Philippines - Combating corruption in the Philippines

Report No. 20369-PH Philippines Combating Corruption in the Philippines May 3, 2000 Philippine Country Management Unit East Asia and Pacific Region um Documenf of tbe World Bank  CURRENCY EQUIVALENT (as of May 3, 2000) Currency Unit = Peso (PhP) US$1.00 = PhP41.27 FISCAL YEAR January 1 - December 31 Vice-President Mr. Jemal-ud-din Kassum, EAPVP Country Director Mr. Vinay Bhargava, EACPF Sector Manager n.a. Task Team Leader Mr. Vinay Bhargava, EACPF  GLOSSARY OF ACRONYMS ABC Anti-Bribery Covenants ADB Asian Development Bank ASEAN Association of Southeast Asian Nations AusAID Australian Agency for International Development BI Bureau of Immigration BIR Bureau of Internal Revenue BOC Bureau of Customs BOT Build-Operate-Transfer CDF Countrywide Development Fund CESO Career Executive Service Officers CG Consultative Group CIA Congressional Initiative Allocations CIDA Canadian International Development Agency COA Commission on Audit CODE-NGO Caucus of Development NGO Networks CSC Civil Service Commission DBM Department of Budget and Management DECS Department of Education, Culture and Sports DENR Department of Environment and Natural Resources DILG Department of Interior and Local Government DOH Department of Health DOJ Department of Justice DOLE Department of Labor and Employment DPWH Department of Public Works and Highway GATT General Agreement on Tariffs and Trade GOP Government of the Philippines GTZ German Development Foundation HIID Harvard Institute for Intemational Development HRD Human Resource Development IICAC Independent Commission Against Corruption, Hong Kong ICCGC Inter-Agency Consultative Committee on Graft and Corruption IPD Institute of Popular Democracy IT Information Technology LGSP Local Government Support Program LGU Local Government Unit MNC Multinational Company MTPDP Medium-Term Philippine Development Plan NBI National Bureau of Investigation NEDA National Economic and Development Authority NGO Nongovernmental Organization NIA National Irrigation Administration NPC National Power Corporation OMB Office of the Ombudsman PALS Philippine-Australia Local Sustainability Program PCAGC Presidential Commission Against Graft and Corruption PCGG Presidential Commission on Good Governance PCIJ Philippine Center for Investigative Journalism PIDS Philippine Institute for Development Studies PTTAF Policy Training and Technical Assistance Facility SAL Statement of Assets and Liabilities SWS Social Weather Stations TI Transparency International UNDP United Nations Development Programme USAID United States Agency for International Development VAT Value-added Tax  I.. I  COMBATING CORRUPTION IN THE PHILIPPINES FOREWORD ................................................................................... i EXECUTIVE SUMMARY .................................................................................. ii WHY A STRONGER ANTICORRUPTION PROGRAM Now? .................................................................................. ii PREVALENCE OF CORRUPTION IN THE PHILIPPINES .................................................................................. ii GOVERNMENT'S STRATEGY AND PLANS FOR COMBATING CORRUPTION ......................................... ............................ Vi LESSONS FROM ASIAN AND GLOBAL EXPERIENCE ........................... ....................................................... vi A PROPOSED NINE-POINT APPROACH TO FIGHTING CORRUPTION IN THE PHILIPPINES ............... ............................... Viii IMPLEMENT1NG AN ANTICORRUPTION PROGRAM .............................. .................................................... xiii 1. INTRODUCTION: WHY FIGHT CORRUPTION? .................................................................................. 1 2. CORRUPTION IN THE PHILIPPINES ........................... ....................................................... 3 PREVALENCE OF CORRUPTION .................................................................................. 3 SPECIFIC ISSUES OF CORRUPTION .................................................................................. 9 3. KEY INSTITUTIONS ENGAGED IN THE ANTICORRUPTION PROGRAM IN THE PHILIPPINES .................................................................................. 16 GOVERNMENT STRATEGY PLANS FOR COMBATING CORRUPTION ............................................................................... 16 GOVERNMENT INSTITUTIONS .................................................................................. 16 CIVIL SOCIETY ........ .......................................................................... 18 DONORS .................................................................................. 19 4. RECOMMENDED ELEMENTS FOR A COMPREHENSIVE ANTICORRUPTION PROGRAM IN THE PHILIPPINES .................................................................................. 22 LESSONS FROM INTERNATIONAL EXPERIENCE .................................................................................. 22 A PROPOSED NINE-POINT APPROACH TO FIGHTING CORRUPTION IN THE PHILIPPINES ................ ............................... 30 5. IMPLEMENTING A COMPREHENSIVE ANTICORRUPTION PROGRAM ............. ......................... 