects involving the youth.

• Corruption Prevention Units (CPUs) and Requests for Assistance (RAs). TheOMB accredits civil society groups as CPUs. CPUs serve as the citizen arm of theOMB, assisting the public in transmitting complaints, cases, and requests forassistance. They also monitor government transactions and projects, reportoccurrences of red tape and graft. According to Ananiano Desierto, presentOmbudsman, the CPUs have been able to reduce 38.4 percent of the volume of caseshandled by the Tanodbayan every year.15 As of 31 December 1998, there were 175CPUs accredited nationwide.

• Resident Ombudsman Program. Resident Ombudsmen were installed indifferent agencies of government to closely monitor integrity and efficiency ofperformance. Based on its latest annual report, the Office of the Ombudsman wasable to appoint Resident Ombudsmen in 6 government agencies, namely: 1) theNational Housing Authority, 2) the Housing and Land Use Regulatory Board, 3) theBoard of Investment, 4) the Housing and Urban Development Coordinating Council,5) Duty Free Philippines, and 6) Manila International Airport Authority.

These anti-graft prevention measures are very encouraging. However, the number ofpending cases keeps growing as more and more complaints are filed before theOmbudsman. According to Desierto, his office receives an average of 18,000 complaintsand cases a year.

In August 1999, the COA and the CSC initiated a move for the Inter-agency anti-graftcouncil to establish an electronic information network. The network would promotetransparency and provide a venue for complaints. As of December, three complaints were

15 Peter La. Julian, op. cit.

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received because the COA “had not yet publicized” the system’s availability to thepublic.

7.2. NGO Initiatives. NGOs have been a particularly vocal group on social issues.Some NGOs pay special attention to anti-corruption activities like the ConcernedCitizens of Abra for Good Government (CCAGG) and the Volunteers Against Crime andCorruption (VACC), which held the First National Summit on Graft and Corruption lastyear. NGOs fighting against graft and corruption have effectively utilized the media tofocus public attention on certain cases and developments. Media people themselves haveformed NGOs such as the Center for Media Freedom and Responsibility (CMFR) and thePhilippine Center for Investigative Journalism (PCIJ). These NGOs preserve thePhilippine media’s traditional role as watchdog. In the process, they document andpublish cases regularly. The CMFR further conducts a regular monitor of pressperformance in order to promote the press’s credibility, integrity and competence as awatchdog.

7.3. Business Sector Initiatives. Some business organizations have supportedcampaigns against graft and corruption, independent from those of government. Oftenthey help provide funding to NGOs such as the PCIJ. Influential groups of businessmensuch as the Makati Business Club also exert pressure for good governance in thePhilippines.

7.4. International Organizations. International organizations such as the WorldBank, the ADB, the UNDP, USAID, the Konrad Adenauer Stiftung, and TransparencyInternational have launched a serious thrust against corruption in the Philippines. Theseorganizations generally exert pressure toward greater transparency and accountability inthe Philippine government. Upon request, they lend a helping hand to the government,such as what the World Bank did with the Estrada government. Likewise, theseinternational development organizations help promote greater Filipino awareness ofcorruption in the Philippines through conferences and support to NGOs.

8. Persistence. Notwithstanding the legal framework and initiatives of varioussectors, corruption continues to thrive as an institution in the country. Although thenumber of cases handled by anti-graft bodies can indicate the magnitude of corruption,this measurement cannot be completely relied upon because the statistics can be easilymanipulated. Furthermore, there is still a question of calculating actual incidence, whichostensibly is higher than the number of cases filed. In Table 6, a comparison of thenumber of cases filed by the Ombudsman in two periods, 1993-95 and 1996-98 suggest adeclining trend in corruption among graft-prone government agencies. Based on thistable, which was prepared by the Office of the Ombudsman, the incidence of corruptionhas gone done by 30% in 1998, with the average annual number going down to 602 casesper year.

However, other statistics, such as Table 5 (cases filed by region), would suggest a23% increase in incidence from 1995 to 1998. Furthermore, based on the recent SWSsurveys, more and more people believe that corruption is increasing under the Estradaadministration. Recently, a survey conducted by the Makati Business Club reveals that

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graft and corruption and its favored twin cronyism were the fourth and fifth reasons forthe private sector’s declining confidence in the administration.16

Table 6. Comparative Reduction in Incidence of Corruption Cases in Graft-ProneAgencies, 1993-95 and 1996-98

Agencies 1993-1995Ave. Number of

Cases/Yr 1996-1998Ave Number of

Cases/Yr

% Inc./ (Dec)in Ave. No. ofCases/Year

BOI 5 2 0 0 -100%

MIAA/NAIA 62 21 25 8 -62%

NHA 182 61 79 26 -57%

DPWH 440 147 212 71 -52%

BOC/PPA 174 58 98 33 -43%

DOH 80 27 48 16 -41%

POEA 33 11 21 7 -36%

HLURB 32 11 20 7 -36%

DFP 3 1 2 0.66 -34%

DA 82 27 55 18 -33%

DECS 666 222 464 155 -30%

BIR 119 40 87 29 -28%

NIA 47 16 37 12 -25%

DOTC 74 25 61 20 -20%

DFA 18 6 15 5 -17%

DENR 325 108 279 93 -14%

HUDCC 32 10.67 30 10 -6%

HDMF 9 3 7 2 -33%

HIGC 16 5.33 14 4.66 -13%

NHMFC 7 2 9 3 50%

NPC 35 12 45 15 25%

DILG 43 14 55 18 29%

BID 90 30 131 44 47%

DND 1 0.33 3 1 203%

PEZA 2 0.66 10 3 355%

Total 2577 859 1807 602.33 -30%

Source: 1998 Ombudsman Annual Report

Heightened perceptions of corruption in the Estrada government have beenconditioned by certain factors such as the following:

• Corruption scandals involving President Estrada’s relatives and associates.In June 1999, just 11 months old, the Estrada administration has been rocked byseveral scandals such as the aborted P2 million bribery by a relative for the DEC’spurchase of textbooks, the diversion by a top-ranking official of a P200 millionMotorola contract for handheld radios, and the awarding of a P3.6 billion deal formandatory drug testing of policemen, licensed gun-owners and security guards.

16 As reported in Frontpage, GMA 7, 17 July 2000.

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• Backlogs of cases and complaints at the Sandiganbayan and theOmbudsman. As of December 1995, 58% of the cases filed before theSandiganbayan were resolved. This meant that 42% still have to be resolved.According to the 1998 annual report of the Ombudsman, as of December 1998, therate of pending cases before the Sandiganbayan has risen to 65%; in other words, outof 10,615 cases, the number of pending cases totaled 6,912. Aside from these, it ahsbeen mentioned that the Ombudsman receives an average of 18,000 complaints ayear. Of this number, an average of 1, 179 cases per year from 1990 to 1998 werebeing filed before the Sandiganbayan. One reason for this disparity is that complaintsreceived by the Ombudsman usually did not have supporting documents and otherevidence to help in the evaluation of probable cause. The task of getting evidencefalls under the Ombudsman’s Fact-Finding and Investigation Bureau (FFBI), whichin turn seeks the assistance of the National Bureau of Investigation and the COA.Accordingly, it takes months and even years before the FFBI gets a reply.17 Anotherset of reasons hint non-action by the OMB. A third set points at budgetaryconstraints and propose enlarging the OMB infrastructure.

• Deteriorating Welfare and Order Conditions. Perceptions of corruption arebolstered by traffic congestion, government ineffectiveness in instilling disciplineamong pedestrians and motorists, garbage collection problems, poor road conditions,prevalence of crime, increasing unemployment/underemployment, etc. Deterioratingwelfare and order conditions raises the question “what is the government doing?”

CORRUPTION IN PUBLIC ROADWORKS

This section discusses the modes of corruption in road construction projects and theresulting financial losses to the public. Based on interviews with NGOs, contractors, andnews reports the following describes corruption in road construction projects.

Corruption in public road works is committed in two related major stages of a roadconstruction project. The first stage of corruption occurs during the prequalification,bidding, and awarding phase of contracts and the second stage during projectimplementation.

In the first stage, corruption is based on “relationship management”, the object ofwhich is that the contract goes to favored contractors. Characteristic of the clientelisticand patrimonial society, the awarding of contracts is often treated as a privilege, a favor,and payment of utang ng loob (debt of gratitude). Relationship management culminatesin the bribe (cash or kind) in exchange for the actual award of contract or favorableconsideration in the evaluation of bids. The extreme case for corruption in the first stageis a collusion between government officials and the contractor to design and award ghostprojects (although this can also occur in the second stage involving field officials andpersonnel). Another extreme case is the search for dummy contractors by governmentofficials.

17 Cecile C.A. Balgos, “Ombudsman Cases Just Lie There and Die There”, Businessworld, 28 September 1998.

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As much as possible road infrastructure projects are chopped to different projectsworth less than P10 million so that the DPWH regional offices will not handle it.Maintaining the project implementation, awarding of contracts, and bidding under thehands of local officials give intending parties a freer hand in the project. Smaller projectscan then land on favored contractors or dummy contractors of public officials thusproviding them with kickbacks and commissions. Keeping the projects on the local levelalso ensure that the paperwork needed (like permits, auditing procedures, andcertifications) land on people close to the officials or to people within the same turf ornetwork.

One NGO, the CCAGG, initially participated in the provincial Pre-qualification, Bidsand Awards Committee but later on opted not to attend anymore because they observedthat the process was more of a formality than an actual, objective evaluation. Though thepapers of bidding participants were submitted, it seemed that a contractor getting aparticular project was already known.18 Instances of participation of contractors who didnot meet the minimum equipment requirements and those blacklisted by the COA andDPWH were also noted.

In general, kickbacks received in road projects range from about 20 to 40 percent.The usual recipients are legislators and their aides, mayors, barangay captains, andgovernment engineers. Contractors also invest in the entertainment of governmentofficials.

The second stage of corruption involves deviations from the specifications of theproject contract. Often but not always, because of the unethical practices in the first stage,contractors deviate from the Program of Work approved by the DPWH. The Program ofWork contains the specifications of the project including specific jobs to be undertaken,labor costs, rentals of equipment, unit cost of materials to be used (including haulingcosts based on sources and destination), the contractors’ profit and the taxes to be paid.Different corrupt practices are utilized to increase the profit of the contractor at theexpense of the quality of work.