36 ANNEX A: A HISTORY OF ANTICORRUPTION EFFORTS IN THE PHILIPPINES ............. ........................... 41 ANNEX B: THE PHILIPPINES' GOVERNANCE IMPROVEMENT AGENDA ................ .................................. 43 ANNEX C: PROFILES OF CORRUPTION .................................................................................. 45 ANNEX D: KEY GOVERNMENT ACTORS IN COMBATING CORRPUTION ................... .............................. 59 ANNEX E: SURVEY OF DONOR PROGRAMS FOR GOVERNANCE AND ANTICORRUPTION IN THE PHILIPPINES .................................................................................. 64 ANNEX F: CIVIL SOCIETY INSTITUTIONS IN ANTICORRUPTION WORK ................ ................................. 70 ANNEX G: PERCEPTIONS AND ATTITUDES REGARDING CORRUPTION .................... .............................. 73 ANNEX H: CORRUPTION AND THE PRIVATE SECTOR .................................................................................. 78 ANNEX I: THE ROLE OF CONGRESS IN THE FIGHT AGAINST CORRUPTION .............. .............................. 87 BIBLIOGRAPHY .................................................................................. 98 This paper was prepared under the leadership of Vinay Bhargava, Country Director, Philippines, with inputs from the following World Bank Staff: Robert Beschel, Bernard Funck, Nick Manning, Murray Proctor, Katherine Marshall, William Rex, Sonya Woo, Rajashree Paralkar, Ross Advincula, Sergio Lozoya. Edgardo Campos (ADB) and Vineeta Shanker (Consultant) also made valuable contributions to the report. F. Herrera-Lim, M Lozada and A. Tria assisted in document processing.   COMBATING CORRUPTION IN THE PHILIPPINES FOREWORD Early in 1999, H.E. President Joseph Ejercito Estrada's administration asked the World Bank to make recommendations to help the government strengthen its fight against corruption in the Philippines. The World Bank agreed as the links between corruption and a country's development are becoming increasingly clear, and the World Bank is now actively helping a growing number of countries to address corruption problems. We now know that corruption reduces the effectiveness of poverty reduction strategies and hinders growth. Corruption is also known to affect the poor disproportionately, for it is the poor who lack the resources and information to demand services that are their due or to hold officials accountable. Combating corruption is therefore an important element in the World Bank's Country Assistance Strategy for the Philippines which calls for helping the Government reduce poverty. During the course of writing this report, many Filipinos have argued that corruption is not only an economic problem but also a profoundly ethical one. This report does not address the ethical dimensions of combating corruption, not only because such issues extend beyond the mandate of the World Bank but also because ethical issues need to be debated and addressed by the people of the Philippines and their elected representatives. The World Bank submitted its preliminary summary of findings and recommendations (as a draft paper on work in progress) to President Estrada on November 5, 1999. President Estrada announced that he planned to carry out its recommendations, and requested the Development Academy of the Philippines to produce a detailed national anti-corruption program and strategy. With the government's consent, the preliminary summary of findings and recommendations were published in December 1999 in the media, posted on the internet, and made available to the public on request. Since then, numerous articles have appeared in the press, supporting stronger public action against corruption, an issue of great concern to almost every Filipino. This final version of the report has benefited from the participation and feedback of many individuals, and I would like to express my thanks to all of them for giving generously of their time and knowledge. In particular I would like to thank the member agencies of the Inter-Agency Anti-Graft Coordinating Council for their helpful comments on the draft report. It is my hope that this report might make a contribution not only to government actions but also to increase the public's involvement on combating corruption in the Philippines since, as the President of the World Bank, Mr. Wolfensohn, remarked in his February, 2000 visit to the Philippines, "the issue of corruption in many countries is determined by the leadership and by the people of the country. And when they get fed up with it, something happens. And until they do, not a lot happens." Vinay Bhargava Country Director, Philippines World Bank Office Manila -i-   COMBATING CORRUPTION IN THE PHILIPPINES EXECUTIVE SUMMARY Why a Stronger Anticorruption Program Now? 1. From an international perspective, a vigorous and credible program to combat corruption in the Philippines is vitalfor three reasons: * The Philippines is cited with increasing frequency (by business surveys, the media, and anticorruption watchdog agencies) as a country where corruption inhibits foreign and domestic investment and may be eroding the country's competitive position. Such investment is vital to economic growth and social well-being. As Asia recovers from crisis, competition among countries will intensify, and an explicit and credible anticorruption strategy, covering transparency and good governance, will be essential to give the Philippines competitive advantage. -o Because corruption undeniably saps resources available for development, distorts access to services for poor communities, and undermines public confidence in the government's will and capacity to serve the poor, an anticorruption strategy is an essential complement to Government's pro-poor and pro-growth stance. Popular opinion surveys in the Philippines (borne out by the World Bank's intensive recent consultations with civil society) make a strong link between good governance and meaningful efforts to combat poverty. * Corruption has emerged as a pivotal international criterion for allocating scarce development aid resources, and countries will increasingly be judged by their actions in combating corruption. Congresses and parliaments, in voting aid funds, expect a clear accounting on how corruption is addressed. The Philippines has the potential to excel in making real strides against this problem and thus stands to benefit from increasing (and better used) aid. Prevalence of Corruption in the Philippines 2. In preparing this study, the World Bank analyzed a wide and significant body of information and published reports from Filipino and international sources. This analysis is summarized in this working paper. As yet, the World Bank has not done any new surveys or research. The World Bank's analysis so far reveals a broad consensus in government, nongovernmental, and international circles that corruption in the public and private sectors in the Philippines is pervasive and deep-rooted, touching even the judiciary and the media. I 3. One recent source of information on this subject is "An Exploratory Study of Graft and Corruption in the Philippines" by Linda Luz B. Guerrero and Steven A. Rood. This 'See Chay Florentino-Hofilefia, News for Sale: The Corruption of the Philippine Media (Manila: The Philippine Center for Investigative Journalism and the Center for Media Freedom and Responsibility, 1998). - 11 -  COMBATING CORRUPTION IN THE PHILIPPINES paper was published in the January-June 1999 issue of the PSSC Social Science Information of the Philippine Social Science Council (PSSC). It is based on data collected in September 1998 by the Social Weather Stations (SWS) with funding from the Asia Foundation. Among other things, the survey revealed that nearly two thirds of the respondents thought there was corruption in government-38 percent said "a great deal," 34 percent said "some" (Figures 1 and 2). Figure 1: Perceptions of the Degree of Corruption in the Philippines Govemment How much corruption is there in our government at present? 9% 19% U Agreatdeal U Some I1 A little 34% a None Source: 1998 Social Weather Stations Survey. Figure 2: Perceptions of Government Commitment to Combating Corruption ... is the government doing anything about it? 12% 15% *g A lot 23%. X Something __ Almost nothing 50% o Nothing at all Source: 1998 Social Weather Stations Survey. - 111 -  EXECUTIVE SUMMARY 4. Another recent measure of prevalence of corruption in the Philippines is the Corruption Perceptions Index (CPI), published by Transparency International (website: http://www.Transparency.de). CPIs were calculated for 99 countries by conducting a "poll- of-polls." For the Philippines, the CPI was calculated as a composite index of 12 different polls and surveys. On a scale of 1 (high perception of corruption) to 10 (negligible perception), the CPI for the Philippines was 3.6 in 1999. Out of the 99 countries rated, the Philippines was perceived as the fifty-fifth least corrupt. 5. Most estimates of losses due to corruption are imprecise and not very rigorous. Estimates by the Ombudsman, the Commission on Audit, and the Philippine Center for Investigative Journalism suggest, however, that very large amounts of public funds are being lost to both political and bureaucratic corruption.' The above-mentioned study by Guerrero and Rood reported that in a September 1996 national survey by Social Weather Stations, respondents were asked how much they believed was wasted due to corrupt practices. Fifty-one percent of the respondents said that more than 50 percent of funding for road building was wasted. More than 60 percent of respondents said they thought that in the process of collecting taxes, providing free books to children in public schools, and installing modem equipment like computers in government offices, more than 30 percent of the funding was wasted (Table 1). Table 1: How much government funds do you think is wasted due to corrupt practices connected to... Providing free books Installing modem Collecting to children in public equipment in Amount of leakage Building roads taxes schools government offices More than 50% 51% 41% 30% 23% 30 to 50% 29% 31% 32% 39% Source: 1996 Social Weather Stations Survey. 6. Corruption is also perceived to be a problem in the judiciary. In a Social Weather Stations survey released in February 2000, 62 percent of respondents believed that there were significant levels of corruption within the judiciary. 65 percent of respondents believed that "'many" or "most" lawyers could be bribed, while 57 percent thought the same about judges. 