Consider the case of an engineer supervising several road pavement projects in anEastern Visayan district. He admitted reducing the amount of materials necessary for aproject by 20 to 30 percent. This was done by filling the certain portion of the road withgravel and covering it with a thin layer of cement. The engineer also said that sometimeshe even had to reduce the width of the road by a few inches.19

Corruption in a certain infrastructure project can be generally determined 1)according to the quality of the project output and the materials used and 2) according tothe application of the specified quantity of materials, laborers and salaries as reported inthe Program of Work. According to the CCAGG, the monitoring team will generally findit more difficult to ascertain the occurrence of corruption once the road project has beenfinished. One will need special equipment and tests, like the boring test, to determine

18 Focus Group Discussion with the officers and members of the Concerned Citizens of Abra for Good Government(CCAGG), CCAGG Headquarters, Bangued, Abra, June 10, 2000.19 Earl Parreño (1998), “Slicing up the pork”, Manila Times, 4 June.

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whether the specifications in the program of work are followed. What is readilyobservable are the appearance of signs of substandard construction like cracks and wrongmeasurements. Even during the work-in-process there are aspects of the project that aredifficult to monitor like whether the right measurement is being used during gravellingand sub-grade preparation.

Various discrepancies during the implementation of the project occur because theProgram of Work submitted for approval is not followed up by close on-site validationand monitoring. Surveys are not conducted to determine the quantity of materials thatwill be needed. Instead, only estimates are provided.20 In many instances, the Program ofWork itself is deficient.

Labor. Labor cost deviations from the Program of Work are often made throughpayroll padding with labor subcontracting arrangements. Labor cost is usually based onthe days of work or on the volume of work required. In the Program of Work, a laborer issaid to be paid 200 pesos a day or 200 pesos per cubic meter accomplished depending onthe approved rates. When projects or parts of it are subcontracted, often the rates of thelaborers are cut back to increase the profit.21 Instead of the assigned rate of 200 pesos,laborers are paid as low as 100 pesos only. There are also instances when the paymentsare even delayed or are not done at all.

Materials. There are three possible modes for increasing profit by cutting back on thecost for materials, to wit: (1) the use of substandard materials replacing those specified inthe Program of Work, (2) non-compliance with the standard measurements andquantities, and (3) non-compliance with the specified procurement of said materials oroverpricing. The program of work specifies the kind of materials to be used for theproject. However, cheaper, substandard materials can be freely acquired from theconstruction site like fresh cut wood, rivermix, bamboo, etc. and used as substitutes.Cheaper gravel can also be used as a replacement for commercial gravel with diametersof up to 3 inches. The cheaper kinds of gravel are those with diameters of more than 3inches. An item in a project may specify the use of a 2x2 continuous piece of wood asshear protection (used to prevent the newly poured cemented slabs from slipping tounfinished sides) but can be substituted by bamboo that is free. The use of substandardmaterials lessens the costs, increases the profit of the contractor, and compromises thequality of the road constructed.

There are also standards used when mixing cements. For example class A concrete Acontains 1 bag of cement, 2 boxes of sand as fine aggregates, and 4 boxes of coarseaggregates. What happens is that this proportion is not followed, mostly by adding on theaggregates, or worse, by not separating the fine and coarse aggregates. The use ofunscreened aggregates is much cheaper, but this substandard preparation deteriorates thequality of the road. This does not comply with the 3000-psi (pounds per square inch)minimum required strength for roads.

20 The Program of Work, including all the estimates and standards used, needs to be approved by the ConstructionDivision of the Department of Public Works and Highways (DPWH).21 Focus Group Discussion with the officers and members of the Concerned Citizens of Abra for Good Government(CCAGG), CCAGG Headquarters, Bangued, Abra, June 10, 2000.

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Procurement of materials is also specified in the Program of Work. For example, thecost of gravelling of a road is reported at P1,300 per cubic meter since the gravel have tobe hauled from a source 60-70 kilometers away from the construction area as specified inthe Program of Work. In practice, the actual cost is lower than that reported becausegravel are sourced directly from the construction site. The gravel used will then amountto only about P100 per cubic meter as the cost of hauling gravel with the use of trucks nolonger applies. The same materials may also be overpriced and procured from a contactsupplier.

Rentals and Use of Equipment. The actual number of hours specified for the use ofequipment can be misreported. Thus, although the allocated budget for the equipment isconsumed, the actual work is not rendered. Budgets for the rental of equipment can alsobe specified in the Program of Work but the materials are borrowed from the governmentunit at the expense of the taxpayers. Another modus operandi is to rent the equipmentfrom the government unit at a cheap rate and then sublease the equipment to thecontractor at a higher rate. It is also a practice to overprice the equipment or buy thesame at a lower cost.

At this point, we can identify at least 14 corrupt practices in road projects, to wit:

1. Bidding participation of and awards to unqualified and blacklisted contractors

2. Bribery, including entertaining public officials

3. Presenting more jobs than is required for the project

4. Ghost deliveries of supplies

5. Ghost projects

6. Misrepresentation of labor costs through payroll padding

7. Over-assessment of values of land acquired for rights-of-way

8. Use but nonpayment of rental of government equipment

9. Misrepresentation of purchase, use and rental of construction equipment

10. Non-conformity of quality control standards

11. Use of dummy contractors by DPWH project engineers

12. “Entertaining” public officials

13. Procurement and use of substandard materials

14. Overpricing of materials

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Cost of Corruption in Road Projects. An article that appeared in the Manila Timesprovides certain estimates for considering the cost of corruption in road constructionprojects.22

• In 1998, Finance secretary Salvador Enriquez, who previously was Budget andManagement department head, said that kickbacks from public works project makeup an average of 30% of total project cost.

• According a contractor in Samar, legislators get cuts ranging from 12 to 15percent of the total project cost in the construction of road. However, there are a fewwho demand as much as 20 or 25 percent. The contractor’s company can stillmanage on 65 percent of the budget. “We can scrimp on some materials, reduce ourlabor cost, and improve our control system so we can have a profit margin of 20 to25 percent. But if the congressman demands 25 percent, then forget it. In thisbusiness, it doesn’t pay to have a profit of just 10 percent. Construction is a muchmore difficult job than delivering supplies.”

• Contractors seem to be comfortable giving congressional aides 5 percent of theproject cost.

• Contractors give mayors seven percent and barangay captains, three percent.

• Heads of implementing agencies—usually the district, municipal, or cityengineer—get about 10 percent.

The data above provide a range of 20 to 60 percent of the project cost, depending onthe number of authorities directly involved in the awarding and implementation of theproject. If this were considered and taken to an extreme case (next to ghost projects),about 40 percent of the budget would be left for use in a road construction project. Still,this is manageable if the prices of services and materials declared in the Program of Workare higher than actual prices. Interestingly, the 60% kickback rate supports perceptions ofthe extent of losses due to corruption in road building. Based on a 1996 SWS survey,fifty-one of respondents believed that more than 50% of funding for road constructionwas wasted.

The range of kickbacks from road projects (20% to 60%) can be used to calculate theextent of losses at the national level. Using data from the Department of Budget andManagement for outlays on roads and bridges, Table 7 shows the results of thecalculations for fiscal years 1995 to 1999. The calculation considers available data onforeign-assisted and local funding for roads and bridges only for the DPWH, the DA andthe Autonomous Region for Muslim Mindanao. Based on these, the outlays for roads andbridges amount to P104 billion during the period. An average of P8.3 billion per year islost to kickbacks. Furthermore, losses during the five-year period average P18 billion inforeign-assisted funds and another P23 billion in local funds for a total of P41 billion.

22 Earl Parreño, “The Perils of Pork”, Manila Times, 3 June 1998.

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Table 7. Outlays for Roads and Bridges, 1995-1999 (In Thousand Pesos)Year Foreign Assisted Locally Funded Total 20% KR 60% KR Average1995 6,726,173 6,881,900 13,608,073 2,721,615 8,164,844 5,443,229 1996 7,483,524 14,451,218 21,934,742 4,386,948 13,160,845 8,773,897 1997 8,571,683 13,233,524 21,805,207 4,361,041 13,083,124 8,722,083 1998 9,382,314 11,790,496 21,172,810 4,234,562 12,703,686 8,469,124 1999 14,443,883 11,197,932 25,641,815 5,128,363 15,385,089 10,256,726 Total 46,607,577 57,555,070 104,162,647 20,832,529 62,497,588 41,665,059

20% KR 9,321,515 11,511,014 20,832,529 Yearly Average, 1995-99 8,333,012 60% KR 27,964,546 34,533,042 62,497,588 Average 18,643,031 23,022,028 41,665,059

Legend: KR - kickback rate

Note: Total outlays are derived for allocations to the DPWH, DA, and ARMM.

Source of basic data: Budget of Expenditures and Sources of Financing, Tables, DBM, for Fiscal Years 1997-99.

Based on the FY 2000 Budget of Expenditures and Sources of Financing released bythe DBM, discrepancies in road/bridges infrastructure outlays by department and bysector for the years 1999 and 2000 are revealed. The report considers more detailsidentifying the additional participation of DAR and local governments in roadconstruction projects (see Table 8). Note the difference in total outlay by departmentfrom Table 7. Note also the difference in totals by department and sector in Table 8. Forthe years 1999 and 2000, this difference amounts to P9 billion.

Table 8. Outlays for Road/Bridges By Department and Sector, 1996-2000(In million pesos)

At any rate, if the outlay for roads and bridges represents 5.2% of the national budgetin 1999, the average amount lost to corruption in this sector alone is 2% of the nationalbudget.

FIGHTING INSTITUTIONALIZED CORRUPTION

The persistence of systemic corruption remains a grave problem of Philippinedevelopment. As mentioned, government, civil society groups, and internationalorganizations have launched efforts at combating the problem. This is a good first step.However, such efforts seem to be weak when compared to the extent of the corruption.

By Department 1996 1997 1998 1999 2000 TotalDPWH 18,209.7 24,219.5 22,489.6 64,918.8 DA 65.4 1,100.0 800.0 1,965.4 Infrastructure for ARMM 349.3 337.0 500.0 1,186.3 Agrarian Reform Fund (FMR) 794.9 309.0 1,103.9 Local Government (FMR) 93.7 211.7 305.4 Total By Department 18,624.4 26,545.1 24,310.3 69,479.8 Total By Sector 17,200.0 20,293.0 19,424.4 31,074.3 28,828.0 116,819.7 Difference 800.0 4,529.2 4,517.7 9,846.9 National Budget 445,700.0 476,200.0 506,100.0 593,700.0 651,000.0 2,672,700.0 Total Road Budget By Sector as % of National Budget 3.9% 4.3% 3.8% 5.2% 4.4% 4.4%Notes: 1. FMR means farm to market roads;

2. Budget report for Year 2000 contains details of road budget by department to allow calculation between totals by department and by sector.

Source: Budget of Expenditures and Sources of Financing, DBM, Fiscal Years 1997 and 2000.

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We take the case of the Concerned Citizens of Abra for Good Government. The NGOwas formed in 1986 by former NAMFREL volunteers who decided to commit themselvestowards good government. The NGO performed the following activities: 1) Monitorperformance of elected officials and government instrumentalities, 2) organizecommunities and help in “Citizenship Building”, 3) network and linkage to put people’sinterests in the political agenda, and 4) popularize issues through advocacy and help formpublic opinion. The NGO got a good break when it availed itself of the developmentpackage called the Community Enhancement and Development Program (CEDP) duringthe Aquino presidency. From thereon, it organized monitoring teams with the help of theNEDA and the DBM. NEDA provided training on monitoring and listings and profiles ofprojects in Abra. The DBM provided the total project cost and schedule of fund releasesfor projects. With this support, the CCAAGG organized project beneficiaries andtransferred the monitoring technology to them. It also used mass media to inform thepublic about the projects.

The monitoring activities caused a negative reaction among implementinggovernment agencies and private businessmen. The information disseminated by theCCAGG placed implementers in the spotlight. Also, they resented the fact that the NGOmonitored the implementers while the latter worked. Some contractors even tried to bribethe CCAGG.

In the process, anomalies were exposed such as ghost projects (projects that werereportedly finished when in fact they have not been started). These exposés with the helpof mass media prompted government audit teams to investigate and file administrativecases. Politicians also intervened, some backing the accused parties, the others helpingthe prosecuting parties. Other civil society groups lent their vocal support to theprosecution of cases until the accused were found guilty. Soon, internationalorganizations such as the UNDP also helped sustain CCAGG operations.

One of the latest celebrated cases exposed by the CCAGG was the construction of theSinalang Detour Bridge in 1996. The bridge was reportedly built in November andDecember in the amount of P8,262,995. Hastily built, the bridge was never used for thepurpose it was supposed to serve, i.e., as detour for the passage of heavy equipment forthe repair of the Don Mariano Marcos Bridge. It could not be used because of a majorcurve after the detour bridge prevented maneuvering of heavy equipment. Thus, theequipment had to pass through Sinalang Bridge, and not the detour bridge. Furthermore,the CCAGG discovered overpricing of materials used. The discovery was made when themonitoring team compared the construction materials payments made by the AbraEngineering District against the canvassed costs of four steel productsfabricators/suppliers in Metro Manila. The Supply and Property Management Division ofthe DPWH Central Office in Manila did the canvassing. Then in August 17, 1997 the twoends of the bridge were washed out by a flash flood. This caused a public outcry and theCCAGG wrote DPWH Secretary Gregorio Vigilar. The DPWH, the regional offices ofthe NEDA office and the Commission on Audit (COA) sent their respective investigatingteams. The DPWH replied to the CCAGG letter but did not satisfy the latter. On the otherhand, the NEDA sent the NGO a plaque of appreciation while the regional office of COArecommended the prosecution of certain DPWH personnel.

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Although the CCAGG has been actively monitoring the implementation ofgovernment projects and programs in Abra, corruption allegedly never stops. Early thisyear, the corruption in certain roads and bridges in Abra including the Sinalang detourbridge were featured in the I-Witness TV program in GMA 7. To the Abra Governor, thefeature gave the impression that the province was “THE haven of corruption in thecountry”. The governor who had been cooperative with CCAGG and the UNDP, wasparticularly taken by the fact that the I-Witness reporter said, “Kadalasan ang mgaproyektong ito ay dumadaan sa Mayor at Gobernador (Often, these projects pass throughthe mayor and governor).”23

The provincial governor feared that because of the TV exposé her aggressive pursuitof foreign-assisted infrastructure projects would be affected. She then decided not toendorse the planned COA’s tie-up with the CCAGG because the arrangement wastantamount to accepting the premise that the people of Abra would not trust hergovernment anymore. She asserted, “The capability of the COA and its independenceshould be protected and preserved at all times, free of one-sided, self-serving partisan-bias and prejudice.” Furthermore, she wrote CCAGG head Pura Sumangil, “You see, Ilove Abra no less than you do…In this unbalanced equation, we in government shallalways be prejudiced by your position of moral authority. This is hardly tenable—andtotally unfair.”24

This case warns of the breakdown of collaboration with government. However, it alsoshows a model in which an NGO can force all other sectors to be aware and work againstcorruption. If NGOs and civil society groups proliferate following the CCAGG model, itis likely that corruption can be minimized throughout the country.

Nobel Prize winning economist Douglass North (1990:3) declares, “Institutions arethe rules of the game in society, or more formally, are the humanly devised constraintsthat shape human interaction.” New rules are needed in the Philippines. Constraints to bedevised require the strengthening of check-and-balance mechanisms involvinggovernment, civil society, private business, and international organizations. If civilsociety groups, with the support of government and international organizations cancontinue to effectively serve as effective watchdogs, corruption can be curbed. Similarly,government needs to work hard to project itself as servant instead of as a predator. Yetone question is for how long these efforts can be sustained. Likewise, as in Abra despiteCCAGG’s accomplishments through the years, why does corruption continue?

Based on this article’s description of the history, prevalence and magnitude as well ason the works of other authors, it can be said that abuse of public office for personal gainhas been the rule of the game in the Philippines. It is established, embedded deep inFilipino institutional memory. Fighting systemic corruption thus should take into accountthe values and ethics in action. This puts primary importance on the role of education increating a counter-culture of professionalism and service. Education is not solely agovernment function. It is a multisectoral undertaking addressing several social, political

23 Letter of Abra Governor Ma. Zita Claustro-Valera to Pura Sumangil, Chairperson, CCAGG dated 10 February2000.24 Ibid.

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and econonomic sectors. The end is that public office should once more mean publicservice.

Public office is a public trust and also a social contract. To public officials andgovernment employees are entrusted protection and advancement of the public interest.They are bound by a social contract to serve their constituents and the public at large.Corrupt acts serve as a breach of contract and break the public trust. In this sense, onemay say that agency problems exist.

An agency problem exists when there is a divergence of interests and preferencesbetween principal and agent (Jensen and Meckling, 1976; Fama, 1980). Jensen andMeckling (1976:308) identify the source of the agency problem as follows: “If bothparties to the relationship are utility maximizers there is good reason to believe that theagent will not always act in the best interests of the principal.” An agency relationship is“a contract under which one or more persons (the principal(s)) engage another person(the agent) to perform some service on their behalf which involves delegating somedecision-making authority” (Jensen and Meckling, 1976:308). In this case, members ofthe government service are agents of the general public, who in turn is the principal.

To limit divergence of interests, Jensen and Meckling (1976:308) proposed that theprincipal should 1) establish the appropriate incentives for the agent and 2) incurmonitoring, bonding and other costs. The latter are called agency costs, or in other words,the costs of ensuring the alignment of principal-agent interests. Incentives, rewards, andpunishment are essential building blocks to agency theory because of the supposedutility-maximizing behavior of agents that causes them to act against principal interests.Applied to corruption, profits from corrupt practices and behavior should be replaced byincentives directed towards socially productive activities as well as punishments forcorrupt acts.

Following an agency perspective, Klitgaard proposes that in order to controlcorruption, monopoly power of public officials should be leavened, discretion be clarifiedand circumscribed, and accountability enhanced. This prescription is based on themetaphorical problem he advances as follows:

C=M+D-A, where C is corruption, M is monopoly power,

D is discretion, and A is accountability.

Accordingly, “Officials will have the opportunity to garner corrupt benefits as afunction of their degree of monopoly over a service or activity, their discretion indeciding who should get how much, and the degree to which their activities areaccountable.”

The operationalization of this formula can be seen in the light of agency theorists’emphasis on the efficacy of information and organizational management in dealing withagency problems. Indeed, there is a need to define, setup, monitor, and evaluate systems,structures, procedures, inputs, outputs, outcomes, and the various actors involved. Morespecifically, since the agency problem can be regarded as the equivalent of the incentive,

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operating, and monitoring problem, the proper incentive, operating, and monitoringsystems should be installed.

The significance of these three systems can be described in the following thesis: aneffective monitoring system quickly sends signals to the authorities concerned for theappropriate standard action. Fast, appropriate standard actions reflect the efficacy of theoperating system. They involve less discretion and exercise of monopoly power. Theefficacy of the operating system can then be maintained given proper incentives.

In installing and developing the three systems, incorrigible and effectiveorganizational and information managers are indispensable. On the one hand, goodorganizational managers, especially human resource experts, are necessary for the designand redesign of appropriate incentive and punishment systems. Furthermore, they shouldbe able to design and implement operating systems that minimize monopoly power,reduce discretion, and identify accountabilities. On the other hand, informationtechnologists, managers, software and equipment are required for establishing andmaintaining effective monitoring systems.

Though necessary, agency theory prescriptions however can be costly. Klitgaardrecognizes this and states, “They cost money. They carry opportunity costs. They maycreate externalities. Your economic problem is therefore much more complicated thanfighting corruption (underscoring mine).” Thus, in addition to the prescriptionsmentioned, Klitgaard recommends the naming and punishing of big corrupt actors,including those giving and receiving bribes, in order to alter perceptions of the citizenryand break through the culture of corruption.

In sum, education and multi-sectoral involvement as well as improved organizationaland information management systems play important roles in the eradication orperpetuation of institutionalized corruption. Given profitable opportunities bred by thelack of order, transparency and accountability, the values and ethics of public officialsrepresent a crucial variable for systemic corruption performance in the long haul. In themeantime, the few incorrigible professionals in the civil service can make improvementsin their respective organizations through changes in organizational systems andinformation management. They also need to increasingly involve other sectors in thefight against corruption.

Yet all these thrusts—education, multi-sectoral involvement, improved organizationalmanagement and information systems—are apparently incorporated in the Ombudsman’santi-graft programs and strategies. They are being done by other government agencies aswell. Former Commissioner Guillermo Parayno, for instance, has extensively relied onelectronic governance to minimize corruption opportunities at the Bureau of Customs.These thrusts are also included in the activities of anti-corruption NGOs. Why thereforeis corruption persisting? What other things are lacking in the effective institutionalizationof anti-corruption strategies in the Philippines? Certainly, one factor concerns theeconomics of anti-graft organizations, both the NGOs and the government. Financing ofoperations is especially relevant in expanding the Ombudsman infrastructure for

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investigations and processing complaints and cases. Also, NGOs in various parts of thecountry need to mobilize themselves and sustain watchdog operations.

Another factor involves the design of the proper structure for profit incentives. Ingeneral, this structure governs productive and counterproductive activities in the country.Sicat (1972) notes that even before, the structure of profit incentives in the Philippinesdiffered from that of Thailand as recounted in the cases of two former WW II GIs whobecame industrialists. These were Harry Stonehill and James Thompson.

Thompson was honored in Thailand as the man who developed that country’s silkindustry. He worked hard in an industry where profitable opportunities were long run. Incontrast, Stonehill became a millionaire within a short period of time. According to Sicat,the system of import and exchange controls offered opportunities for quick profit. Theopportunities available under this regime were linked to patronage and officialcorruption. Stonehill was vilified during the Macapagal administration for his“underhanded” methods in establishing businesses in highly protected industries fromcigarette manufactures to trade and real estate. He was later expelled from the country.25

We are therefore reminded that if income opportunities are largely derived from arentier type of economy, it will be hard to resolve the problem of systemic corruption. Asdemonstrated by the country’s experiences, a rentier economy has reached the limit of itsgrowth. Underdevelopment and poverty have bred and nurtured corruption. Andcorruption working within the bounds of a rentier economy has exacerbated povertyconditions. It is necessary for the Philippines to graduate to a production-oriented type ofeconomy. Everybody should think of long-term growth instead of short-term gains. Inthis way, interventions for the creation of innovative and viable enterprises incommunities should be continued.

Perhaps most important of all, the fight against corruption involves strong nationalleadership. National leadership as embodied by the President should be able to providedirection, coordination, and assurance to anti-corruption initiatives from various sectors.As the World Bank argues, “The success of national anticorruption efforts dependsprimarily on the resolve with which they are pursued and on the economic policies andinstitutions that underpin them.”26 In patrimonial societies like the Philippines, leadershipby example impacts greatly on the collective fight against anti-development forces sowell and long established.

25 Gerardo P. Sicat, Economic Policy and Philippine Development, University of the Philippines Press, 1972, pp.214-216.26 The World Bank, Helping Countries Combat Corruption: The Role of the World Bank, prepared by the PovertyReduction and Economic Management, World Bank, September 1997, p. 1.

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CONCLUSION AND RECOMMENDATIONS

Certain conclusions can be derived from the above assessment and discussion. First,there is a vicious cycle that nurtures corruption, poverty, and underdevelopment. Second,systemic corruption in the Philippines will persist because it has been deeply embeddedin the nation’s history, culture, and public and private sector institutions. Third, the fightagainst corruption in the Philippines is a monumental undertaking. As such, it requires

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practices. Corrupt individuals and cases should be exposed habitually as part ofthe educational process.

4. Continually improve operating and informational systems in public andprivate organizations. Continuous improvement of operating and informationsystems in public and private sector organizations reflects a commitment toestablishing order in view of dynamic changes in the environment. Order inorganizational systems should bring about order in the delivery of public services.Thus, it should reinforce positive perceptions of the public service. This should becomplemented by transparency in operations buttressed by effective informationmanagement. Private sector organizations should also improve their systems notonly for competitive purposes but also as part of the educative process.

5. Adopt an integrated development policy that promotes long-term growth anddiscourages quick profits. The Philippines should adopt a production-orientedcapitalism and hence, an appropriate structure of profit incentives toward thisshould be formulated and adopted.

6. Ensure national commitment. The focus against corruption is an integral part ofa national development strategy. A national commitment should be visible,enunciated, and directed while allowing for local initiatives to take place. Underthe present dispensation, the institution of the President should embody thisnational commitment. If not, another Institution should be defined.

7. Building organizations committed to and promoting professionalism.Professional societies and other civil society organizations that are committed toprofessionalism can be instrumental in the popular selection of qualifiedgovernment leaders. These organizations should be built extensively. Throughtheir promotion of professional ethics, professional societies and civil societyorganizations contribute in breaking the vicious cycle that nurtures corruption,poverty, and underdevelopment.

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References

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30

Appendix 1Number of Cases Filed With the Sandigan Bayan and Amounts Involved

By Department, 1990-95

Line AgencyNo. ofcases

%of total

Amountinvolved

(In MillionPesos)

%of total

Ave. Amt/Case(In pesos)

1. Interior and Local Government (DILG) 3,612 42.07% 1,204.06 18.97% 333,348.84

2. Justice (DOJ) 828 9.64% 745.83 11.75% 900,757.25

3. Transportation and Communication (DOTC) 814 9.48% 21.97 0.35% 26,993.86

4. Finance (DOF) 809 9.42% 1,012.31 15.95% 1,251,315.20

5. Education, Culture, and Sports (DECS) 496 5.78% 146.33 2.31% 295,016.13

6. Agriculture (DA) 483 5.63% 86.29 1.36% 178,650.10

7. National Defense (DND) 329 3.83% 443.61 6.99% 1,348,355.62

8. Other executive offices 316 3.68% 457.88 7.21% 1,448,987.34

9. Public Works and Highways (DPWH) 267 3.11% 680.98 10.73% 2,550,468.16

10. Health (DOH) 102 1.19% 9.18 0.14% 89,980.39

11. Environment & Natural Resources (DENR) 97 1.13% 4.28 0.07% 44,134.02

12. Social Welfare & Development (DSWD) 83 0.97% 3.43 0.05% 41,277.11

13. Energy (DOE) 61 0.71% 207.58 3.27% 3,403,016.39

14. Agrarian Reform (DAR) 53 0.62% 1.32 0.02% 24,849.06

15. Labor & Employment (DOLE) 53 0.62% 1.18 0.02% 22,301.89

16. Judiciary 43 0.50% 0.18 0.00% 4,279.07

17. Other Government Offices 25 0.29% 38.22 0.60% 1,528,880.00

18. Trade & Industry (DTI) 19 0.22% 4.21 0.07% 221,421.05

19. Foreign Affairs (DFA) 15 0.17% 0.07 0.00% 4,400.00

20. Ministry of Human Settlements 14 0.16% 1,010.55 15.92% 72,182,428.57

21. Legislature 12 0.14% 4.59 0.07% 382,666.67

22. Tourism (DOT) 11 0.13% 204.46 3.22% 18,587,272.73

23. Science & Technology (DOST) 9 0.10% 0.03 0.00% 3,555.56

24. Constitutional Commissions (CONCOMs) 8 0.09% 0.31 0.00% 39,125.00

25. Private Corporations 8 0.09% 50.90 0.80% 6,362,250.00

26. Other Government Projects 6 0.07% 0.16 0.00% 27,000.00

27. National Economic Development Authority 5 0.06% 6.34 0.10% 1,268,200.00

28. Office of the Press Secretary 2 0.02% 0.00 0.00% 500.00

29. Office of the Vice President 2 0.02% 0.13 0.00% 64,500.00

30. Budget & Management (DBM) 1 0.01% - 0.00% -

31. Office of the President 1 0.01% - 0.00% -

32. Private Individuals 1 0.01% - 0.00% -

Total 8,585 100.00% 6,346.38 100.00% 739,240.42

Source: Office of the Ombudsman, Inter-office Memorandum, 14 December 1995

31

Appendix 2Number of Cases Filed Before the Sandiganbayan and Amounts Involved

By Line Agency, 1990 to 1998

Line Agency No. of cases%

of totalAmount involved(In Million Pesos)

%of total

Ave. Amt/Case(In pesos)

1. Interior and LocalGovernment (DILG) 4,874 45.92% 3,085.69 39.82% 633,091.92

2. Finance (DOF) 815 7.68% 1,012.31 13.06% 1,242,103.073. Justice (DOJ) 905 8.53% 1,006.25 12.99% 1,111,878.454. Public Works and Highways

(DPWH) 298 2.81% 520.29 6.71% 1,745,939.605. National Defense (DND) 368 3.47% 457.94 5.91% 1,244,402.176. Office of the President (OP) 265 2.50% 235.61 3.04% 889,105.667. Energy (DOE) 61 0.57% 207.58 2.68% 3,403,016.398. Education, Culture, and

Sports (DECS) 564 5.31% 157.02 2.03% 278,404.269. Transportation and

Communication (DOTC) 834 7.86% 137.40 1.77% 164,748.2010. Agriculture (DA) 542 5.11% 122.35 1.58% 225,738.0111. Environment & Natural

Resources (DENR) 151 1.42% 52.60 0.68% 348,357.6212. Tourism (DOT) 12 0.11% 20.55 0.27% 1,712,166.6713. Health (DOH) 128 1.21% 14.52 0.19% 113,437.5014. Foreign Affairs (DFA) 143 1.35% 9.92 0.13% 69,342.6615. National Economic

Development Authority 5 0.05% 6.34 0.08% 1,268,200.0016. Legislative 18 0.17% 4.61 0.06% 256,333.3317. Trade & Industry (DTI) 19 0.18% 4.21 0.05% 221,421.0518. Social Welfare &

Development (DSWD) 83 0.78% 3.43 0.04% 41,277.1119. Agrarian Reform (DAR) 64 0.60% 2.64 0.03% 41,296.8820. Labor & Employment

(DOLE) 73 0.69% 1.18 0.02% 16,164.3821. Judiciary 54 0.51% 0.19 0.00% 3,425.9322. Office of the Vice President 2 0.02% 0.13 0.00% 64,500.0023. Science & Technology

(DOST) 9 0.08% 0.03 0.00% 3,555.5624. Others 328 3.09% 686.11 8.85% 2,091,792.68 Total 10,615 100.00% 7,748.90 100.00% 729,995.29

Source: Inter-office Memorandum dated 30 January 1999, Office of the Ombudsman