7. Corruption is not just a public sector issue. As a frequent source of bribes for public officials, the private sector shares responsibility for corruption. For the first time, in 1999, Transparency International released a Bribe Payers Perception Index. This index ranks 19 leading exporting countries (mostly developed countries) in terms of the degree to which their corporations are perceived to pay bribes abroad. On a scale of 1 (high) to 10 (negligible), more than half the countries scored below 7, and about one third scored below I For details, see: Government of the Philippines, Office of the Ombudsman. Annual Reports; Civil Service Commission. Annual and other Reports; and Shiela Coronel, ed., Pork and Other Perks: Corruption and Governance in the Philippines (Manila: Philippines Center of Investigative Journalism, Evelio B. Javier Foundation and Institute of Popular Democracy, 1998). - iv -  COMBATING CORRUPTION IN THE PHILIPPINES 5, indicating perceptions of widespread bribery by leading exporting countries. The Philippines was not a part of this survey. 8. In the Philippines, several instances of corrupt practices on the part of private corporations and individuals have been reported in the media. In a September 1998 Social Weather Stations survey, asked whether corruption happens in the private sector as well, 52 percent of the respondents said it did, even without the involvement of government personnel. Similarly, 66 percent of the respondents said that when corruption involves a businessperson and a govermment official, both parties are guilty. These findings show that, as a major source of the funds used for corrupt purposes, the private sector has to be mobilized to combat corruption. 9. While our analysis so far confirms that corruption is a sizeable problem in the PhUippines, it also reveals that progress has been made in the last decade in reducing opportunities for corruption through policy and regulatory reforms. The usefulness of year-to-year comparisons of the CPI scores is hampered by the changing sample and methodology, but the direction of change can be judged from historical scores over a long period of time. For the Philippines, Transparency International's estimates of CPI have steadily improved from a low of 1.04 in 1980-85, to 1.96 in 1988-92, 2.77 in 1995, and 3.6 in 1999 (a higher CPI on a scale of 1 to 10 means a lower perception of corruption). Though encouraging in the sense that progress has been made, the low score also says there is a long way to go (Figure 3). Figure 3: Transparency International Corruption Perception Index (CPI: Philippines Scores, 1980-99 Scale = 1 to 1 0, Higher Score means lower perception of graft and corruption. 4.0 3.5- 3.0 - 2.5- 2.0 - 1.5 1.-I- 0.5 - 1.0- S0ource Tnac n t W e s 1 91 o Source: Transparency International Website. Reports for 1994 to 1998. - v-  EXECUTIVE SUMMARY 10. Our analysis also indicates that the Philippines today meets many preconditions that offer promise for a successful anticorruption campaign. The Philippines' vibrant civil society and media have brought public focus to the issue. Other positive elements include: considerable knowledge about the problem; examples of successful anticorruption programs in key agencies; a legal framework for addressing the issue; and the existence of specific institutions charged with combating corruption in the public sector. Although corruption is a complex and deep-rooted problem in the Philippines, one that may take a long time to eradicate, it is encouraging to note that the public has faith that the problem is not insurmountable, judging by the fact that 59 percent of the respondents in the September 1998 Social Weather Stations survey thought the government could be run without corruption. As shown in Figure 2, two out of three respondents also feel that the government is doing something about the corruption problem. Government's Strategy and Plans for Combating Corruption 11. The government's Medium-Term Philippine Development Plan 1999-2004 (MTPDP) recognizes that improving governance is essential for achieving MTPDP growth and equity objectives. The plan acknowledges weaknesses in public sector capabilities in policy and program implementation; poor national and local government accountability; endemic graft and corruption; lags in law enforcement and justice, with rare convictions in high- profile cases; and faulty delivery of services to the poor. The government presented infornation on plans to fight graft and corruption at the March 1999 Consultative Group (CG) meeting with the donors. It outlined the following initiatives: * Enhancing government efficiency, effectiveness, and accountability by instituting performance-monitoring and evaluation, reengineering all agency operations, rationalizing civil service pay, investing in information technology to strengthen local government unit (LGU) capabilities, and seeking businesses and civil society as partners with the government. * Improving economic governance by establishing a new national accounting and auditing system and a multiyear expenditure framework, pursuing an expanded privatization program at both national and local levels, and involving private sector and civil society in the design, delivery, and monitoring of antipoverty programs. * Eliminating graft and corruption by mounting a multipronged strategy encompassing further liberalization, deregulation, civil service reform, and institutionalization of a participatory approach to social service delivery and its monitoring. * Improving civil peace and order. Lessons from Asian and Global Experience 12. International experience offers many insights and concrete ideas for renewing the Philippines' anticorruption effort. A rich and growing body of experience shows that corruption can be addressed at the national level and that well-led and well-designed anticorruption programs can show significant and rapid results. Clearly essential to success, however, are specific, tailor-made programs, firmly set in each country's culture and history and a sustained political will and leadership (Box 1). - vi-  COMBATING CORRUPTION IN THE PHILIPPINES 13. Based on a comparative analysis offive Asian countries (India, Hong Kong, Mongolia, the Philippines, and Singapore), Professor Jon S. T. Quahi of the National University of Singapore, draws six lessons for designing successful anticorruption efforts: * Commitment by the political leadership is crucial. * A comprehensive strategy is more effective than piecemeal drives. - vii -  EXECUTIVE SUMMARY * The anticorruption agency itself must be incorruptible. * The anticorruption agency must be removed from police control. * Opportunities for corruption in vulnerable agencies must be reduced. * Corruption can be reduced by raising salaries, if a country can afford to do so. A Proposed Nine-Point Approach to Fighting Corruption in the Philippines 14. Drawing upon our global experience and the Philippine-specific analysis, we recommend that a national strategy for fighting corruption in the Philippines should focus on reducing opportunities and motivation for corruption and should make corruption a high-risk, low-reward activity. International experience suggests that a successful anticorruption program requires sustained efforts over a long time and should focus on the root causes of corruption in the public sector, enhancing the effectiveness of sanctions against corrupt behavior, and increasing public oversight of government. Within this framework, nine key elements are recommended for the national anticorruption program: * reducing opportunities for corruption by policy reforms and deregulation; * reforming campaign finance; * increasing public oversight; * reforming budget processes; * improving meritocracy in the civil service; * targeting.selected departments and agencies; * enhancing sanctions against corruption; * developing partnerships with the private sector; and, * supporting judicial reform. Isolated initiatives, under each of these elements, are already underway in the Philippines and are in various stages of implementation and/or improvement. These initiatives now must be unified under one concerted program under a strong leadership and management structure (paragraph 25) and a strong partnership effort forged with the private sector (paragraph 22), civil society (paragraph 26), donors (paragraph 31), the congress and judiciary (paragraph 30). 15. Reducing Opportunities For Corruption. Through policy reforms and deregulation, noteworthy progress has been made in the last 10 years to reduce opportunities for corruption, but much more can be done. Opportune areas for policy reform in the Philippines include: * tax policy (for example, preferential tariffs, exemptions, investment incentives) and administration (for example, tax audits); * regulation of infrastructure services and public utilities such as power, telecommunications, water, aviation (for example, granting of franchises, government guarantees, competitive arrangements); * corporate governance reforms, particularly in the financial services area; - viii -  COMBATING CORRUPTION IN THE PHILIPPINES * environmental and land use regulations; and, * import and trade arrangements. 16. Reforming Campaign Finance. The dynamics of electoral politics as practiced in the Philippines-particularly, the financial requirements to obtain and retain office and placate core constituencies-create dysfunctional incentives that degrade the performance of the public sector as a whole. In its issues, nature, and institutional origins, issues of corruption in politics are bigger than campaign finance reform and different from petty corruption in procurement and bribery in the civil service. Although these issues have been acknowledged in the Philippines and demand due consideration, the World Bank's recommendations do not address them for lack of expertise and jurisdiction in this area. Nevertheless, reforms of political processes and systems should be an integral part of the government's overall anticorruption program. 17. Increasing Public Oversight. Measures to increase significantly the information made available to the general public have special importance because they let citizens know what officials are accountable for and how to judge their performance against those standards. Active efforts to engage civil society to advance accountability and integrity are also needed. Actions that could enhance public oversight include: