Final Paper

Anti-Corruption Initiatives in the Philippines1:

Creating Virtuous Circles of Integrity and Accountability

Do not go so gently into the night;

Rage, rage against the dying of the light.
--- Dylan Thomas

I. INTRODUCTION

You can count on government to do the right thing but not often enough, and most of
the time, not long enough. Whether in fiscal management, environment, health and
education---or in the case at hand, fighting corruption---the storyline seems to be the
same. It is easy to follow with uncanny frequency the travails of government entities
unable to find or sustain the right moves, and in the process limping along to an
unfulfilling end. If there is any saving grace, it is the fact that successions of
government managers continue to chase held-up goals, self-willed despite the risks
and the setbacks.

It is no coincidence why most government initiatives, regardless of source, fail to

endure and lose ground more often than not. The culprit is a troubled enabling
environment. It is not easy to go beyond one’s governance perimeters. Scattered
reforms, including those in fighting corruption, left to run their own course, often run
aground, because of the limits imposed by weakened institutions and a not-so-level
playing field.

Conditions in the Philippines point to a vulnerable governance milieu, although it is at

least a cut above developing countries which are poorly governed. An inconsistently
functioning legal system, weak accountability structures, and inadequate financial
transparency are just some of the flaws of the existing institutions. With institutional
safeguards working in fits and turns, reforms may not last long, or worse, are
vulnerable to political capture by predatory interests.

But vulnerable governance is not destiny. The challenge is to overstep the confines,
to create synergies that can lead to a “creative destruction” of governance
vulnerabilities. In terms of game theory, when one agency breaks out of its own
institutional boundaries, others ought to typically ask themselves how they must react
to come up with a least bad outcome. That is, if they have an incentive to fear being
left behind by successful moves. So the first agency must motivate at least a few
others to “mimic” its actions, and hopefully create a virtuous circle of reforms.

That, of course, is easier said than done, not least in the Philippine bureaucracy which,
by force of habit, is routine-oriented. Other stakeholders, such as the private sector
and civil society groups, can show up as pressure points, or even as partners, in order
to induce a shakeout and force implementers to do things right. Some kind of a

1
This paper on the progress of anti-corruption efforts from 2001 to present was prepared by the Development
Academy of the Philippines-Center for Governance with funding from the World Bank and the USAID.
 2

“yardstick competition” should emerge within the bureaucracy, if enough groups, in

government and outside of it, overcome their collective action hurdles to produce a
counter wave of changes.

Progress in reforms is urgent: corruption is seriously hurting the economy and

continues to ravage the social fabric. This paper addresses this tension between a
constraining governance environment and the reforms that have to be put in place in
order for anti-corruption to make a good deal of progress. Windows of opportunity for
changes occasionally open up to significant breakthroughs, but only up to a point. It
is important to acknowledge that the institutional weaknesses of the state, the
concentration of vested interests, and the extent of what the institutional economics
literature describes as “state capture,” will work as powerful brakes on anti-corruption
initiatives, eroding their effectiveness and sustainability. Anti-corruption policies
thus should be crafted around realistic “litmus tests” that recognize the qualifying
factors in such environments.
What this paper does is to assess anti-corruption policies from 2001 to present, draw
out anti-corruption themes and distill lessons for targeting transparency and
accountability reforms more effectively. The World Bank’s governance indicators are
used as a heuristic tool to (1) examine the different circumstances underlying the
persistence of problems in fighting corruption and (2) provide a touchstone for reform
strategies that are keyed both to the specific contours of the difficulty and to the
means of overcoming it. The end product is a set of policy options, with stress on
how to target reform efforts, how to carry them out in stepwise fashion, and how to
sustain them in a governance context susceptible to wrongdoing.

II. SOFT STATE, VULNERABLE GOVERNANCE

The late Swedish economist Gunnar Myrdal, a Nobel laureate, coined the term “soft
state” to refer to developing countries that lack a disciplined and capable bureaucratic
culture, a cogent societal fabric, and a strong political will to overcome such
weakness. As Myrdal put it, a soft state has “deficiencies in legislation and in
particular law observance and enforcement, a widespread disobedience by public
officials on various levels to rules and directives handed down to them, and often their
collusion with powerful persons and groups of persons whose conduct they regulate”
(Myrdal, 1970). The Philippines easily classifies as a soft state under this definition.
Not surprisingly, the aspects of a soft state extend over those of a poorly or fairly
governed state. That means there is something fundamentally wrong with the way
social institutions, set of roles, rules, decision-making procedures, and programs that
serve to define social practices and guide the interactions of those participating in
these practices, are established and operated.

As Douglass North, another Nobel-prize winning economist, makes plain, institutions,

whether formal or informal, are the means through which authority is exercised in the
management of resources of the state. They make up, in other words, the enabling
environment. The observable aspects of this environment that are important enough
to consider, according to Kaufmann (2003), are: (1) the process by which those in
authority are selected and replaced (voice and external accountability and political
stability); (2) the capacity of government to formulate and implement policies
(government effectiveness and regulatory quality) and (3) the respect of citizens and
 3

Box 1 the state for institutions that govern

interaction among them (rule of
Defining Governance Indicators law and control of corruption).
As used by Kaufmann and Kraay (2005), voice and
accountability measures government’s preparedness On these counts of governance, the
to be externally accountable through citizen feedback Philippines received vulnerable
and democratic institutions, and an independent media marks suggesting that the country
which serves an important role in monitoring those in is at risk of being ineffectually
authority and holding them accountable for their managed in a context where serious
actions. Political stability measures perceptions of the
likelihood that the government in power will be challenges remain. In 2005, the
destabilized or overthrown by possibly Philippines got a 47.8 percentile
unconstitutional and/or violent means. This has a rating on voice and accountability,
direct effect on the continuity of policies and the 17.5 on political stability, 55.5 in
ability of citizens to peacefully select and replace government effectiveness, 52.0 in
those in power. While regulatory quality looks at the
policies themselves, i.e., at the incidence of market- regulatory quality, 38.6 on the rule
unfriendly policies as well as perceptions of the of law and 37.4 in control of
burdens imposed by excessive regulation, government corruption. (See Figure 1) The
effectiveness focuses on “inputs” required for the percentile rank indicates the
government to be able to produce and implement percentage of countries worldwide
sound policies and deliver public goods. These inputs
include the quality of the bureaucracy, the competence (the survey covers about 209
of civil servants, the independence of the civil service countries) that rate below the
from political pressures, and the credibility of the selected country.
government’s commitment to policies. Rule of law
measures the confidence and success of a society inOn the face of it, the country’s
developing an environment in which fair and
predictable rules form the basis for economic and score suggests a tolerable level of
government’s ability of
social interactions. Rule of law means the existence
of checks and balances, regular and predictable government to produce and
regime succession, formally independent judiciary, implement good policies and
among others. It measures the effectiveness and deliver public goods, a livable
predictability of the judiciary, the enforceability of
regulatory structure and trade
contracts, and even the perceptions of the incidence of
crime. Theory suggests that systems governed by theregime, perceptions of relatively
functioning democratic institutions
formal rule of law are likely to perform better than
those in which rules may be arbitrarily changed (including a free media), a slight
(North, 1990). Obviously, the presence of corruption
improvement in corruption control
is a manifestation of a lack of respect of both the
corrupter and the corrupted for the rules, which (although it remains low), and
govern their interactions. Control of corruption slight improvement (though less
measures the effectiveness of restraints on the than satisfactory) observance of the
exercise of public power for public gain. Abuse of rule of law. The lustrous touches,
public office could range from petty bribe taking to
however, are dimmed by political
grand corruption at the highest level.
instability, with the World Bank
suggesting that the score placed the Philippines in a state of “governance crisis”.2

Looking at historical trends, it is apparent from the figures that despite improvements
from 2004 to 2005, the overall quality of Philippine governance has declined from its
1998 level (Figure 1). The score lends itself to pessimistic reading. Political stability
and the rule of law showed the largest decline in the country’s score. Destabilization
has become a serious concern due to threats of terrorism and spells of military

2 Kaufmann and Kraay (2005) grouped countries into a three broad categories: exemplary – above 90th/between
75th to 90th; vulnerable – between 50th and 75th/between 25th to 50th, governance crisis - between 10th to
25th/bottom 10th.
 4

adventurism such as the 2003 Oakwood mutiny. The soldiers who became widely
known as the “Magdalo group” claimed that they went to Oakwood to air their
grievances about graft and corruption in the military.3 Allegations of fraud in the 2004
presidential elections, and the challenges to the legitimacy of the government of
President Gloria Macapagal-Arroyo that they spawned, also continue to make
political stability elusive and hamper the ability of the central government to gain
consensus on important social and economic undertakings.

FigureFigure 1. World
1. World Bank Governance
Bank Governance Indicators
Indicators Country
Country
Snapshot
Snapshot for thefor the Philippines,
Philippines, 1996-1996
2005- 2005

80
Percentile Ranking

70
60
50
40
30
20
10
0
1996 1998 2000 2002 2003 2004 2005
Voice and Accountability Year Political Stability/No Violence
Government Effectiveness Regulatory Quality
Rule of Law Control of Corruption

Source: Kaufmann, D., A. Kraay, and M. Mastruzzi 2006: Governance Matters V: Governance Indicators for 1996-2005.

The country’s capacity to enforce contracts has been put to question due to the
nullification of the contract with the Philippine International Air Terminal
Corporation, the private firm that constructed NAIA Terminal 34. Although the
nullification was based on alleged corruption and overcharging, the private sector and
the international community view this as injurious to an investment-friendly business
climate. The 2005 turnaround is good news but note that the higher government
effectiveness and regulatory quality ranking in 2005 only recovered their 2002 level.
Despite the presence of a reform-oriented Supreme Court, the quality of Philippine
courts is still perceived to be less satisfactory. Political, extrajudicial killings of

3
On 27 July 2003, 323 junior officers and enlisted men, mostly from the elite units of the Armed Forces of the
Philippines (AFP) took over the Oakwood Premier Apartments in Makati City. The soldiers who called
themselves the “new Filipino heroes” and became widely known as the “Magdalo group” claimed that they went to
Oakwood to air their grievances about graft and corruption in the military, the sale of arms and ammunition to the
“enemies” of the state, the bombings in Davao City which were allegedly ordered by the then Chief of Intelligence
Service of the AFP BGen. Victor Corpus in order to obtain more military assistance from the United States, and
“micromanagement” in the AFP by the then Department of National Defense Secretary Angelo Reyes. The
incident was brief, lasting less than a day. It ended without bloodshed, nor damage to property (Oakwood Fact
Finding Commission, 2003:1). Political analysts have suggested that the incident indicated restiveness in the
military, especially among elite junior officers.
4
The Philippine government nullified the contract with the Philippine International Air Terminal Corporation, the
private firm that constructed NAIA Terminal 3, due to alleged corruption and overcharging. PIATCO has a
pending complaint in the International Court of Arbitration in Singapore. Fraport AG Germany, which is a part
owner of PIATCO, has sued the Philippine government at the World Bank International Center for the Settlement
of Investment Disputes (TAG, 2006).
 5

media people, church workers and political activists (which has caught the attention
of international bodies) have undermined the government’s capacity to quell crime
and violence. Voice and accountability slightly declined but fortunately has not gone
down to the level of political stability and control of corruption. In this light, it is not
hard to imagine why government effectiveness, regulatory quality, voice and external
accountability were considered “average” only.

Figure 2. Governance Indicators of the Philippines

Compared with East Asia Average, 2005

Control of Corruption
Rule of Law

Regulatory Quality
Government Effectiveness
Political Stability

Voice and Accountability

0 10 20 30 40 50 60 70

Percentile Rank (Philippines) Regional Average

Source: Kaufmann, D., A. Kraay, and M. Mastruzzi 2006: Governance Matters V: Governance Indicators for 1996-2005.

While collective action is still difficult to achieve, Filipinos enjoy a fair degree of
political freedom. The Supreme Court has consistently held back challenges to this
freedom: its most recent rulings put restraint on executive power on a wide range of
issues, including detention without arrest warrants and prohibitions of rallies and
demonstrations5. The Supreme Court SC rulings are ex-post, corrective but
significant; abuse of executive power is an ex-ante sign that democratic institutions
are being put to a severe test. Without the Supreme Court decision, already weak
institutions would have been eroded further. Elections, despite flawed and obsolete
means, are regularly held and there are various forms of popular participation. Even
then, periodic elections have not developed a strong sense of accountability among
politicians. The clientelist nature of political parties has created incentives to
maintain voters’ literacy at a low level and held back reforms in campaign financing

5
On September 21, 2005, amidst plans for nationwide demonstrations to mark the 1973 proclamation of Martial
Law by President Marcos, President Arroyo issued CPR (Calibrated Pre-emptive Response), a directive ordering
dispersal of unlawful mass action. On September 28, 2005, President Arroyo issued Executive Order 464 barring
public officials from appearing in congressional investigations without the President’s written consent. In its April
2006 decision, the Supreme Court nullified the CPR policy on grounds that maximum tolerance will be the rule in
dealing with rallies and demonstrations, and not pre-emptive response. The Supreme Court declared two
provisions of EO 464 unconstitutional (it upheld the right of Congress to summon officials from executive
department) but upheld executive privilege on matters of internal deliberations of the Cabinet, informer’s
identities, state secrets and matters of national security. (TAG, 2006).
 6

Reforms in public sector management (e.g. procurement, computerization) are

gradually improving efficiency in the delivery of public services. Local governments
are increasingly becoming more competitive and efficient. But what’s preventing the
Philippines to gather higher marks is the sustainability of reforms and the
government’s inability to quickly and more effectively deal with disaster and
emergencies. Nevertheless, the outward orientation of the economy is still considered
a plus factor. For instance, the government by-passed its own normal regulatory
channel when it launched the Roll-on Roll-off Terminal System (RORO) in 2003 in
order to provide an efficient nautical highway for transport and commerce (EO 170) 6
and allowed the entry of low cost carriers. Because of the inability of Civil Aviation
Board to render quick processing of Foreign Air Carrier Permits, President Arroyo
issued Executive Order 500 which facilitated the entry and operations of additional
low cost carriers at Clark International Airport.

The saving grace is that control of corruption did not decline as fast as the others. The
country’s ranking in corruption seesawed but remained almost at the same level as in
the last two Transparency International surveys. From a percentile ranking of 36.8 in
2000, the country’s rating on control of corruption improved to 42.2 in 2003 but
declined to 34.8 in 2004. The level of control increased to 37.4 in 2005 which is a
notch higher than the 2000 level. That suggests that the Philippines has at least
maintained the level of corruption control that existed in the past. On the downside, it
also indicates that stakeholders are either not aware of or, if knowledgeable, are still
not impressed with recent anti-corruption efforts (such as the pursuance of high
profile corruption cases, the strengthening of the Office of the Ombudsman, overhaul
of government procurement rules, and reforms in revenue agencies). As if to say that
the Philippines is not alone in this uphill struggle, Kaufmann and Kraay note that
globally there is only incipient improvement in the control of corruption. It is
noteworthy that, even with a low ranking, the Philippines still qualified for an anti-
corruption grant from the Millennium Challenge Account (MCA), which meant that
the international community still has enough confidence that the Philippines can
surmount its own governance difficulties.7

Another reason not to lose hope is that the Philippines still does better than the East
Asian regional average in the area of government effectiveness and is very close to
the East Asian benchmark in terms of regulatory quality and voice and external
accountability (Figure 2). When compared with some of its South East Asian
neighbors, control of corruption in the Philippines is still better than anti-corruption
initiatives in Vietnam, Indonesia and Cambodia.

6
RORO was able to penetrate the most important and extensive port system in the Philippines- the Philippine Ports
Authority port system. The EO 170 s. 2003 also mandated the privatization and/or devolution of existing public
RORO Ports under the PPA or Cebu Ports Authority thereby encouraging existing private port operators to convert
their operations to RORO. In this situation, jurisdiction of PPA owned ports are transferred to RORO (Llanto,
2005: 3-5).
7
A country’s eligibility for grants from the MCA is determined by its relative position on 16 different measures of
country performance. One of these is the control of corruption, where a country is required to score above the
median among all potentially eligible countries in order to qualify for MCA funding (Kaufmann and Kraay, 2005).
 7

Not Much Change in Perception of Corruption over Time

Although the Philippines exerted efforts to boost investor and citizen confidence by
declaring anti-corruption as a priority agenda, the foreign business and international
community has not changed its general perception of corruption incidence. To be
sure, business faces risks from corrupt practices. In 2005, the Transparency
International’s corruption perception incidence (CPI) stands at 2.5, a few notches
lower than its 2.9 score in 2001 when President Arroyo assumed power after President
Estrada was deposed due to allegations of corruption (Figure 3). While it was too
early then to expect significant improvements from anti-corruption reforms
introduced in the early 2000s, a positive shift was anticipated. But the Philippine
score stagnated across the years.

Figure 3. Corruption Perception Index, various years

4.00 3.60
3.30
3.50 3.05
2.77 2.69 2.80 2.90
3.00 2.60 2.50 2.60 2.50
2.50 1.96
2.00
1.50 1.04
1.00
0.50
0.00
-85

-92

95

96

97

98

99

00

01

02

03

04

05
19

19

19

19

19

20

20

20

20

20

20
80

88
19

19

Source: Transparency International

It would be recalled that in the period 1997 - 1999, there was already a growing
satisfaction on the decreasing level of corruption in the country, which was ascribed
by analysts to policy and regulatory reforms towards greater economic freedom that
are known to impede the occurrence of bribery and corruption. In 2000, CPI dropped
to 2.8. The rising governance deficit as revealed by reduced investor confidence,
which in turn was due to the pervasive and deep-rooted corruption present in both
public and private sectors brought about the decline in value. Corruption had reached
even the judiciary and media (World Bank Report, 2001).

But from 2001 until 2005, the Philippines has been stuck with lower CPIs: 2.6 in 2002
and 2004 and 2.5 in 2003 and 2005. Despite the vigorous efforts of anti-corruption
bodies, the Philippines failed to convince its stakeholders that things are now better.
This is due to unresolved high profile cases such as the President Diosdado
Macapagal Boulevard case8, the Armed Forces Retirement and Separation Benefits

8
Members of the Board of the Philippine Estates Authority (PEA), together with PEA officers, COA auditors, and
a private contractor are accused of having approved and implemented the construction of the President Diosdado
Macapagal Boulevard through simplified bidding despite lack of funds, and the final bill of quantities without the
required presidential approval, resulting in overpriced payments (TAG, 2006).
 8

System pension fund case9, the Public Estates Authority-Amari scam10, the tax credit
scam11, the Department of Public Works and Highways vehicle repair scam12,
irregularities in the Commission on Elections contract on automated counting
machines13, cases against Defense Department comptroller Major General Carlos
Garcia14, and recently, the fertilizer scam15. More so, the enforcement pattern of anti-
corruption policies appears to be erratic, as rule of law itself sits uneasily within the
Philippine patron-client culture.

A similar trend in the results on public perception regarding the level of corruption is
also reflected in the Social Weather Station’s Business Survey on Corruption.

Findings from the first to the sixth enterprise surveys (2000-2006) showed that ratings
of government agencies continually declined in terms of corruption. This means that
there is a very high and non-diminishing degree of perceived corruption in the public
sector, although not in all the agencies identified. In 2006, agencies’ net sincerity in
fighting corruption was relatively lower than in 2005. Half of the agencies shown in
Figure 4 suggest poorer scores. Net sincerity went from positive to negative for three
agencies: Department of Justice (+13 to –20), Office of the President (+10 to –15),
and the Presidential Commission on Good Government (+5 to –13). Other agencies
received same16 scores while others improved17, yet, still negative in value.

9
The Armed Forces Retirement and Separation Benefits System was established to create a separate fund to ensure
payment of retirement and separation benefits for members of the armed forces (in lieu of relying on the yearly
appropriations of the AFP). To generate investment revenues, RSBS engaged in the aggressive pursuit of high
yields i.e., yields higher than those of risk-free Philippine treasury bonds and bills and made investments in real
estate which resulted in massive losses when the Asian crisis struck (Oakwood Fact Finding Commission, 2003).
High officials of RSBS were accused of having made “sham” investments. Cases filed involve charges for
malversation through falsification of public documents. The use of falsified Deed of Sale as basis of payment for
capital gains and documentary taxes relative to the sale of the subject lots allowed short-changed the government.
10
It is alleged that Public Estates Authority officials during the Ramos administration entered into a joint venture
with Amari Coastal Bay Corporation in a reclamation project that was duly disadvantageous to the Philippine
government.
11
The accused in these cases were charged of having approved Tax Credit Certificates on the basis of spurious
documents. Apart from this case, there are 200 more tax credit scam cases pending in the Sandiganbayan (TAG,
2006).
12
This case involves falsification of vouchers, checks and other documents (covering 4,400 transactions) to pay
DPWH vehicle repairs which reportedly never took place (TAG, 2006).
13
A few months before the 2004 elections, the Supreme Court upheld a petition challenging the Commission on
Election’s (Comelec’s) award of the contract for the purchase of counting machines and equipment to a private
consortium (Mega Pacific) that allegedly did not participate in the public bidding. The Court castigated Comelec
for grave abuse of discretion and nullified the contract for purchase of machines supposedly to be used in the 2004
elections. The South Korean vendor rejected the request to buy back the counting machines.
14
DND Finance Comptroller Major General Carlos Garcia and his family were charged with amassing and
accumulating ill-gotten wealth of PhP303,272,005.99 in the form of commissions, gifts, kickbacks and other
pecuniary benefits in connection with government contracts since 1990 (TAG, 2006).
15
This case involves malversation through unwarranted allocation of funds to questionable agricultural
institutions/foundations. PhP728 million allocated to congressional districts were allegedly disbursed, through the
former Undersecretary for Operations of the Department of Agriculture, to finance the campaign of the
administration in the 2004 national elections (TAG, 2006). The former DA official has been arrested in the United
States on visa violation matters (Sun Star Bacolod, July 15, 2006).
16
For 2005 and 2006, DPWH and DBM obtained similar scores, -66 and +5, respectively.
17
Agencies with better ratings compared to their 2005 net sincerity scores are PNP (-42 to –36), AFP (-38 to –19),
BIR (-59 to –58), BOC (-75 to –74), LTO (-45 to –38), and DENR (-44 to –39).
 9

There had also been a declining solicitation for bribes, at least for some transactions.
Bribery to win private contracts is less common in the private sector (10% bribery
component) than in the public sector (15-20% bribery component). Among the
findings of the six surveys undertaken by the SWS, the most pro-active component
may just be the enthusiasm displayed by the managers in fighting corruption. This
figure showed a very positive reaction to the fight against corruption based on an
increasing willingness, expressed in the increasing percentage of net income that
managers are willing to give for such an undertaking, from a median of 2% in the
2001 survey to 5% in the year 2006.

Common conclusions from among the six surveys can be summarized to: (1) severe
punishment for corruption must be imposed, (2) material rewards must be given to
corruption-fighters, (3) a percentage of net income for the business sector can be
recovered, (4) government can save on contracts by 15-20% while for business, 10%
[constant for all the six surveys], (5) 2 out of 3 firms are willing to join an Anti-
Corruption Program Fund, and (6) the private sector must also clean up its ranks [that
corruption is mostly learned from the workplace and that corrupt executives are
seldom punished].

A Constrained Environment for Good Governance

Existing institutions and governance quality (“context” as used here) have a profound
impact on reform efforts. They shape the way the interests of actors are aggregated
and shaped (Moe, 1990). Context also determines the degree of complementarity
between new and existing institutions, which ascertains how likely effective and
sustainable the institutions will be (World Bank, 2002; Ostrom, 2004).

The literature suggests that struggles over institutional redesign involve conflict
among powerful institutional actors. Each actor will assess his or her degree of
 10

support or resistance to any changes in institutional rules based on how his or her
power and resource accumulation strategy are enhanced or diminished by these
changes (Hammand and Knott, 1999).

In Philippine political economy, the factions, which are in conflict, have their origins
in the political and economic power of the economic elite. The power center is a
centralized bureaucracy that orchestrates the execution of policy and allocation of
spoils. Such concentration of power at the top blends with the decentralized power of
families and clans, within the context of a “neo-patrimonial” political system (Azfar,
et al., 2000). The flow of power is from regional elites to central state authorities
(Franco, 2000). The main political formations— Laban ng Makabayang Masang
Pilipino, Nationalist People's Coalition, Laban, and Lakas—are unstable political
coalitions, implying no genuine party loyalty exists. The national electoral system,
which is nominally competitive (incumbency does not assure re-election---Franco
(2000)), is a curious set of first-past-the-post contests, and mainly yields the president,
senators and local-council (sanggunian) representatives who are elected at large, as
well as Congress members elected from geographic constituencies (along with a small
number elected from party lists). The need to share the spoils of political victory often
incites a scramble by politicians across parties to join the winning presidential
candidate’s party (Azfar, et al., 2000).

Because the president has discretion over disbursement and big-ticket government
contracts, licensing authority, and fiscal management powers---a pattern appropriated
from the American presidential system---politicians have to ally themselves with the
chief executive to ensure funding for key projects and a major share in the patronage
resources of the government. In turn, in the absence of effective political parties, the
president has to count on local elites for electoral support and mobilization. As a
result, local elites can leverage local power effectively during elections and, in-
between, ask for major concessions, through the Congress, from the central
government (Rocamora, 1995). The leverage that the chief executive has on local
politicians is matched by the leverage that local politicians have in their ability to
collect votes from their local bases of power (Igaya, 1999).

This local-central symmetry is perpetuated when Congress members routinely engage

in party switching to bolster the ranks of the ruling party in successive elections, a
practice which in turn stiffens the lack of any real programmatic or ideological
separation among Philippine political parties (Franco, 2000). One result of this system
is that the Philippine legislature by and large does not mediate differing interests; its
policies, laws and resource priorities are seen widely as directly favoring powerful
constituencies (Gonzalez and Mendoza, 2002). Also, minorities have little voice
(other than as local majorities), especially in national politics (Azfar, et al., 2000). As
suggested by De Dios and Ferrer (2001) as well as Mendoza (2001), these political
contests for control of resources are quite intense since the state “disposes over a
significant amount of resources and exercises discretion over a wide sphere.”

To recap: patron-client relations are consolidated upward and find their expression in
political factions contending periodically for direct control of government. The
primary aim of elite struggles is to control the state’s machinery and resources and to
skew their deployment to favor specific interests. Powerful incentives then work to
retain power indefinitely in order to protect such interests (De Dios and Esfahani,
 11

2001). More often than not, politicians themselves design and modify institutions to
stay in power. The proposed shift to parliamentary system---although it has intrinsic
merits---is widely seen as an attempt to bypass direct presidential elections and ensure
permanent executive capture because of the “no election” and “holdover” rider in the
initiatives to change the constitution.18 Voting arrangements, constitutional rules,
financing of campaigns and political parties, and other institutions are maintained or
revised to keep incumbents in office. Horrendous policies and institutions can be best
understood from the perspective of entrenching the incumbents (Djankov, et al.,
2002).

Conversely, turnovers---whether electoral contests or more fundamental challenges to

legitimacy, such as attempted coups---may be viewed as opportunities to attain or
retain this power.19 The larger the prizes (a function of the scope of the government’s
influence over resource allocation), the greater the likelihood of dissipation of
resources through rent-seeking. Various interpretations of Philippine political
economy commonly suggest the likelihood of the ‘capture” of the state and its
instrumentalities by vested interests based on political clans (De Dios and Esfahani,
2001).

Filipino politicians invest their time and money to maintain a strong grip over the
state institutions in order to strengthen their influence over state policies. Public
agencies serve as conduits for capture of both policies and public resources. State
capture implies that corruption is not always merely a sideshow; instead, the very
political and economic forces associated with capture play a pivotal role in shaping
policies and political economy outcomes (Kaufmann and Kraay, 2005) in the process
blurring the separation between public duties and private interests. Disregard of this
conflict of interest rule leads to the perversion of the rules of the game, to the benefit
of a few, rather than for society as a whole.

The Philippine situation may be more than a case of entrenching the incumbents or a
clan-based struggle for political power, however. As De Dios and Esfahani (2001)
suggest, the Philippines’ vulnerability may have been sealed by its choice of
governance structure, and its concomitant aversion to large gambles, exemplified by
the “Asian miracle.”

The Philippines’ neighbors had a “normally functioning” authoritarian set-up, with no

regime turnover, which permitted a “freedom of action” that “created the
opportunities for large gambles (like investment in strategic industries or
discrimination in favor of or against certain groups).” But therein also lies a paradox.

18
In her 2005 State of the Nation Address, President Gloria Macapagal-Arroyo reiterated what she had already
said in previous pronouncements about how the political system has “degenerated” to become “a hindrance to
progress” and how “it has strained it to its final limits” — premises for her calling on Congress to initiate moves to
amend the Constitution and effect a change to the parliamentary form of government. Members of the opposition
allege that the Charter Change mainly seeks to strengthen President Arroyo’s power. Under the proposed shift to
parliamentary system, the President can seek the post of prime minister after her term expires (The Philippine Star,
September 29, 2006:14).
19
Coups are sometimes plotted to further political interests. From the Marcos the administration, a total of eight
attempts were chronicled from February 1986 (under the Marcos regime) to December 1989 (during the Aquino
period) --- most of which were plotted by Reform the Armed Forced Movement (RAM) military men and Marcos
loyalists. Incumbent President Arroyo also experienced military adventurism as manifested by the ‘May 1
Rebellion’, the ‘Black October’ plot and the Oakwood Mutiny. Noticeable in all coup attempts was the
involvement of politicians (Fernandez, 2006: 42-45).
 12

At the time of their rapid growth, Asian countries (notably Malaysia, Indonesia,
Thailand) conformed least to the ideal of good governance. Corruption and high
levels of arbitrariness did not deter high levels of investments. On the other hand, the
Philippines, in a reversal of this paradox (exception validated the rule), limped along a
long history of formal democratic institutions associated with mediocre economic and
social performance.
 13

Box 2

Corruption: A parallel view

Corruption, as a systemic problem, does not exist in a vacuum. It is reinforced and preserved
by two cycles involving human interaction. Each one feeds into the other, in the process adding to the
weakness of existing institutions.
On the supply side, corruption begins in the context of frail institutions (see Figure 5). This
suggests that the vulnerability of already established systems of control greatly affect the demeanor of
individuals and groups. Weak institutions “allow” informal, tradition-bound norms, such as patronage
and clientelism, to dominate bureaucratic practice. They also provide a fertile environment for abuse of
power, and the rise of monopolistic structures. Both formal and informal conventions lead to poor
policy and law enforcement. Laws can be effortlessly circumvented when oversight bodies can be
easily co-opted.
Political patronage and usurpation induce high-reward, low-risk rent-seeking activities,
regulatory capture and the trading of policies (as if they were part of a business deal). Such
“structural” distortions impair the efficient and effective functioning of government operations,
resulting in low productivity, wastage of scarce resources, and poor delivery of basic services. They in
turn represent a further assault on already weak institutions, and the cycle starts anew at this point.
On the other hand, the demand side explains this institutional Achilles’ heel from a
consumer’s standpoint. Weak institutions, to repeat, have a severe impact on productivity, use of
resource inputs and effective delivery of services. These manifest themselves as bottlenecks in current
processes, restricted access to facilities and resources, and other forms of constrictions and
inefficiencies. Quick fixes are a favorite recourse in easing restraints in government activities as
diverse as contracting, licensing, public works and textbook supply. That allows suppliers of quick fix
services (patrons and fixers) to provide a means to those who badly need to acquire goods and services
from government---for a fee, of course. Resort to patronage, bribery and employment of fixers make
their way into the menu of options available to customers.
Acceptance of these methodologies coupled with weak deterring tools encourages an
environment where incentives for change are few (since transaction costs are perceived to be greater
when following the legitimate course), investment in reforms is low (why bother when everyone else is
doing it---the collective action hurdle) and public apathy is pervasive (corruption is treated as a normal
phenomenon). Social and political institutions, in the public’s view, hardly represent the voice and
interest of the people. That puts a further handicap in the functioning of government, ensuring the
permanence of a low-level equilibrium trap occasioned by weak institutions.

Figure 5. The tie that binds

 14

There was an episode of authoritarianism under Marcos (1972-1986), which

experimented in its early years with setting up industrial conglomerates akin to those
of Korea. But the experiment failed as cronyism reared its ugly head and dominated
the political landscape. The People Power Revolution in 1986 (dubbed EDSA I)
produced a reversal. The framers of the 1987 constitution shunned “further costly
experiments with dictatorship and instituted clear rules for turnover and succession, as
well as controls on discretionary behavior” (De Dios and Esfahani, 2001). At the
same time, it gave the executive strong authority within democratic limits, to avoid
the risks of a policy gridlock with the legislature.

The result, according to De Dios and Esfahani, is a halfway house---a regime that has
neither consolidated power under strong central control (but with political interests
still tightly aligned) nor indefinite tenure, and hence, could neither experiment with
huge risks freely, nor secure long-term policy stability. Its saving grace was that its
risk aversion to wagers spared the country from too much damage arising from the
Asian financial crisis in 1997-1998. In contrast to its high-performing neighbors, it
avoided “large mistakes made in the form of sectoral overinvestment or social and
economic discrimination, (which) laid the basis for social conflicts.” It is the
Philippines’ bad luck (or good fortune, depending on how one views it) that it has
avoided both centralization and indefinite tenure. But these institutional choices that
could forestall an unstable situation for the Philippines may also prevent it from
developing rapidly. The price of a halfway house is a halfway performance, with no
more possibility of spectacular growth.

Again, from De Dios and Esfahani: No changes in governance in the Philippines have
occurred that suggest it will henceforth be able to grow at rates shown in the past by
high-performing East Asian countries. Investment costs are likely to remain as high
(and therefore investment just as low), owing to corruption rents and inter- and
intraregime uncertainty. Owing to a constrained regime where interests are closely
aligned (relative to a well-run authoritarian government), the system is likely to
extract more corruption rents and generate greater policy instability among investors.
Owing to term limits which promote regular turnover which in turn threaten policy
continuity, policy instability and investment costs are also likely to be greater.

Yet, for all its weaknesses, the Philippines is far from being a failed state. After all, a
mediocre score is still a conditional passing mark. To slip into a critical rating,
institutions have to collapse dramatically―something unlikely to happen in the
Philippines. But that score precisely puts the country in a middling status, unable
either to soar up or go under. Nonetheless, the country has little choice but to push
reforms a little harder than usual to break out of this crippling environment. To do
nothing is to let already weak institutions waste away or degrade to a state of
inertness.

What is to be done then, particularly in the anti-corruption arena? Given a vulnerable

institutional and policy environment, anti-corruption programs have to be carefully
selected and tested to see if they will survive – and eventually outstrip – these limits.
This process combines judgments about both how suitable the particular intervention
is (which suggests targeting) and how important such anti-corruption initiative is
compared to any other (potential for welfare gains) (Huther and Shah, 1998). But
beyond any particular initiatives is the need to “orchestrate” anti-corruption efforts in
 15

a harmonious way, and link them decisively with other institutional strengthening
drives. Individual attempts can remain isolated and stuck in a low level trap if they
are not brought to a common action that involves other initiatives. Such a view
implies a powerful case for a “big push” as a way of breaking out of this trap and
getting a virtuous cycle going. If the fight against corruption and for strong
institutions can be started on a sufficiently coordinated scale, it will be self-sustaining.

What gives glimmers of hope is that the World Bank’s governance scorecard does not
describe an unambiguous and unchanging situation. Following Kaufmann and Kraay
(2005), it is potentially informative of a country’s position over time. As a heuristic
device to underscore the pattern of governance existing in the Philippines and gauge
the nature of governance issues confronting the country, it is neither an absolute nor a
final classification of the country on these given dimensions of governance. In fact, it
might be more important to know in which direction (overall trend over time) the
country is moving rather than its position at any given time. As Huther and Shah
(1998) explain, “countries can zigzag, progressing on one dimension of governance,
falling behind on the other or moving ahead on both fronts simultaneously.” No
matter how hard, the real challenge is how to achieve breakthroughs and continuous
improvement.

III. ASSESSING ANTI-CORRUPTION POLICIES: MOSTLY WEAK

LINKS AND A FEW BRIGHT SPOTS

The Philippine experience in combating corruption to date has produced largely

mixed results. To be sure, the clientelist nature of the political system has conditioned
the responses of the political actors to corruption, and, thus, set the equilibrium level
of corruption. But to a significant degree, this lack of enduring success in governance
has been occasioned by choices made by the country about institutional structures,
which in turn, set in motion path-dependent growth patterns and shape incentives for
haphazard changes. These institutional choices, old and new, represent a binding
constraint on further progress in anti-corruption reform.

From time to time, windows of opportunity open up and clear the way for better
institutional options. For instance, the downfall of President Estrada in EDSA II on
charges of corruption opened a rare policy window to put anti-corruption on top of the
national agenda. The three (3) elements (i.e. problem, policy, and political streams)
identified by Kingdon (1999)20 that are indispensable to moving a vital issue (in this
case, anti-corruption) onto formal government agenda were all present after Gloria
Macapagal-Arroyo took over as president in 2001. The problem stream was ripe: a
majority of Filipinos believed that corruption was a priority problem.21 The political
stream was perfect: President Arroyo vowed during her inauguration to promote good
governance based on a sound moral foundation, a philosophy of transparency, and an
ethic of effective implementation. The policy stream was fairly developed: at that
time, a comprehensive set of policy solutions to reduce corruption in the country had
20
The problem stream refers to the perceptions of problems as public problems requiring government action. The
political stream is composed of such factors such as swings of national mood, administrative or legislative
turnover, and interest group pressure campaigns. The policy stream consists of experts and analysts examining
problems and proposing solutions to them (Kingdon, 1999).
21
Edsa II is about political corruption. People are outraged by political corruption rather than administrative
corruption because they don’t know that giving bribes and dealing with fixers contributes to corruption.
 16

been formulated and proposed by local think tanks like the Development Academy of
the Philippines22 and international organizations like the World Bank and the Asian
Development Bank.23

To a certain extent, the three branches of government (i.e. the executive, legislative,
and judicial branches) took advantage of this unique policy window to introduce
major anti-corruption reforms. Business groups and non-governmental organizations,
not to mention the media (the exposés made by the Philippine Center for Investigative
Journalism24 are worth mentioning here) also hurdled problems of collective action
not only to put pressure on the government to curb corruption but also to implement
on their own projects that complemented the anti-corruption efforts of the
government. It was a rare historic conjuncture for all governance stakeholders.

The Executive branch (led by President Arroyo) did attempt to put anti-corruption
back on center stage. The Arroyo administration has adopted both administrative and
legislative initiatives to reduce corruption. President Arroyo revived the Presidential
Anti-Graft Commission to pursue the investigation of allegations of corruption against
her appointees. Under a collaborative arrangement with anti-corruption agencies, the
administration conducted lifestyle checks on government officials with the rank of
director and above, which led to the filing of administrative and criminal cases against
suspected officials. The government increased the number of
prosecutors in the Office of the Ombudsman which improved
the OMB’s conviction rate. A new procurement law now
tightens procedures in government purchasing. Likewise, a
new government accounting system has strengthened public
financial accountability. New tax administration measures
in the Bureau of Internal Revenue hope to minimize
opportunities for corruption and abuse (NEDA, 2004). The
Executive Department also has directed national line agencies to prepare their
Integrity Development Action Plans (IDAP), a collection of 22 agency-level measures
on corruption prevention, deterrence and education.

Of these series of actions, a relatively good number, seen on their own terms, proved
equal to the task. But generally, they were rendered powerless by poor institutional
choices, unskillful and ineffective interaction, and lack of inter-agency harmony.

22
In its 1999 study on how to combat corruption, the World Bank recommended nine critical areas for the
Philippine government to address: (1) reducing opportunities for corruption through policy reforms and
regulations, (2) reforming campaign finance, (3) increasing public oversight, (4) reforming budget processes, (5)
improving meritocracy in civil service, (6) targeting selected departments and agencies, (7) enhancing sanctions
against corruption, (8) developing partnerships with the private sector, and (9) supporting judicial reform. In
response, the Development Academy of the Philippines, upon instruction of the Office of the President, formulated
a National Anti-Corruption Plan which adopted a three-pronged approach to fight corruption: prosecution,
prevention, and promotion of intolerance on corruption. The plan includes a Ten-point Jumpstart Anti-Corruption
Program for immediate execution, which became the basis of many the initiatives undertaken by the Philippine
government.
23
The Asian Development Bank and the Organization for Economic Cooperation and Development (OECD)
jointly developed an “Anti-Corruption Action Plan for Asia and the Pacific”, which the Philippines subsequently
endorsed in November 2001 as a viable framework with which to design and implement a national anti-corruption
program.
24
The PCIJ exposé on former President Estrada paved the way for the filing of impeachment charges against him
in 2000. Since the 1990s, the PCIJ has conducted and published damning investigative reports on the misuse of
pork-barrel of congressmen, textbook procurement scam, election fraud, and lifestyle checks.
 17

Notwithstanding its achievements, the government

recognizes the need to strengthen its efforts and build a
track record of success. Among the issues it needs to
address are: (a) weak enforcement of anti-corruption
laws; (b) coordination among anti-corruption agencies;
(c) low social awareness and high tolerance for
corruption; (d) institutionalizing government-civil
society-business collaboration; and, (e) enhancing
integrity and accountability in government-business
transactions. Toward these ends, the government has outlined three
areas of reform in the Medium Term Philippine Development Plan
2004-2010. These reforms focus on: (1) enforcement of anti-
corruption laws and other mechanisms to make corruption a high-risk, low-reward
activity; (2) preventive measures to minimize opportunities for graft and corruption
and ensure that systems are corruption resistant; and (3) promotion of zero tolerance
for corruption through education, value-formation and advocacy (NEDA, 2004).

The next sections discuss in detail the mixed, and often checkered, anti-corruption
record of the country in the last five years.

State Capture: When Economic and Political Forces are Closely Aligned

The Marcos regime left a legacy of tightly knit relationships between central
government and big business. Political and economic exchanges were and, still are
often based more on informal and personal relationships than on market transactions.
Further stimulated by a presidential system that concentrates decision-making power
in the hands of a rather small political elite, the close tie-up between big business and
government can be seen as one of the chief causes of corruption in the Philippines.
Rules have not been able to adequately sort out the coupling of private and public
interests. State capture is evinced by these interlocking links, subverting institutions
and raising prospects that they are endogenous to the variety and strength of control of
vested interests. When economic and political forces are closely aligned, the very
actors which must adopt and implement policies to curb corruption may face weak, or
even negative incentives to do so---all the more so when institutional rules of the
game affect resource accumulation strategies (Fritzen, 2006).

The anti-money laundering law illustrates the difficulty facing reformers in countering
the “ties that bind.” Legislation, as a formal channel of interest intermediation and
alignment, provides circuitry for state capture. A breakthrough in the end---Congress
passed an acceptable law---came only because of outside pressure.

Money-laundering, which by definition is a high-stakes operation involving the

collusion of factions of the elite, the banking sector, and international “brokers”, as
well as the acquiescence of legislature (through the lack of sanctions), stands at the
heart of attempts to break intra-elite alignment. In 2000, the Philippines was included
in a list of 15 countries described as ‘non-cooperative’ in worldwide efforts to counter
money laundering because of its Bank Secrecy Law and the absence of bank reporting
systems. In response to this blacklisting by the Organization for Economic
Cooperation and Development (OECD) Financial Action Task Force (FATF), the
Philippine Congress passed Republic Act No. 9160 otherwise known as the Anti-
 18

Money Laundering Act of 2001 (AML 1) to define and criminalize the act of money
laundering, provide penalties for the crime, and establish the Anti-Money Laundering
Council (AMLC) to enforce the regulation. AML 1 however did not serve as a
persuasive justification for systemic change in the anti-money laundering effort.
Because of the high threshold for scrutinizing suspect money (PhP4 million), and the
need for court order to enforce it, in effect it preserved the alignment of private
interests, with legislators facing a lame incentive to “rock the boat.”

Elected representatives are susceptible to powerful elite forces out to bend the state to
their will because they have no social coalitions behind their position (Igaya, 1999).
The institutional weakness of the Philippine Congress is in a way a reflection of the
weakness of Philippine political parties, to which legislators belong. Political parties
in the Philippines are not based on class or ideological differences---they carry no
development paradigm. Hence, Congress is a point of political access for purchasing
major influence over government policy. Arguably, major legislators are the focus of
demands to align Congressional preferences with the interests of firms and individuals
seeking (or maintaining) influence over public policy.

Unsurprisingly, the FATF maintained the Philippines in its list, since the law did not
pass the “benchmark” requirements. Hence, the Philippine government was forced to
pass a remedial measure. The turnaround came in March 2003, when, under pressure
from the international community, Congress amended the Anti-Money Laundering
Law to (1) provide authority to the AMLC to scrutinize bank accounts without a court
order and (2) reduce the threshold amount to PhP0.5 Million. Without these
important amendments, which brought AML 2 at par with international standards, the
FATF had threatened to impose countermeasures against the Philippines. The change
of heart came about as the number of independent agents that became involved in
anti-money laundering policy-making and procedure-setting increased, diminishing
the degree of power concentration among colluding factions in government and
business. Without a countervailing pressure from domestic and international anti-
money laundering coalitions, AML 2 would not have passed muster. This one “bright
spot” suggests that when incoherent interests transcend their own collective action
hurdles, and build up into a compelling force that is brought to bear on state power, it
is possible to override state capture.

As of March 2003, the AMLC had frozen PhP954 million in four hundred fifty (450)
accounts (World Bank et. al, 2003). AMLC has filed 68 cases in 2005 and 21
additional cases in 2006. AMLC achieved its first landmark (conviction) in June 2006
(AMLC, 2006).

The new law at least induced spillovers---the Supreme Court has taken steps to
strengthen its own rules on asset forfeiture in money laundering to guide courts in
cases related to the freezing of assets and forfeiture. This was seen as a part of the
overall goal of intensifying measures against money laundering. The high court has
likewise conducted training on new rules and relevant topics to improve the capability
of judges and prosecutors in their treatment of money laundering cases. An
interagency task force led by the Ombudsman is also working towards prosecution of
corruption with money laundering.
 19

State capture also suggests purchase of laws and policies to get both the legal
framework and the policymaking process out of shape---in a systematic striving for
concentrated rents (World Bank, 2000a). Captor firms seek to shop for privileges a la
carte directly from the state---such as individualized protection of their initially
weaker property rights (World Bank, 2000b). Again, Congress is an easy target in
this regard. A possibly captured legislation is the new “sin” tax on cigarettes and
alcoholic beverage. The Sin Tax Law (Republic Act No. 9334)), which increased the
tax rates on cigarettes and alcoholic beverage, became effective January 1, 2005. First
of all, this tax bill had been contemplated as early as the 12th Congress as an urgent
measure to address the country’s mounting fiscal deficit but was not passed until after
the 2004 elections. Although politicians have weak inducements to pass a tax
measure on an election year---the possible costs to their re-election would outweigh
any social benefits to their constituents---the reason for the ho-hum attitude had to do
more with the strong tobacco lobby. Indeed, after sensing strong resistance from
lawmakers sympathetic to low-priced cigarette and alcohol makers, as former Finance
Undersecretary Milwida Guevarra put it, the executive department itself watered
down the provisions of the bill so that it would pull through in Congress (Journal of
Congress, 2004).

After a long haggling among the executive department, the cigarette firms and the
lawmakers, the new “sin” tax law still contains the distortionary provision of the
National Internal Revenue Code which gives undue advantage to low-priced cigarette
manufacturers such as Fortune Tobacco.25 The National Internal Revenue Code (of
1996) fixed the tax rate for existing brands. By not reclassifying old brands (they
retained the low levies enforced since 1994), the government lost millions of pesos in
revenues. In the final version, the tax rate increase for low-priced cigarettes is much
lower than the tax rate to be imposed on other brands. Such innocuous rider is
unlikely to attract much public or press attention, but is of major benefit to a particular
donor. Accordingly, the new brands that will be manufactured after its passage will be
priced as dictated by the manufacturer and this price will become the initial base of
taxes. The Bureau of Internal Revenue is supposed to conduct a survey in order to get
the correct retail price so that it can determine the correct taxes that will be imposed
on the new brands. But BIR failed to do so.

There was a strong lobby not only from new brand manufacturers, but also from noted
economists, to level the playing field and enable government to raise more taxes.26
The Arroyo administration promised to rectify the distortion but later retracted its
position. Actually, Congress sidestepped a proposal to index the sin tax rate to

25
The company is owned by tycoon Lucio Tan who also owns the Philippine Airlines and the Philippine National
Bank. He is a known big contributor to many electoral campaigns. As PCIJ puts it, “In this country, it is the field
of contributors that is limited. The money comes mostly from Filipino-Chinese businesspeople; the bigger players
are the likes of Lucio Tan and Eduardo Cojuangco, whose hearts, minds, and pocket the candidates have to
compete for. In exchange, candidates promise them the moon, the stars, and even a piece of the economy” (PCIJ,
2004:1)
26
Former Finance Secretary Jose Isidro Camacho had earlier pointed out that because the National Internal
Revenue Code did not allow for a reclassification of tobacco and alcohol products introduced in the market before
October 1996, the government had lost PhP40 billion from 1999 to 2002; and that from Fortune Tobacco alone, the
government had lost some PhP28 billion due to the non-reclassification of their old brands. He further said that
according to the Department of Finance, the reclassification of all brands based on the prevailing price of cigarettes
could generate the government PhP27.7 billion compared to only PhP6.8 billion that can be generated by a 20
percent increase under House Bill No. 3174 (Journal of Congress, 2004). The final version version passed by
Congress was estimated to yield PhP15 billion but enforcement of the law yielded only PhP2.96 Billion by the end
of 2005, 80 percent less than the target.
 20

inflation, with Standard and Poor suggesting that the entire legislative exercise was
“not encouraging because of … what its passage demonstrates -- that vested interest
has a huge influence in the passage of reform measures” (Journal of Congress, 2004).
In the main, with few exceptions like the anti-money laundering law, state capture has
encoded advantages in both old and new rules and institutions for narrow vested
interests. The state remains appropriated by the alliance among political and economic
elites in many fronts.

Institutional Barriers to Casting a Wide Net over Corrupt Acts

If it were to cast a wide net, the anti-corruption campaign ought to have substantial
economies of scale and scope---appropriate bundling of various ex-ante (integrity
building) and ex-post (prosecution) elements, and benefit spillovers. Seen in this light,
how should anti-corruption “services” be assigned to executing agencies?

That indicates at least two types of agencies or institutional arrangements to support a

wide-ranging process. The first is one that can, on its own, “radiate power” and
deploy an array of tools for enforcing sanctions against corruption. Its approach could
be described as combative, or wielding “a big stick with raised eyebrows,” the central
idea behind which is deterrence, often making it regrettable for government officials
not to comply with the regulations. The second type is one that can coordinate the
anti-corruption campaign across different instrumentalities, ensuring that each unit or
office has access to instruments most appropriate to its own initiatives.

Consider the first type of institution first. Three factors are central to a well-designed
institution: independence of approach, adequate resourcing, and sound methodology.
If agency autonomy were the most important factor, obviously the Office of the
Ombudsman would fit the description. It is formally, statutorily independent from all
government agencies.27 The 1987 Constitution ensures not only its independence, but
its existence (Congress cannot abolish it). There are a number of issues hounding the
exercise of its autonomy, but consider the two other factors first.

For quite a long time the OMB has been faced with scarce resources, rendering its
power to impose sanctions ineffective. As a rule, the public has not been pleased with
government’s efforts to weed out corruption due to the slow progress in the
prosecution of high profile corruption cases. It is estimated that, on the average,
corruption cases in the Philippines are tried for a period of six-and-a-half years. The
country’s historical low conviction record contributes to the perception that corruption
is a low-risk activity, thereby weakening deterrence. This weakness is being attributed
to the inadequate capacity and resources of OMB (and the country’s anti-graft court---
the Sandiganbayan--- as well) to investigate and prosecute corruption cases. As the
Political and Economic Risk Consultancy, Ltd. (PERC) observed, the country’s anti-
corruption forces are ill-equipped and lacking financial resources to do their jobs
efficiently (PERC Survey Issue No. 667).28 In 2002, only 32 prosecutors from the
27
At one point, it even argued that the Supreme Court should leave it alone, in the Comelec case, as the Supreme
Court instructions compromised its independence. But obviously it could not be above the law itself, since the
Supreme Court is the supreme arbiter of the land.
28
The Office of the Ombudsman pales in comparison with the Hong Kong Independent Commission Against
Corruption (ICAC) in terms of personnel, budget and compensation. ICAC has 1,326 personnel for a bureaucracy
of 174,175 officials and employees and for a population of 6.8 million, while the OMB has 1,141 personnel for a
 21

OMB were handling a backlog of around 2,000 cases swamping the Sandiganbayan.
Here, it must be said that prosecution has high costs, and will not remain a credible
threat to offenders if enforcers are unlikely to see court proceedings through due to
budget limitations.

To break away from this languor, the Arroyo government strengthened an under-
resourced, poorly-equipped OMB by infusing it with a new leadership and supporting
that leadership with a larger budget. The appointment of Simeon Marcelo in October
2002 as the third Ombudsman reinvigorated the national campaign against corruption.
Having played a significant role (as private prosecutor) in the impeachment trial of
President Estrada, Marcelo’s appointment as Ombudsman delivered a powerful,
although subtle, message: corrupt officials remaining in government would also be
prosecuted without let-up. With the cooperation of Congress, the government steadily
increased the budget of the OMB. From an annual budget of around Php480 million,
OMB’s budget rose to PhP532 million in 2003, PhP520 million in 2004, and PhP638
million in 2005.29

The larger budget allowed Marcelo to hire additional field investigators and
prosecutors. USAID-supported capacity building programs on trial advocacy, forensic
accounting, financial and fraud audits, and field surveillance and investigation
complemented the increase in operations personnel. The significant improvement in
the quantity as well as the quality of field investigators and prosecutors resulted in a
tangible bottom line for the Office of the Ombudsman: its conviction rate
dramatically improved from a low of 13 percent in 2002 to a decent 33 percent in
2005. However, unofficial estimate as of mid-2006 places the conviction rate at 12
percent. If this doesn’t improve at yearend, it only indicates how fleeting reforms can
be in a weak environment.

Is the increased budget allocation sufficient to support the use of an adequate

methodology? The Ombudsman raised the certainty of punishment by implementing
a double-docketing system of both criminal and administrative cases. This means that
a criminal indictment may be filed in court upon the finding of probable cause (the
criminal part), and in case where substantial evidence is found, the guilty respondent
will be either suspended or dismissed immediately (the administrative part). The
decisions of the OMB are immediately executory even pending appeal.

Despite the budget infusion, personnel augmentation, and shifts in handling cases, the
investigative and prosecutorial powers of the OMB are still severely limited. First, it
cannot access bank documents at the fact-finding stage. Second, the law does not

bureaucracy of approximately 1,500,000 officials and employees and for a population of more or less 82 million.
Considering the ratio of the number of personnel tasked to secure evidence with the total number of officials and
employees, ICAC has eight hundred thirty seven (837) field investigators, while OMB has thirty-seven (37)
investigators. (Subsequently, 51 investigators were hired in 2004.) This would show that for a bureaucracy of
174,175, ICAC has a ratio of 1:208 as against the OMB ratio of 1:17,241 covering a bureaucracy of 1,500,000.
With regard to budget allocation, ICAC has a total budget of $90million or PhP4.94 billion, while the OMB had
PhP480 million. It also follows that, with respect to compensation, ICAC officials and employees belong to the
highest paid government officials in Hong Kong. On the part of the OMB, while the Philippine Congress has
already passed laws granting substantial increases in allowances to members of the judiciary and prosecutors of the
Department of Justice, the last Congress failed to enact one for the OMB prosecutors and investigators (Office of
the Ombudsman, 2005).
29
Close to PhP1 billion budget was allocated to OMB for 2006 which would enable the agency to hire more
investigators and prosecutors. Unfortunately, the proposed 2006 budget was not passed by Congress.
 22

adequately protect whistleblowers and potential witnesses to corruption cases. Third,

the appearance of private lawyers to augment the prosecutors of the OMB is not
allowed.30 Fourth---and perhaps this is the crux of the matter---the performance of the
Ombudsman is closely linked with the efficiency of the Sandiganbayan.

Efficiency improvements on the part of the OMB can be easily offset by the slow
disposition of cases in the Sandiganbayan. Reforms in the Sandiganbayan are
underway such as reducing docket congestion to improve case flow management.
Nevertheless, such program will not substantially reduce the court’s backlog unless its
capacity is improved by creating more divisions, which will require legislation. The
OMB has been batting for the creation of more divisions in the Sandiganbayan.
Marcelo said that the five-division Sandiganbayan should have at least 10 more
divisions to adequately handle the corruption cases filed by the OMB. Its workload
stands at about 1,718 cases by the end of 2004, with each justice handling more than
400 cases. The existing divisions, in many instances, handle only two hearings for
each case every two months.31

Arguably, even without adequate resource infusion, the OMB has enough capacity to
“get tough” when needed to produce the right climate. If it pursues a few high profile
cases (Comelec computerization, fertilizer scam) with vigor, using more combative
measures, where the use of large penalties is a given, then it could send the right
signals to corruptors. But this raises the issue of how well it is exercising its statutory
independence. To be sure, both the executive and legislative branches still exert some
influence because they provide funding and over time can somehow influence the
functions and therefore the power of the OMB. This can lead to a lock-in of poor
enforcement, especially if the cases have “overflows” that affect either of the two
branches. At this time, the OMB seems to be risk-averse, in spite of prodding from
the Supreme Court to resolve the high-profile cases. It faces risks with asymmetric
returns. It is rare that the OMB will be admonished for concentrating on low profile
cases, but will often face censure from vested interests if an adverse outcome is
realized on the cases attracting much attention and publicity.

That makes the second institutional arrangement worth looking into. To break the
institutional barriers the OMB is facing, a consolidation of anti-corruption forces,
particularly coming from other statutorily autonomous agencies, is a worthy recourse.
These agencies, notably the Commission on Audit, the Civil Service Commission,
plus OMB itself, would be better placed than others---provided they have the
collective will, capability and incentive to fight corruption---in ensuring wider
coordination and presenting a bigger, common front against corruptors. This of
course does not absolve the OMB of its responsibility to take on the high profile

30
In 2005, the Office of the Ombudsman has initiated its Operation Big Fish with the aim to indict and
successfully prosecute fifty (50) of the most prominent and high impact cases identified at the Sandiganbayan i.e.,
the President Diosdado Macapagal Boulevard case, the RSBS pension fund case, the PEA-Amari scam, the tax
credit scam cases, DPWH vehicle repair scam case, PCGG cases, and the Maj. Gen. Carlos F. Garcia case. In these
cases, high-ranking government officials are represented by top-caliber private lawyers. To offset this perceived
disadvantage, the OMB has initiated a project to tap competent private lawyers, with the help of the Coalition
Against Corruption, who will assist its prosecutors in handling these cases.
31
The study conducted by the OMB of the 30 high profile cases pending in the Sandiganbayan recorded an
average of three to four months interval between scheduled hearings in every case, making continuous trial
difficult. The sheer volume of cases being handled by the Sandiganbayan makes it impossible to promptly dispose
of cases. Senator Mar Roxas has filed Senate Bill No. 1970 which seeks to increase the number of divisions of the
Sandiganbayan from its present five divisions to 44 to enhance its capacity to resolve corruption cases.
 23

cases---no one else could do it---but a united front makes for a stronger countervailing
force, and a better shield to resist the power of vested interests to influence outcomes.

In fact, the nucleus of such an alliance already exists. Knowing fully well the
investigative strengths of each of these constitutional bodies, the Civil Service
Commission initiated an effort to forge stronger cooperation with these oversight
institutions. Through the Solana Covenant32, the heads of CSC, COA and OMB
sealed a compact to embrace concrete and doable initiatives against corruption. The
three agencies agreed to join efforts to investigate, prosecute and monitor high-profile
and even lower-level corruption cases, and to undergo and share best practices of
“self-cleansing”. (The OMB and CSC both subjected themselves to an Integrity
Development Review33 before institutionalizing the program in national government
agencies.)

To start with, the CSC and the Ombudsman signed a memorandum of agreement on
jurisdiction over administrative cases, to declog the OMB and also to avoid forum
shopping. Both parties agreed that the CSC shall take cognizance of all administrative
cases concerning first level employees. At times when more than one respondent is
involved belonging in the second and third level, jurisdiction over the highest- ranked
respondent shall determine which agency has jurisdiction, in this case, the OMB.34
This is now operational. Declogging has the advantage of relieving the Ombudsman
of the pressure of handling cases that may be numerous, but whose impact is quite
low. These cases should be left to the lower courts and not addressed by a central
body. Contrast that with a small number of high profile cases to be addressed by
OMB, whose consequences for deterrence would be great. In a way, declogging has
left plenty of elbow room for OMB to focus on the high profile cases. It is unlikely to
justify further OMB indifference on settling these cases conclusively and
convincingly.

More importantly, the OMB and CSC are also in the process of linking their databases
on the SALN of government officials and employees, and enhancing their procedures
to enhance compliance and monitoring. The complementation of these three agencies
contributed not only to reinforcing each other’s capabilities but to the successful filing
and conviction of corruption and lifestyle check cases. COA, for its part, has not been
as active as the other two, perhaps because of the ex-post nature of its auditing work.

32
The Solana idea came from CSC Chair Karina David. Solana was an attempt of the three constitutional bodies to
embark on a joint effort. The SOLANA Covenant I was signed in March 2004. The Solana II Covenant, signed in
July 2005, lays down continuing activities, and new initiatives against corruption in the government.
33
Integrity Development Review entails a systematic diagnosis of an agency’s vulnerability to corruption and the
corruption resistance mechanisms in place to forestall wrongdoings. IDR was developed by DAP with funding
from USAID. The Department of Education is the first line agency that underwent integrity review. The CSC
initially employed the IDR, but having seen it tedious, they developed their own customized pre-vulnerability
assessment/ diagnostic tool to make the measure more user- friendly and less- time consuming. A computer
program developed by the CSC supports this mechanism.
34
More so, the OMB shall take responsibility of handling complaints involving second and third level officials and
employees involving: (a) direct, indirect, and qualified bribery, (b) fraud and illegal exactions, (c) malversation or
illegal use of public funds or property where the amount involved is more than one hundred thousand pesos (PhP
100,000.00), (d) conflict of interest or divestment, (e) homicide and murder, (f) corrupt practices, (g) unexplained
wealth, (h) violation of procurement rules and regulations, (i) violation of Anti- Money laundering Act of 2001,
and (j) plunder. However, second and third level officials and employees (non- presidential appointees) with
charges do not concern any of the aforementioned violations, the CSC shall have jurisdiction. But as an exemption,
when charges are pressed against CSC and OMB officials and employees, the mother agency shall take cognizance
of the cases. To maintain the clear delineation of jurisdiction, a certificate of forum shopping shall be required for
all administrative complaints filed in both agencies (CSC, 2005: 17).
 24

But two of its recent moves, although isolated, are worth mentioning. In order to fast-
track cases on erring personnel, COA issued guidelines on the immediate liquidation
of cash advances. COA further tightened rules by issuing a policy on irregular,
unnecessary, excessive, extravagant and unconscionable expenditures (COA, 2004).

A cursory counterfactual assessment of the alliance would suggest that even without
it, the above actions would have taken place, say through bilateral measures or
individual moves. What remains untapped within the alliance is how the
constitutional guarantees of independence that each agency enjoys can translate into
collective power that it can utilize to further the cause of anti-corruption, and resist
pressures from entrenched interests to undermine major initiatives. For surely the
alliance can be a countervailing force that can ensure that the high level bureaucracy
cannot consistently ignore the anti-corruption initiatives without a heavy price. The
strong commitment of these three constitutional bodies to address the problem of
unliquidated cash advances is a clear example of how collective will can take place.
The issuance of COA Memorandum No. 2004- 14, complemented by CSC Resolution
NO. 04-0676 (Policy Guidelines to Govern the Liquidation of Cash Advances and the
Penalty to be Imposed for Failure of an Accountable Officer to Liquidate within a
Prescribed Period) and an OMB Memorandum to immediately act on cases filed,
resulted in a visible improvement in cash advance settlement (CSC, 2005: 22-24).
With COA rendering endorsements, CSC issuing letters to respondents and filing
cases against non-compliant individuals, and the OMB prosecuting violators, a
tripartite synergy will be a strong deterrent to purposively negligent and irresponsible
government officials and employees.

Apart from the Solana alliance, offices that are close to national leaders can also carry
clout, because they control access to those leaders, which can be as valuable as
controlling resources. They can tie up and overcome collective action as well. A good
example is the Lifestyle Check, initiated at the level of the executive offices. Through
the efforts of the Office of the President-Transparency Group, Department of Finance
and members of the Inter-Agency Anti-Graft Coordinating Council (IAAGCC)35, a
memorandum of understanding was signed in 2003 creating the Lifestyle Check
Coalition (LCC) which includes 14 government agencies and non-government
organizations. In the agreement, the OMB, the CSC, the COA and the Presidential
Anti-Graft Commission, plus the heads of agencies as primary disciplining authority,
would cooperate in handling the administrative aspect of the lifestyle check process,
specifically in providing information, determining the administrative culpability, if
any, of the accused officials, and in imposing the appropriate sanctions. The OMB
handles the criminal aspect of the lifestyle process, specifically in filing appropriate
cases in court and prosecuting officials who failed the lifestyle check. The coalition
aims to pools the expertise, resources, and manpower of its members in spotting leads,
obtaining information and prosecuting public officials whose manner of living does
not correspond to the income they receive. The coalition began in earnest an

35 The IAAGCC is composed of anti-graft bodies such as the Office of the Ombudsman, PAGC, Commission on
Audit, Civil Service Commission, Department of Justice, and the National Bureau of Investigation. The Lifestyle
Check Coalition, involving other line agencies, non-government organizations and civil society groups such as
Catholic Bishops Conference of the Philippines-National Secretariat for Social Action, Transparency and
Accountability Network, Citizen National Network Against Poverty and Corruption, United People’s Against
Crime, Citizens Battle Against Corruption, Philippine Government Employees Association, National Association
of Corruption Prevention Units, and the National Youth Commission, was organized.
 25

aggressive scrutiny of off-workplace conduct of government officials in order to

gather evidence of dishonest gain.

The product of one is a reactant in the next. Along some kind of a chain reaction,
lifestyle checks groups blossomed in other sectors, including six key agencies i.e. the
Department of Finance, Department of Agrarian reform, Department of Health,
Department of Public Works and Highways, Department of Environment and Natural
Resources, and Department of Education. The Office of the President also conducted
its own the lifestyle check on the officials and personnel of the two corruption-prone
revenue collection agencies, the BIR and the BOC, while the OMB was asked to
concentrate on all other government officials holding positions above salary grade 25.
As of 2005, two high-ranking officials of the DPWH, six from BIR and six from BOC
have been suspended, removed from government service, sanctioned by the OMB, or
charged before the Sandiganbayan for failing the government’s lifestyle check. 36

Coordinated moves within a sector on a smaller scale could also spell the difference
between success and failure. The initiative of the Department of Finance and the
Bureau of Internal Revenue to join hands in running after tax cheats and delinquents
can be said to be an important breaching of a barrier in an enemy's defense, although
arguably tax evasion is not an act of corruption (if no bribery is involved). The
Philippine government has been losing big revenues due to tax evasion. The National
Tax Research Center reported that from 1998 to 2001, income-tax evasion rates
among corporations was 38 percent; among professionals, 69 percent; and among
wage and salaried workers, seven percent. The average income-tax evasion rate across
all sectors is 35 percent. Based on NTRC figures, government lost an average of
PhP127 billion a year in uncollected taxes, about PhP85.4 billion of which were from
evasion of income taxes.

In early 2005, the DOF Secretary Cesar Purisima and BIR Commissioner Guillermo
Parayno set a “high-profile chase” of tax evaders. The Run After Tax Evaders
Program (RATE) seeks to investigate criminal violations of the National Internal
Revenue Code of 1997 and prosecute criminal cases that will generate the maximum
deterrent effect, enhance voluntary compliance, and promote public confidence in the
tax system. RATE is a no holds barred effort, which at the outset targeted prominent
individuals and corporations to send the message that the government is serious in
reducing tax leakages.

In March 2005, among the high profile individuals and companies charged with tax
evasion included a member of the Cabinet, a military general, three celebrities, a
talent manager, a basketball player, a fitness trainer, a plastic surgeon, and a pre-need
company. Outside this program, the BIR continued to pursue a PhP25-billion tax
evasion case against tycoon Lucio Tan and 69 others before a Marikina City trial

36
Based on OMB reports, the following officials have been dismissed; one Undersecretary and Regional Director
from DPWH; one Deputy Commissioner and 5 other officials of the BOC; one Assistant Commissioner, one
Regional Director, one Assistant regional Director and three other officers of the BIR. The Ombudsman has also
filed cases against: (a) retired Major General Carlos F. Garcia for plunder, perjury and forfeiture of unexplained
wealth; (b) Lt. Col. George A. Rabusa, Maj. Gen. Garcia’s former aide, for perjury and for forfeiture of
unexplained wealth; and (c) former AFP Chief of Staff, Gen. Lisandro C. Abadia for forfeiture of unexplained
wealth and perjury (Office the Ombudsman, 2005).
 26

court.37 Then BIR Commissioner Parayno attributed the Bureau’s record PhP63
billion collection in April 2005 to the success of RATE.

Even after the resignation of Secretary Purisima and Commissioner Parayno, the BIR
continued the RATE program. As of February 2006, the RATE team has filed 47 (44
from 2005 and three in early 2006) criminal charges against certain companies and
prominent individuals with the Department of Justice.38

Very few of these cases have prospered so far; however, with BIR losing a number
due to reversals39 by the DOJ. Watchdogs observed that the RATE program lost
luster under the new BIR Commissioner when he announced in July 2005 that the
Bureau is open to compromise agreements with taxpayers with pending cases.40 A bill
amending the National Internal Revenue Code (House Bill No. 4774) has been filed in
Congress to give BIR the sole power to administer tax evasion cases instead of
referring it to the DOJ. BIR’s referral to the DOJ of tax cases for determination of
probable cause has become another bureaucratic layer that has considerably slowed
down the resolution of tax cases.

According to the theory of optimal deterrence, “expected penalties” should be set

equal to the social costs of the crime, where expected penalties are the amount of the
penalty multiplied by the probability of being detected and penalized. If the
government were unwilling to impose high penalties on persons or firms being
prosecuted (which lowers the probability of being penalized), government initiatives
(like RATE) would lack credibility, and would induce public pessimism over the
entire effort (Dee, 2006).

DOJ reversals and slow prosecution of cases illustrate the serious difficulties that
RATE encounters, especially if it stepped on the toes of highly placed officials.
Giving DOF quasi-judicial functions to administer the cases might give it more boost,
but it would not solve the problem of “being too close” to the levers of power.
Additionally, RATE, despite its laudable objectives to plug tax leakages, is hampered

37
The BIR filed the first case of tax evasion on September 7, 1993 for nonpayment of correct income tax, VAT
and ad valorem tax for the year 1992. Two similar charges for tax evasion for the years 1990 and 1991 were
subsequently filed. The cases were eventually raised to the Regional Trial Court, the Court of Appeals and twice
to the Supreme Court. Finally, the Department of Justice on December 1, 1998 filed the nine criminal
informations before the Marikina Metropolitan Trial Court. Recently, the Marikina Metropolitan Trial Court,
citing lack of evidence, dismissed charges that Tan, his Fortune Tobacco Corp. (FTC) and its executives evaded
paying PhP25 billion by not paying the correct amount of taxes on cigarettes from 1990 to 1993 (The Philippine
Star, October 7, 2006).
38
Of these cases, two (2) are pending before the Court of Tax Appeals, four (4) are cases pending before the DOJ
(in favor of BIR), four (4) are pending before DOJ (in favor of respondents), 17 are for resolution, and 20 are still
pending investigation (BIR, 2006).
39
The DOJ dropped the RATE against former Agriculture Secretary Arthur Yap and his father. The DOJ claims
there was insufficient evidence against the Yaps, nullifying the BIR complaint against their company DHY Realty.
The BIR alleged that the firm bought a 3.2 hectare property for PhP20.6 million and revised the contract amount
three times down to PhP1 million in order to avoid taxes (Philippine Business Magazine Vol. 12 No. 7). Yap
resigned from office due to the allegations but was later reappointed as Head of the Presidential Management Staff.
The case against singer Regine Velasquez was also reversed.
40 Another RATE case involved Rep. Ignacio Arroyo, one of the country’s richest congressmen. A former
member of the RATE team said Arroyo’s tax case arose from supposedly unreported income and unpaid tax from
his sugar business in Negros. The RATE team was able to trace the discrepancy in the tax payments from the
Quedan certificates, procured from the Sugar Regulatory Administration, that Arroyo’s business issues. The
former RATE team member said evidence against Arroyo had been gathered and set to be drafted as a legal
document. But the case had not been filed at the justice department by the time the so-called Hyatt 10, who include
Parayno and Purisima, resigned from their posts (Rimando, 2006).
 27

by another weakness: strictly speaking, it is not an anti-corruption instrument. The

reason for this is that it does not go after BIR agents who might have been in
connivance with tax evaders, which resulted in the tax misdeclarations in the first
place, or have been conveniently negligent in scrutinizing tax returns. It is
inconceivable that tax evasion would have flourished if no offering had taken place in
order to gain an illicit tax advantage.

A counterpart program, the Run After the Smugglers Program (RATS), was initiated
by the Bureau of Customs in May 2005. RATS focuses on the monitoring of shipped
critical commodities41, specific ports42 and areas prone to smuggling operations43.
Aside from being established as an anti- smuggling program, it likewise serves as an
anti- corruption program44 and a mechanism to intensify prosecution of Tariff and
Customs Code of the Philippines (TCCP) violations. Since its creation, RATS was
able to file 16 cases involving 91 persons in DOJ (BOC, 2006). Three of these cases
have been resolved by DOJ in favor of BOC while majority are pending
investigations and the rest are submitted for resolution.
Save for a few smugglers and customs officers apprehended, there was not much
progress on this end. Based on current statistics, BOC reported that it lacked
resources to implement the program. With recent government infusion of PhP1
billion for anti-corruption, RATS is expected to be put on high gear provided the
additional enhancement measures45 on the program.

Reducing Opportunities, Increasing the Risk in the Philippine Bureaucracy

For decades now, the Philippine public sector has been typified as poorly managed,
where corruption and irregularities have became part of the norm. Bribery, extortion,
pilferage, and falsification of records are just some of the illicit practices perceived to
be rampant in the government sector. Rose-Ackerman (1997) says that whenever a
public official has discretionary power over distribution to the private sector of a
benefit or cost, incentives for bribery are created. The corruption depends upon the
magnitude of the benefits and costs under the control of public officials.

In an attempt to clean the bureaucracy, the Philippine government has carried out
several reforms to knock down discretion and make easier the transition to an
efficient, effective, accountable and transparent civil service. To deal with the
“agency problem” (principal-agent relations), the government introduced measures to
alter incentives, e.g., lateral attrition and procurement reform. The passage of the

41
Includes rice, sugar, vegetables, vehicles, alcohol, oil, used clothing, dangerous drugs, plastic resins, steel and
lumber, and ceramic tiles.
42
These are Manila International Container Port (MICP), Port of Manila (POM), Ninoy Aquino International
Airport (NAIA), and ports of Batangas, Subic, Clark, Cebu and Zamboanga.
43
Smuggling operations are usually found on the areas of valuation, classification, and weight and volume
assessments, and warehousing and transshipment operations.
44
RATS as an anti- corruption program will deal with the professionalization of BOC personnel thru
operationalization of an integrity action plan (which includes implementation of IDR results and training on values
formation), and strengthening of internal audit (concerning the training on business ethics, leadership, etc., and
information campaign).
45
To further strengthen the program, the BOC (1) submitted the modified rationalization plan to DOF integrating
all legal and prosecution/litigation functions in the LPG to institutionalize the RATS Program, (2) submitted to the
PAGC an Anti-corruption proposal that incorporates the budgetary requirement of the LPG, and (3) drafted MOA
with DOJ and Ombudsman to hasten prosecution of RATS/BOC cases.
 28

Attrition Act of 2005 has created new incentives for employees and officials of the
Bureau of Customs and the Bureau Internal Revenue. To deal with “suboptimal
deterrence,” government tried to raise sanctions through the Revenue Integrity
Protection Service (RIPS), and the PAGC. To deal with “regulatory inefficiency”, the
Philippine government pursued the adoption of the New Government Accounting
System (NGAS), the creation of Internal Audit Units, civil service reforms and
corruption prevention programs in order to close the gaps and vulnerabilities of its
systems. All these have good points to offer, but intrinsic weaknesses also make them
suboptimal instruments against corruption.

Attempts to optimize deterrence

To aid in investigation, President Arroyo revived the Presidential Anti-Graft

Commission46 in April 2001 and mandated it to investigate all presidential appointees
(i.e., assistant director up to department secretary) and recommend to the Office of the
President appropriate sanctions (e.g. cancellation of civil service eligibility, dismissal
from government service) to be applied to political appointees who committed
irregular or corrupt practices. From 2003-2005, PAGC investigated a total of three
hundred twenty six (326) cases and forwarded the same to the Office of the President
for the approval of its recommended punitive or non-punitive sanctions. The Office of
the President has affirmed PAGC’s recommendations on two hundred nine-two (292)
of these cases. But the cases upheld by the President do not guarantee favorable
decision by courts.

Of late, the jurisdiction of PAGC has been expanded under Executive Order 531
issued on 31 May 2006. In the new order, other public officials or employees and
private persons who took part in the crime with presidential appointees will be subject
to PAGC investigation. However, an added provision in the directive (EO 531-A,
effective 23 August 2006), which stated that the Executive Secretary may review and
overrule the findings of the Commission, raised concerns on the final outcome of its
investigations. With this set up, decisions on PAGC cases are vulnerable to patron-
client arrangements. Doubts cloud the ability of the Executive Secretary to remove
favor for political allies of the current administration (Philippine Daily Inquirer,
September 1, 2006). This only illustrates the weakness of an executive creation that
has no statutory independence.

Nevertheless, PAGC’s case is neither hopeless nor its efforts futile. Its Integrity
Development Action Plan (IDAP) proves to be a promising project that could lessen,
if not totally remove reservations on the agency’s capability to effectively take part in
addressing corruption. Designed to make corruption a high risk, low reward activity,
the IDAP has 22 doables to be implemented in all agencies under the executive
branch to institutionalize systems of reforms through capability building of personnel
of various units/ offices47 concerned in IDAP. As of August 2006, 98 agencies got

46
The Presidential Commission Against Graft and Corruption (PCAGC) created by President Ramos in 1994 was
the precursor of PAGC. In 2000, President Estrada abolished PCAGC and created the National Anti-Corruption
Commission (NACC) which was patterned after Hong Kong’s ICAC. Because of legal opposition, President
Estrada himself froze NACC (Gonzalez and Mendoza, 2004). When President Arroyo assumed office in 2001, she
revived PCAGC under a new office called PAGC.
47
Such offices includes the internal audit unit, administrative and finance unit (concerning e- NGAs and e-
bidding, integrity check in recruitment and promotion, multistakeholder personnel and organizational evaluation
 29

involved in the plan. This translates to an increase of 56 additional IDAP

implementing agencies from the original 42 in December 2004. For the prevention
component of the plan, the IDAP facilitated the creation of a committee for internal
auditing concerns. The committee was set up to deal with internal audit concerns of
IDAP participating agencies and to guarantee strict compliance of internal audit
systems outlined in each departments submission of their respective Rationalization
and Streamlining Plans to AO 70 and MC 89. Likewise, the committee clarified that
independence of internal audits can be ascertained if housed under the Department.
Commitment to fast track electronic New Government Accounting System and
electronic e- bidding for procurement of goods and services and infrastructure
projects to ensure transparency, accountability and fair competition is manifested in
the completion of e- NGAS roll- out on 27 IDAP-covered agencies in 11 August
2006.

Educating the public is another IDAP consideration. Dissemination of compendium of

laws on graft and corruption among IDAP- covered agencies and providing
downloadable copies of these laws available in the PAGC website aids in informing
not only concerned agencies but the public at large as well. With PAGC’s guidelines
and templates on how to contrive specific code of ethical standards, participating
agencies were able to form their own codes. As of the first quarter of 2006, ten48
government agencies already have their specific code of ethical standards. To help the
uprooting of culture embedded corruption, PAGC has provided IDAP- covered
agencies contact information of organizations or groups capable of rendering ethics
training and spiritual formation of government workforce.

But merely informing and orienting government personnel makes fewer demands to
conformity. Deterrent measures are also imperative integrant of IDAP. Advocacy for
submission of Income Tax Returns as attachment to the Statement of Assets,
Liabilities and Networth (to make sure that government officials and employees live
based on their capability to earn a living), will bring transparency that could gradually
bring back trust of the public. Effectively using existing agency administrative
disciplinary machinery and publication of results of administrative cases handled can
further discourage misdemeanor. Also, the publishing of blacklisted offenders can
hinder a potential wrongdoer to engage in the act given the repercussions of such
deed.

Coordinated work among anti- corruption stakeholders is also part of the IDAP. This
strategic partnership can be materialized through linking of existing databases and
sharing of information among AC agencies, enhancing the participation of private
sector and civil society in various areas of governance, tapping of international
development agencies and private sector support.

IDAP accomplishments are inarguably praiseworthy; however, to assert the success of

the project is immature. More is needed to be seen in the capability of the program to
achieve the doables PAGC has set.

system, and single ID system for government officials and employees), internal complaints unit, and internal
affairs unit.
48
Agencies with their specific code of ethical standards includes the AFP, BOC, Bureau of Jail Management and
Penology (BJMP), DOH, DSWD, GSIS, Land Registration Authority (LRA), LTO, Land Transportation
Franchising and Regulatory Board (LTFRB), and PNP.
 30

To strengthen sanctions for corruption in revenue generation, President Arroyo

created in 2003 the Revenue Integrity Protection Service (RIPS) through Executive
Order 259. As the anti-corruption arm of the Department of Finance, the RIPS is
mandated to investigate allegations of corruption in the DOF and its attached agencies
(e.g. BIR, BOC). If the evidence warrants, the RIPS can (1) file corruption charges
against officials under its jurisdiction before an appropriate court of law or
administrative body, and (2) assist the prosecuting agency towards the successful
prosecution of these cases. Violations based on the examination of the SALN of the
DOF employees and officials (including BIR and BOC) are the primary grounds for
filing of cases to the pertinent prosecuting authority provided the backing of
substantial evidence. Gross neglect of duty, dishonesty, and collaboration of BIR and
BOC officials and employees to acts of tax evasion and smuggling, among others, are
bases for dismissal and civil and criminal charges. As of 2006, RIPS has filed 32
cases in the Ombudsman and fired six BIR personnel.49

It must be said that administrative remedies, such as presidential punitive sanctions

(such as those recommended by PAGC) are easy to dispense and inexpensive to
administer. They lend themselves to quick action and create an ongoing and credible
deterrent (if there is a consistent pattern of upholding recommendations). However,
they are also open to abuse by field officers and those with power to issue penalties
(or reverse them), which may reduce their “moral shock” value. Initiatives that
depend on court action, such as RIPS, are more protracted, and the delays and costs of
court action need to be weighed against the benefits of punitive action. When the
time costs do not justify the expense of court action, prosecutors have less incentive to
pursue cases, and the whole effort may fall apart.

Dealing with the “agency problem” and altering incentives

No matter how reform-oriented the head of revenue collection agency is, he/she is
continually faced with the challenge of aligning the interests of revenue collection
agents (rent-seeking) with that of the agency (meeting revenue targets). Good
incentives and effective sanctions can alter the behavior of corrupt agents. In 2005,
the Philippine Congress passed the Lateral Attrition Law with the intent of altering
the behavior of BIR and BOC officials and employees in collecting taxes, duties, and
other fees more efficiently.50 The law provides incentives and rewards for good

49
Source: Sunstar Manila, February 14, 2006 and ABS-CBN interactive, 2006
50
Early on, the Philippine government attempted to re-engineer the processes of tax and customs administration to
limit the discretion of BIR and BOC officials. The National Revenue Authority bill was filed during the 12th
Congress advocating for the establishment of a performance-based, semi-autonomous, accountable revenue
agency. The bill met strong resistance from BIR employees. Based on TAN’s position paper, the omission of
‘preferential absorption’ (a vital provision of the original draft) in the bill endorsed by Congress allowed this
repulsive response from BIR personnel. To quote, “preferential absorption gives a BIR employee willing to
reapply with the NRA preference over a similarly qualified applicant, all other things – competency and ethical
standards included – being equal” (TAN, 2006).
With regard to potential effectiveness on revenue collection, it is instructive to look into essential contents of the
aforesaid bill. Salient features of the NRA bill were not reflected in the Attrition Act which may have better impact
to the operations of the BIR. Subject in the provisions of the Attrition Act, the Revenue Performance Evaluation
Board has the power to remove any official or employee of the BIR and BOC with poor performance or guilty of
violating to other laws (e.g. Anti- Graft and Corrupt Practices Act). Since the Board Members are all from the
government side, it seems that political intervention has an easy way of penetrating the system of revenue
collection contrary to the NRA bill consisting of four government and three private sector representatives with
 31

performance (exceeding the target collections) and sanctions bad performance

(collections shortfall and other unlawful behavior). The law entitles BIR and BOC
employees to rewards and incentives amounting to 10 percent of the excess over the
allocated target. It sets up an incentives fund from the excess of revenue targets. A
Revenue Performance Evaluation Board51 will prescribe the rules and guidelines for
the allocation, distribution and release of the Fund and set the criteria and procedures
for removing officials and employees whose revenue collection falls short of target.

Theory suggests that corruption is a systemic device for extracting rents and at the
same time, securing loyalty that protects high public officials from bureaucratic
discontent. According to Charap and Harm (2000), corruption serves as a hostage
mechanism to minimize the probability of defection or insurrection by low-level
insiders of the corrupt bureaucracy: they are effectively constrained---due to their own
participation--- from turning to the public to denounce the system. Corruption is both
carrot and stick that strengthen loyalty. The Lateral Attrition Law is intended to cut
and not merely to untie this Gordian knot.

While the intent of the law is laudable, it is important to acknowledge an important

factor that has critical impact on the performance of the BIR and BOC. Under the
rules of engagement, it is Development Budget Coordinating Committee (DBCC)
(comprising NEDA, DBM, DOF, and the BSP) which sets the revenue collection
target for both BIR and BOC. On the one hand, this seems to be a good way of
avoiding any self-serving target setting (if it were done by the revenue agencies
themselves). Yet all quota-setting processes are inherently conflict-ridden, and the
agencies will seek to influence that process to their own advantage in any way that is
available to them. It would be important to know how likely influence is to be
exercised, like (a) submitting information to DBCC that supports a lower target, (b)
seeking intervention by political allies, and (c) finding mechanisms for protection
against highly unfavorable outcomes. A potential problem of DBCC is how to deal
with the fact that they are not likely to know as much as the agencies about demand,
cost, technology, and, as a result, the true collection efficiency of the two agencies.
These concerns should be adequately addressed before any rollout of the
implementing rules and regulations, which are yet to be issued.52

As important as the incentives are the support structures for operations and proper
facilities that are needed in both bureaus for them to meet (if not exceed) their
targets.53 Likewise, closing ranks against political interference would be needed to
make sure politicians cannot use their clout to prevent the termination of their
“protégés” in BIR and BOC.

Outside the revenue agencies, a parallel measure that could alter incentives in the
bureaucracy is the proposed salary decompression that will be based on performance

clear qualifications inhibiting the possibility of conflict of interest. Correspondingly, the NRA bill states that any
member of the Board with personal or pecuniary interest in any matter of the agenda of the Board shall disclose his
concern and should inhibit himself on the topic (which is to be made public after a decision of the Board was
made)- a condition not mentioned in the Attrition Act.
51
The Revenue Performance Evaluation Board is composed of DOF Secretary; DBM Secretary; Director-General
of NEDA; BOC and BIR Commissioners; two representatives from the rank and file employees of BOC and BIR;
and a representative from the officials.
52
The Implementing Rules and Regulations (IRR) of the Lateral Attrition Law was issued in August 2006.
53
BIR and BOC complain of very limited budget allocation for their maintenance and other operating expenses
which severely affect their operations.
 32

rather than length of tenure. According to CSC Chair Karina Constantino-David, the
current salary structure in government from salary grade 1 to 33, with eight steps per
salary at increments of 2.5 percent, is based on longevity and not on performance. In
addition, analysis of the current salary structure reveals that there are overlaps
between salary grades. Some jobs are graded differently across agencies, and the civil
service is externally uncompetitive at the technical and executive levels. Hopefully,
all these gaps and overlaps can be addressed by the proposed Wage Bill which Chair
David emphasizes is anchored on four basic principles: (1) internal equity which
means equal pay for work of equal value; (2) external equity which means rates will
be competitive with a medium sized private firm; (3) performance-based policies and
programs where salary increases will be based on meritocracy and performance and
longevity is awarded as flat incentive bonus; and (4) pay systems that are efficient,
effective and easy to administer.54 The study has been completed. The CSC and
DBM are currently working on an incentive-compatible yet fiscally-affordable
compensation structure but no timeframes have been set when the new scheme can be
passed into law and implemented.

On the expenditure side, the government has somewhat succeeded in changing

incentives through procurement reform. The OMB, the COA, and the Philippine
Center for Investigative Journalism have estimated in separate findings that large
amounts of public funds are being lost to procurement-related corruption. Although
no reliable estimates are available, the perception of large leakages in government
procurement persists. An October 2001 study of the Procurement Watch, Inc.
indicated that the potential leakage through procurement corruption ran as high as
PhP95 billion in 2001. In addition, the existence of more than 60 laws, executive
orders, presidential decrees and administrative orders (including issuances applicable
to particular departments) that governed public procurement only resulted in
confusion and conflicting interpretation of many legal provisions, increasing the
likelihood of irregularities in the bidding process (World Bank et. al, 2003).

To address mounting procurement problems, Congress consolidated all existing

procurement laws and passed Republic Act No. 9184 or the Government Procurement
Reform Act in 2003.55 RA 9184 requires all national government agencies (NGAs),
government owned and controlled corporations (GOCCs) and local government units
(LGUs)56 to post procurement opportunities in the government’s electronic
procurement system (G-EPS)57 thereby increasing transparency and creating a single
source of public procurement opportunities. The new procurement law has simplified
pre-qualification procedures and strengthened the post-qualification process which
circumscribed the discretion of officials on bids and awards. A good feature of RA
9184 is the protection for procurement officials from unjust legal suits arising form
the performance of their duties. A strong deterrent is also provided with the

54
Notes taken from a presentation of CSC Chair Karina Constantino-David, May 2006.
55
The adoption of RA 9184 was facilitated through the active participation of the Procurement Watch Inc. PWI
worked with administration and opposition legislators to create bi-partisan support for the procurement reform bill;
provided technical assistance to legislative staff in the preparation of alternative versions of the bill, and drew other
CSO to support the bill.
56
RA 9184 repealed the procurement related sections of the Local Government Code.
57
The G-EPS is managed and maintained by the Procurement Service under the Department of Budget and
Management. The Procurement Service supervises the procurement undertaken by 2000 state agencies. It signs the
contracts on behalf of these agencies, and is the repository of their funds. It also serves as the final check before
government money is released (Rimban, 2004).
 33

imposition of criminal and liabilities for those found guilty of collusion and other
irregularities.

Soon after the law was signed, the Government Procurement Policy Board (GPPB)
rolled out capacity building on the new procurement procedures to ensure compliance.
By the end of 2004, the GPPB through its partner institutions58, has trained
procurement staff from about 62.32 percent of national agencies, 77.23 percent of
local government units, 40.14 percent of government corporations and all of the state
universities and colleges on the new procurement law, standard bidding procedures
and related regulations.

Since its implementation, it is estimated that the new procurement system has resulted
in at least 30 percent savings or PhP52 million in the cost of government procurement
in 2005. The on-line procedure of posting bid announcements and quotations has
effectively reduced the opportunities for irregular activities by improving
transparency in the bidding procedures and encouraging competition among suppliers
or service providers. The system has also helped reduce procurement-processing time
and generate competitive prices.59 Significant improvements have also been realized
in the Department of Education, especially in reducing the cost and ensuring delivery
of textbooks, and in the Department of Health, in the procurement of medicines. The
World Bank, in its 2005 Country Procurement Assessment Report, hailed the
procurement reform as an example of an “island of good governance” in the country.

One salient provision of the law has not been satisfactorily implemented. Section 13
of RA 9184 prescribes that civil society take part in all stages of the procurement
process to enhance transparency, but in practice, participation of civil society
observers is still token. While there are active observers from the Procurement
Watch, G-Watch, Transparency and Accountability Network, professional
associations, and the Coalition Against Corruption, more civil society groups need to
be deployed to ensure that every bidding process in the government is properly
monitored While the OMB, in cooperation with Procurement Watch60, has already
spearheaded a training and accreditation of CSO observers, more observers need to be
equipped with a “standardized” BAC monitoring tool and an easy means of reporting
of observations, to ensure their effectiveness. Government efforts to encourage the
participation of civil society in the procurement process need to be sustained and
reinforced.

The potential for corruption in the bidding process persists. The tight rules in the new
procurement law prompt agencies to conveniently bypass some requirements. For
instance, the most recent procurement of patrol cars, motorcycles and pistols by the
Philippine National Police was done without the benefit of public bidding. Citing the
limited source provision of the new law and Sec. 441 of the General Auditing and
Accounting Manual (GAAM), PNP justified that if the procurement were to be done

58
GPPB tapped institutions like the Development Academy of the Philippines and its partner SUCs to conduct the
training of procurement practitioners in the national line agencies and GOCCs. The Composite Team from the
DBM, DILG, COA and the Philippine League of Local Budget Officers provides the training for LGUs.
59
According to the Procurement Service, about 4,001 agencies and 16,440 suppliers have registered with the
Philippine Government e-Procurement System (PhilGEPS), as of January 23, 2006. Bid notices posted to date
totaled 162,338 while bid awards numbered to 17,460.
60
The GPBB is supporting the formation of a civil society alliance with the PWI as the secretariat to regularly
monitor procurement activities and goods delivery.
 34

through public bidding, the agency would not have much time left for the preparatory
activities crucial to the 12th ASEAN Summit to be held in the country in December
2006. Section 441 of the General Accounting and Auditing Manual (EO 301, s.
1987) states that “negotiation may be employed: whenever the supplies to be used in
connection with a project or activity cannot be delayed without causing detriment to
the public service”. Accordingly, RA 9184 did not repeal this provision.61 In some
instances, the procurement reform law impedes the efficient function of government
agencies, e.g. the Department of Foreign Affairs. Although the law is created to
minimize corruption, its application in the department has caused difficulties and
hindered the performance of implementing foreign policy due to non-operationability
of some procedures e.g., the conduct of bidding in certain jurisdictions is not observed
and no supplier interested in the bid process. The three-month cycle allowed for re-
bidding (in cases of bidding failures) also causes delays in project operations in
government agencies.

The new procurement law has not been able to effectively address the practice of
conversion in the military as well as the large scale contracting projects such as Build-
Operate-Transfer.

Initiatives to Close Gaps and Vulnerabilities: Addressing Regulatory Cracks

Weak systems are vulnerable to corruption. As part of its prevention strategy, the
Philippine government implemented several measures to tighten safeguards, plug
loopholes, root out pathologies, and even attempted to dismantle the culture of
patronage and mediocrity which breed corruption within the bureaucracy.

As in procurement reform, the Philippines has a passing score in improving the

monitoring and detection of fraud with the adoption of the New Government
Accounting System (NGAS) introduced by COA Chairman Guillermo Carague in
January 2002. NGAS is a modified accrual-based system that follows
internationally-accepted standards. The primary intention of NGAS is to simplify
government accounting. It may be used as a tool to monitor financial performance.
But perhaps the most important feature of the system is its adoption of responsibility
accounting that allows activity-based and project accounting, which enables managers
to understand and rein in excessive disbursements.

To further improve the system, the Commission on Audit has developed an

accounting software package for the computerization of NGAS called e-NGAS. This
electronic version of NGAS provides automated recording of accounting entries to the
general journal, posting the subsidiary ledger and the general ledger and templates for
common transactions to facilitate their recording and up-to-date generation of
government standard reports necessary for management and auditing purposes. With
these features, e-NGAS will be able to reduce to bare bones government accounting,

61
Another bidding provision of the law seems to have a flaw. Section 35 of RA 9184 allows the Bids and Awards
Committee of the procuring entity to resort to negotiated procurement in case the bidding fails twice. This
provision can be taken advantage of by unscrupulous bidders. A bidder wanting to ensure that he/she gets the
contract might strike “extra deals” with other bidders and the BAC members to intentionally declare a failure of
bidding to clinch a negotiated procurement. Freeing up the market to all potential and capable bidders regardless of
nationality can further spur a competitive bidding environment. Barriers to entry will only result in inefficiency
and promote a favorable milieu for a few bidders to monopolize the process.
 35

yet provide adequate internal controls, and foster transparency and greater
management responsibility in financial performance of the agency. The e-NGAS is
now being pilot-tested in a number of agencies.62 But to rely heavily on e-NGAS,
through this systematize method in order to curb corruption, is a misconception. In
actuality, e-NGAS is only a management tool. It is still very much dependent on
human intervention in the encoding of inputs in the system. In this regard, though it
has potentials in quick monitoring of financial statements and hamper later
manipulation of accounts, it does not guarantee the full accuracy of data being
inputted for the first time.

The objective of NGAS to raise financial integrity and accountability of actual

government spending can only be realized once all agencies have been able to
computerize63 and to make the system open to the public for scrutiny. Linking the
accounting system with that of the budget will enable real-time and whole-of-
government financial reporting and auditing, which is crucial in raising transparency
and in making high officials more accountable for their financial decisions. But that
would be one for the future. Until the system is fully computerized and implemented,
agencies will continue to deal with post-auditing. COA, at any rate, cannot do real-
time auditing since its mandate is post audit. Nevertheless, a proactive stance on the
part of COA to report audit findings will contribute to stronger detection,
investigation and prosecution of fraud and corruption cases.

Without diminishing the ex-post authority of the COA, the presence of an

independent in-house policing unit can facilitate early detection of irregularities. This
is a function of internal audit. Triggered by the scandalous breakdown of internal
control in the AFP involving Maj. Gen. Carlos Garcia, President Arroyo issued
Administrative Order No. 70 on April 14, 2004 requiring all central and local
government instrumentalities to immediately organize the Internal Audit Service
(IAS) in their respective offices.64 The immediate creation of internal audit units of
agencies which can increase the probability of detection of fraud and dishonesty in the
use of agency resources, is among the priority measures under the PAGC-initiated
Integrity Development Action Plan.65 PAGC’s program includes the development of
a quality assessment program on internal auditing functions, the preparation of a
generic internal audit manual, and training and certification of internal auditors. The
DBM and CSC have also reiterated in the Rationalization guidelines the mandate to
activate Internal Audit Units of agencies.

Corruption prevention measures are a good way to complement prosecution

strategies. Through integrity development reviews (IDR), the Office of the

62
However, agencies which are now operating under e-NGAS have complained that the program is not that easy to
use. The e-NGAS is also incompatible with IT systems that are currently in place in some government agencies
which are based on open-source technologies, e.g. the Business Permits and Licensing System (BPLS) and the
Treasury Operations Management System (TOMS) offered free-of-charge by the National Computer Center to
local governments.
63
The roll out plan for e-NGAS is a gradual nationwide implementation within four to five years. Pilot testing
started in 2004.
64
The directive to create the internal audit service can be traced back to as early as 1962 with the passage of
Republic Act No. 3465 known as Internal Auditing Act of 1962. This was later amended by Republic Act No.
4177.
65
Recognizing the importance of internal audit as an effective means of fighting and preventing corruption, the
World Bank, in 2005, granted the Philippine government US$300,000 to help strengthen the Internal Audit units of
selected government agencies.
 36

Ombudsman, together with CSC, COA, DBM, PAGC, DAP and TAN, is assisting
agencies to identify their vulnerabilities and incorporate corruption resistance
strategies in their systems and operations. To set an example, the DBM first
underwent a corruption vulnerability assessment66 in 2002 while the OMB and the
CSC subjected themselves to IDR in 2004. The Department of Education served as
pilot among national line agencies. Integrity development reviews of five critical
agencies namely the BIR, BOC, DPWH, LTO and PNP have been completed in
August 2006. The detailed review enabled these agencies to check their levels of
resistance and susceptibility to corruption and benchmark improvements over time.
Part of the Anti-Corruption Fund is earmarked for the implementation of priority
recommendations of the IDR. Eleven more agencies are next in line. The OMB is
instituting the conduct of IDR as part of its three-year Corruption Prevention Project
supported by the European Commission.

The EC-OMB Corruption Prevention Project aims to strengthen cooperative efforts

between the OMB, the civil society, government agencies, and the wider public
towards a programmatic approach to prevent corruption. This long-term corruption
prevention program consists of four components: (1) collaboration with civil society
organizations, which is intended to build the capacity of CSO/NGOs collaborating
with OMB especially in the area of procurement monitoring and lifestyle checks; (2)
advocacy campaign to win the cooperation of the wider public by creating awareness
on the evils of corruption (e.g. through multi-event competitions) and establishing
mechanisms for continuous flow of information from the public (e.g. Text
Katiwalian); (3) cooperation with other government agencies, which sets sights on
government activities identified to be the most vulnerable to corruption i.e. public
works, revenue collection by instituting interventions such as IDR and mentoring
middle managers; and (4) strengthening of OMB capacities i.e. through the
establishment of Integrity Development Institute and capacity building for OMB
personnel. The project was launched in May 2005. The EC- OMB Corruption
Prevention Project operates on the philosophy of building an enabling environment
for integrity. In a way, it is a convergence of anti-corruption initiatives of the
government and different sectors of the society.

For its part, the DBM believes that corruption can also be addressed through budget
and management improvement measures such as streamlining. In 2004, President
Arroyo issued Executive Order No. 366, otherwise known as Government
Rationalization, directing the strategic review of the functions and organization of all
government agencies. In the absence of a reengineering bill that would give the
president the power to streamline and reorganize the entire executive department,
former DBM Secretary Emilia Boncodin proposed to pursue an administrative track
to arrest the “wasteful” allocation of resources to non-core, obsolete and redundant
functions of government. Given scarce public resources and increasing public demand
for greater accountability, the rationalization program is expected to achieve a more
efficient, effective, and accountable bureaucracy.

If the directive were well observed, the program is expected to bring about sweeping
changes in the executive department since rationalization is mandatory for all line

66
The Corruption Vulnerability Assessment methodology, which was the precursor of Integrity Development
Reviews (IDR), was developed by DAP based on a similar approach used by the US Office of Budget and
Management. CVA gives scores on the agency’s vulnerability index and safeguards index.
 37

departments and their component units/bureaus, government corporations,

government boards, task forces, councils and commissions.67 To encourage affected
employees to retire, the DBM and CSC offered an attractive separation package, but
incorporated a provision to prevent the re-hiring68 of retirees by government.

Rationalizing the executive department by eliminating duplications and overlaps has

the potential to reduce opportunities for corruption by providing clearer lines of
accountability. (Substantial savings are also expected from the elimination of about
30,000 redundant positions within the executive department.)

However, whether or not the Rationalization Program will be implemented as

designed remains to be seen. As of May 2006, only three agencies have their
rationalization plans approved for implementation, namely Civil Service Commission,
Technology and Livelihood Resource Center, and the Office of the Vice President. A
long queue of more than 55 agencies awaits the review of their rationalization plans
by DBM. Progress in the preparation of rationalization plans has been severely
affected by the administration’s “revolving-door policy” and the unexpected
changeover in leadership69 of departments, which meant changes in directions and
priorities. As is often the case with bureaucratic streamlining, the rationalization
scheme is vulnerable to capture by sectional interests within and outside the target
agencies. Unless the DBM strictly enforces the guidelines, there are possibilities that
redundant positions could be the object of internal bargaining, and entire units could
be traded off in order to retain favored blocks.

Changes in political leadership should not have been a problem if there were a strong
(neutral and professional) civil service that can provide stability and continuity. But
over the years, as CSC Chair David laments, the Philippine civil service has become a
“victim of excessive politicization and partisanship” which created a culture of
patronage (Brillantes, 2006). While there are “islands of performance excellence”
within the civil service, the uncompetitive salaries and a security of tenure system
“working the other way” have nurtured a culture of mediocrity for the rest of the
bureaucracy.

Since 2001, the CSC has taken bold steps to create an environment that can
effectively reduce corruption, re-build the integrity of the civil service, and restore
pride in government service. Early in her term, Chair David proposed the filing of the
Civil Service Code70 which intends to (1) streamline and apply the performance-based
operation and tenures in government; (2) eliminate or minimize patronage, especially
at the Career Executive Service by making appointments or conferment based on rank
instead of position, and by creating a pool of Career Executive Service Officers; and
(3) professionalize civil servants at the local government level. This bill however still
is pending in Congress to this day seemingly because of its hard-hitting provisions
such as limiting the appointing authority of the President.

67
While EO 366 does not cover local government units, constitutional bodies, and the other two branches of
government, the agencies can avail of the same incentive package for affected employees if they opt to rationalize.
68
This was moral hazard problem experienced during the Early Retirement Program in the 1980s.
69
In July 2005, the secretaries of Finance, Budget, Education, Social Welfare and some of their deputies (known
as Hyatt 10) resigned after calling on President Arroyo to face squarely the allegations of electoral fraud in the
2004 presidential elections. Temporary appointments were made and later in 2005, cabinet members were
reshuffled. During the first semester of 2006, new cabinet appointments were made.
70
It would be recalled that the initial version of the Code was filed in Congress 12 years ago (Brillantes, 2006).
 38

The Career Executive Service Board which the CSC head currently chairs, issued
various resolutions to tighten the third level rules on examination and eligibility in
order to professionalize its ranks as well as minimize the vagaries of politics on the
stature and tenure of career service executives. Under the new rules, CESB confers
classification of CES members based on rank rather than on position. CESB also
withholds the conferment of rank if a candidate has a pending criminal case.
However, the CESB has a weak mandate to enforce its issuances, which are often
brushed aside by high-level political appointees.

The CSC set out to introduce reforms in performance management that will tighten
alignment of individual goals with that of the agency. The new Performance
Management System (PMS) being worked out by CSC will remove the mantle of
protection provided by security of tenure. According to CSC Assistant
Commissioner Acebedo, employees found to be incompetent, laggard, and abusive of
authority or who simply fail to perform their tasks according to set technical and
behavioral standards can be terminated. Performance contracting that links pay to
performance is an important part of this system. However, it would take a while to be
able to remove corrupt personnel and arrest mediocrity in the civil service using this
new system since the scheme is still being pilot-tested in the CSC.

Meantime, the Commission is sustaining its Mamamayan Muna, Hindi Mamaya Na

(MMHMN) program---a redress mechanism for grievances against discourteous and
erring state employees and laborious procedures in government transactions than can
give in to corruption. The MMHMN somewhat clicked with the public as indicated
by the about 55,755 feedback received since its launching in 1994.71 In June 2002,
TXTCSC was introduced to provide an alternative and fast mode---via SMS---to send
in feedback and comments to the Commission. In its two years of operation, 28,257
messages were received at the TEXTCSC Central Office station.72 If used well, both
have high potentials to improve detection of corrupt practices in the civil service.

A more proactive mechanism to monitor performance of civil servants is the Public

Service Delivery Audit (PASADA). CSC installed it in the last quarter of 2003 to
systematically test frontline services. Instead of waiting for the public to send in
reports, PASADA takes a different tack by actual testing of service. CSC deploys a
pool of undercover volunteers who pose as ordinary clients to simulate the experience
of the public, good or bad, when transacting business with government offices. While
the program is still in its infancy stage, PASADA will also strengthen the capability
of CSC to spot areas that are prone to corruption.

All things considered, these attempts at the agency level do give the corruption
reduction campaign some headway. But most are susceptible to political pressures,
shifts in leadership, regulatory capture, and abandonment. Because they are “islands
of reform,” a key strategy is to make them graduate into a coherent package of
sustainable changes.
71
Of these comments, according to CSC statistics, 24.3 percent are commendations, 43 percent are request for
assistance, and 32.5 percent are complaints, and a mere 0.2 percent are suggestions. It is also noted that over the
years, complaints are on a downward trend while commendations are on upswing. (Source: Civil Service
Commission)
72
Of the messages, 2,878 or 11 percent are complaints on agency systems and personnel action and government
workers’ misdemeanor. (Source: Civil Service Commission)
 39

Policy Choices/Non-choices that Put a Damper on Anti-Corruption Initiatives

The Long-overdue Electoral Reform

Political competitions have a powerful bearing in the fight against corruption. Central
to winning elections---given their high costs to candidates---are campaign
contributions from wealthy benefactors. Because Philippine political parties have no
stable membership, resources are obtained form corporate or private donations instead
of membership contributions (Gonzalez, 2002). Campaign financiers may come from
the ranks of local political clans, businessmen or tycoons all of whom are often deeply
involved in regulatory capture---the formulation and implementation of policy and
regulations that offer them concentrated benefits as part of political paybacks by the
winning (and financially supported) candidate. The more costly the political
campaign, the larger the incentives to draw money from the occupation of public
positions. At the same time, the richer the opportunities for illegitimate profit in
public roles, the easier (and more advantageous) it is to invest huge sums in electoral
campaigns. Worse, potential corruptors can modify public decisions in a way
favorable to them. Corrupted party leaders and functionaries can directly influence
the action of public administrators, who are the final executors and providers of
specific favors (della Porta, et al., 2000).

Weak parties that help define the Philippine political landscape make for equally
weak rules and regulations, and thus easier access to influence. There exists no party
disciplining mechanism that will provide some measure of accountability for winning
candidates. Neither is the party responsible for applying government sanctions, which
in any case are not enforced strongly. Simply put, most of the campaign donors’
recipients---even party leaders---could credibly guarantee major favors in exchange
for funds. As with every scarce and valuable commodity, political guarantees can then
be demanded and supplied in exchange for a price. Examples of policies that can be
“guaranteed” are industrial priorities, fiscal policies, regulatory rules, judicial
decisions, and electoral rules, among others (De Dios and Ferrer, 2001). Changes in
regime or policy environment can provide opportunities to secure illicit gains from
“policies for sale.” Not surprisingly, this factor increases the clout of any one big
contributor.

Despite this, causal links between electoral contributions and policy outcomes can be
exceptionally hard to prove, whether analytical or legal standards of proof are
employed. In any campaign finance situation, the "money trail" can involve diverse
players, with ultimate sources being difficult to trace (Johnston, 2000). Even
aggressive NGOs like the Philippine Center for Investigative Journalism---noted for
uncovering several campaign finance irregularities---have to chart untrodden courses
to establish proof of wrongdoing. It may be easy enough to detect or legislate against
politicians using public office for personal gain. But it is much harder to ascertain
(even if there are strong suspicions) whether these politicians are becoming unduly
beholden to the groups or individuals who finance their campaign.

Electoral races do not come in cheap. Collected funds are meant to meet the presumed
costs for elections mandated in the Omnibus Election Code. Presidential, vice-
 40

presidential and senatorial aspirants are to spend no more than PhP10 for every
registered voter. All other candidates are only allowed to spend no more than PhP3
for every registered voter in their constituency. A political party must spend no more
than PhP5 for every voter registered in the constituency where the party is fielding
candidates. For example, given a total of 43,551,281 registered voters nationwide, a
presidential aspirant should spend no more than PhP435.5 million (Gueco, 2004:1).
These costs per voter seem to be modest; yet in the aggregate, political aspirants need
millions or even billions of pesos to run a competitive race. To begin with, politicians
spend three times---one, to become candidates, two, to be voted upon, and three, to
get the votes counted in their favor. It takes money to pay a campaign staff and buy
materials. It takes money for a campaign to be taken seriously by the press. It even
takes money to raise more money.

The spending limits are unrealistically low that they tend to provide incentives to hide
rather than declare fund sources; at any rate the Comelec is unsuccessful in preventing
overspending during elections. Loopholes in the election law and the poor capacity
prevent the Comelec from tracing the contributions that reach political parties.
Although it makes a big difference if the donation is sent to political parties or to
individual campaign coffers---after all, good accounting can help establish the
connection among policy outcomes, recipients of political contributions, and donors--
-Philippine regulators often look the other way. With Comelec not being able to
scrutinize party records (if they exist at all), the campaigns no longer adhere to
contribution or spending limits.

To win elections, major candidates do not merely rely on campaign contributions.

They resort to cheating as well which makes automation of vote counting high on the
electoral reform agenda. The slow counting system of ballots makes attempts at
cheating rampant during elections and open doors to electoral corruption. The
computerization of elections was proposed for the 2004 elections (Republic Act No.
8436). But as it happened, the Comelec is accused of awarding the subject contract to
a company that joined the bidding but had not met the eligibility requirements
(Supreme Court, 2004:1).73 Also, the 1,900 automated counting machines (ACMs),
ancillary equipment and software supplied by this company were, according to
complainants, overpriced (Mariano, 2006).74 Despite this grant, the poll body signed
the actual automation contract with Mega Pacific eSolutions, Inc.

The Supreme Court nullified the automation contract entered into between Comelec
and Mega Pacific months prior to the May 2004 presidential elections.75 Comelec's
effort to undertake its own Quick Count via VSAT (very small aperture terminal)-
73
Based on Supreme Court findings, Mega Pacific eSolutions was incorporated only on February 27, or 11 days
before the bidding.
74
The complaint alleges that the true amount paid by Comelec to Mega Pacific eSolutions for the ACMs was only
PhP550.810 million. The same complaint alleges that Comelec paid PhP430,394.17 per ACM unit but the
commercial invoices and bank applications for irrevocable letter of credit reveal that each ACM unit amounted to
only PhP276,650 per unit which shows a difference of PhP153,744.17 per unit. Moreover, Mega Pacific charged
PhP83.924 million for value added taxes (VAT) and PhP81.024 million for customs duties and brokerage fees,
when these were supposedly exempt under the nullified contract. Finally, the ACM contract was pegged at the
exchange rate of PhP58 to US$1, when the exchange rate was only PhP55 to US$1 at the time of the bidding
(Kilosbayan, 2005).
75
In its decision promulgated on January 13, 2004, the Supreme Court admonished Comelec for violations of the
law and grave abuse of discretion. It ruled that the illegal, imprudent and hasty actions of the Commission have
not only desecrated legal and jurisprudential norms but have also cast serious doubts upon the poll body’s ability
and capacity to conduct automated elections.
 41

automated transmission was similarly halted by the Supreme Court, since it has no
legal basis. The Comelec cannot give an official count, a matter which pertains
actually to the Namfrel. The Court's ruling also indicated a lack of confidence in the
Comelec to competently carry out automated elections. These clear violations of law
and jurisprudence, and reckless disregard of its own bidding rules and procedure hurt
the government’s electoral reforms.76

Paradoxically, as a public body with a clear constitutional mandate (which means it

cannot be abolished by legislation), Comelec has vast powers to scrutinize, and
enforce limits on, election donations and spending. It is nominally independent of the
Chief Executive and Congress. But years of acting by improvisation, with no clear
sense of purpose or coherent strategy, and a rather short attention span, Comelec has
fallen prey to politicians’ manipulations.

Limiting Monopoly and Discretion to Constrain Executive Power*

A civil service based on patronage and political loyalty is susceptible to corruption.

A professional civil service and an executive restrained in its exercise of appointing
power are preconditions to the establishment of a corruption-free bureaucracy. The
open selection for career executive positions continues to be eroded by political
influence. Compared to their Asian counterparts, Philippine presidents have the
greatest depth of political appointments, totaling to 11,000 positions77, going all the
way from cabinet secretaries down to assistant bureau directors. The practice of
offering “courtesy resignations” with changes of administration, according to an ADB
report, also creates the potential for high turnover of senior officials and opens the
door all the more to the possibility of filling those positions with political protégés.

On its assumption to office, the Arroyo administration vowed to respect the career
executive service. But its track record says otherwise. Reports and CESB records
show CESOs placed on floating status; CESOs relieved from their CES positions and
replaced by non-eligibles or demoted to non-CES positions; excess undersecretary
and assistant secretary positions; political appointees designated to career positions;
and non-CESOs and non-eligibles appointed to CES positions despite the availability
of CESOs and third level eligibles. Based on statistics culled from CESB, the
Philippine Center for Investigative Journalism reported in May 2006 that of the 2,583
career executive positions appointed by President Arroyo, 42 percent are currently
filled by non-eligibles. The same PCIJ report cited that based on DBM data, the
Arroyo administration seems to have at least 22 more undersecretaries and eight more
assistant secretaries than the previous government. In 2000, the Estrada government
had 63 undersecretaries and 64 assistant secretaries in 19 departments. Five years

76
The Comelec asserts that their resolution would stand up to the strictest scrutiny. Comelec argues that it did not
succeed in addressing pressing electoral concerns due to several factors beyond its control. The Commission says
that election computerization failed because the law is self- limiting. The technology prescribed in the election
automation law (RA 8436) is obsolete and this law is not yet amended. The delayed release of budget is another
predicament of the Commission. For two years, Comelec has been operating on a reenacted budget.
*
It is worthy to mention the collective calculations that led to the granting of broad presidential powers. It is
doubtful that the constitutional form (i.e. discretionary power) of the president is at the root of the problem, but it’s
true that broad presidential discretions facilitate the abuse of power by the Executive (Comment from World Bank
Reviewer).
77
Of these positions, 3,000 are constitutional positions, 6,000 are CES positions, 1,650 are prosecutors, with the
remaining 500 are positions created by special laws.
 42

later, the Arroyo administration had 85 undersecretaries and 72 assistant secretaries in

the same agencies (Chua, 2006).

In March 2006, CESB issued Resolution No. 619 expressing the Board’s grave
concern on the obvious disregard of pertinent CESB and CSC laws, rules and
regulations and enjoining all departments and agencies in the interest of meritocracy
and professionalism in the bureaucracy to comply with the following rules: (1)
security of tenure based on eligibility must be respected; (2) comply with the
conditions embodied in the rule on the reassignment or transfer of members of the
CES; (3) reassignment or transfer of CESOs shall be effected only upon the
availability of the corresponding position; (4) non-career officials occupying CES
positions are prohibited from exercising control or supervision over regular and career
personnel of an agency as this practice usually results in protracted disputes in the
workplace and demoralization of the latter which are prejudicial to public service; (5)
a presidential appointee to a CES position who lacks the appropriate eligibility
requirement may only be issued a temporary appointment which shall not exceed 12
months with only one renewal; (6) presidential appointees to CES positions who come
from the career service but do not have the eligibility required should be clearly
appointed with a temporary status while appointees not from the career service shall
be classified as coterminous with the appointing authority; and (7) those appointed to
third level positions outside the approved DBM plantilla of personnel of a department
or agency shall not be classified to be within the coverage of the CES, hence,
occupants thereof shall be considered as on a coterminous status of appointment.

CESB Resolution No. 619 is the constitutional body’s response to put brakes on the
propensity of the executive department to disregard rules on meritocracy but the
observance of the resolution remains to be seen. Of late, transgressions in
appointment by the Office of the President extended to agencies whose heads are
supposedly to be selected by their respective Boards, such as state universities and
colleges and a government think tank.78

The practice of patronage appointment also reaches down to lower level positions. A
typical case is exemplified in the Bureau of Customs where vacancy for a mere clerk
position would invite more than a thousand applicants with political backing. The
reason is simple, politicians would eventually look forward to payback time when
they can make use of these personnel owing them their jobs in exchange for favors
either in the form of lower assessment or release of illegal goods. Rising from one’s
rank is also prone to this type of political interference especially for those who are
subject to confirmation hearing before the Commission on Appointments. This
exposes the appointees to political pressure when they perform their duties, making
them prone to compromise.

It is obvious that the solution is simple but it will take a lot of political will to
implement. Providing government with a pool of well-selected and development-
oriented career executives who can provide competent and faithful service is one way.
78
Take the case of the appointment of a police Director-General as president of Mindanao State University which
the Office of the President clarified as temporary to straighten out the peace and order and security situation in the
university complex before formally turning over the reins of the institution to a permanent appointee (Office of the
Press Secretary, 2005). In another case, a “desire letter” was issued by the Office of the President to the governing
board to appoint an insider (who ranked seventh out of eight candidates) as DAP president, apparently to have a
“friendly” member of the CESB (Chua, 2006).
 43

The integrity vetting of appointed officials proposed by the CSC and the OMB can
help but it is still far from reality.

Failure to Pass an Anti-Trust Law

One important policy reform that has been left to languish in the backburner of
government initiatives is the creation of a comprehensive and working Philippine
Anti-Trust Law. An anti-trust law is expected to enhance competition in the market
so that the public may benefit from its inherent functions of promoting technical
efficiency (producing more with less) and inducing better resource allocation
(allocative efficiency) (Medalla, 2005). Through its allocative, distributive and
incentive functions, Abad (2005) argues that competition can prevent undue
concentration of economic power and the consequent concentration of political power
in the economic elite who use their economic and political powers to have their
inefficiencies subsidized by the majority of consumers and taxpayers.

Despite the absence of a comprehensive anti-trust law, there are existing laws that
promote competition in the Philippines. For instance, the Philippine Constitution
mandates the state to regulate or prohibit monopolies, combinations in restraint of
trade and other unfair competition practices, for the sake of public interest
(Constitution, Article XII, Section 19). Republic Act No. 3815, otherwise known as
the Revised Penal Code, punishes anti-competitive behavior that is criminal in nature.
There are also special laws which address unfair competition practices such as the
Price Act of 1991 and Consumer Welfare Act of 1932, which protect consumers from
exploitative prices; policies on foreign trade such as Anti-Dumping Act of 1999. Due
to the small number of cases filed in court with regard to unfair competition and
monopolies, the Supreme Court has limited judicial interpretations on the subject79
(Abad, 2005). These laws, however, have been proven inadequate, unenforceable or
ineffective to stave off the ill-effects of anti-competitive structures and behavior in the
market.

There had been a number of draft bills submitted in both Houses of the 13th Congress
proposing a comprehensive anti-trust law, but these were left in obscurity due to the
low priority accorded by both the legislators and the executive department. Several
reasons are cited to explain this slow development. First, the proposed law may be
difficult to understand and appreciate because of its technical provisions. Since it is
difficult to absorb, potential supporters of the bill either from government, business or
civil society may not be able to rise in its defense against those who would oppose it.
Second, a proposed law of this nature would attract much public attention, and those
sectors opposed to its passage might conspire together to ensure its non-passage or
delay. Alternatively, they may intervene to insert exceptions or other onerous
provisions. Third, such public attention and political interventions would only lead to
other obstacles lo the timely passage of the new law, such as endless public debates
and media hype. Fourth, a comprehensive approach to anti-trust/competition law
enforcement, especially if it involves the creation of a new agency or institution, may
run into significant implementation problems (Abad, 2005).

79
To date, there had been only two cases decided by the Supreme Court defining monopoly; one is the case of
Gokongwei, Jr. vs. Securities and Exchange Commission, et al. and the other is case of Tatad vs. The Secretary of
the Department of Energy and The Secretary of the Department of Finance, etc. (Abad, 2005).
 44

As a result, the absence of an effective anti-trust law leaves the market susceptible to
anti-competitive behavior of firms. Aside from making the public suffer from high
prices and low quality of goods, anti-competitive practices contribute to the
deterioration of the quality of government institutions through corruption. Abad
(2005) noted that the current industry regulatory measures are vulnerable to rent
seeking. The requirement for franchises and licenses is being used as a device to
protect incumbents by disqualifying competitors. The main purpose and effect of such
requirement is to reserve (specific) areas to franchisee or licensee, and hence exclude
others. Franchises are awarded by acts of Congress and are distinct from permits to
operate, which are dispensed by agencies regulating public utilities. Under this rule,
the award of franchises is open to wider rent-seeking or political considerations. The
absence of a single anti-trust authority could lead to regulatory capture. In time and
with familiarity, it is the industry that ultimately regulates the regulator. For instance,
the Civil Aeronautics Board’s (CAB) policies have favored privately-owned
Philippine Air Lines and discouraged granting more flights to PAL’s competitors to
and from the Philippines. Consequently, efforts to boost the economy through tourism
are effectively hindered (Abad, 2005). Of late, an Executive Order has shifted the
grants of flight to an inter-agency negotiating panel, effectively diluting the powers of
Civil Aeronautics Board. However, its powers remain to be tested.

Putting pressure through public vigilance

The overhauling of the Philippine political milieu for the eradication of corruption
cannot be wholly attributed to government’s hard work. The immense incidence of
corruption found under its roof, committed by its own personnel, generates a
considerable doubtful perception on the part government to counter malfeasance.
Worse, its weak institutional restraints to discourage corrupt behavior only prove the
government’s limited capacity to reduce, if not totally eliminate, the problem at hand.
As a blind cannot lead another, government agencies will not be in a good position,
by themselves, to eradicate something induced by force of habit. It is only when an
entity capable of keeping an eye on government activities, such as a vigilant civil
society, will there be significant force that compels pragmatic actions toward curbing
corruption. Civil society can continually irritate the state, as a fly annoys a mule80, so
to speak.

Civil society in general and media in particular together with moral and religious
leaders can help build coalitions (and surmount collective action hurdles) that can
increase demand for a more honest government (Gyimah-Boadi, 2000). Empowered
civil society organizations, founded on the basis of public trust, can increase people’s
involvement to bring about favorable change (Demidov and Panfilova, 2001).

In recent years, there has been an emergence of civil society activism regarding
corruption. It has become a leitmotiv of anti-corruption discourses. The Philippines
has been a fertile ground for civil society to aggregate and articulate their interests
concerning the common good. Vested with freedom of expression and association,
like-minded individuals are able to form watchdog organizations aiming to monitor
80
This is derived from Socrates’ description of himself as a “fly” that continually annoys a “mule” which the latter
pertains to the state. Annoying is tantamount to the critiquing of Socrates to the wrongdoings of the state.
 45

government actions, publicize transgressions, and press for reforms. In particular,

citizen involvement in the fight against corruption was made prominent by people
power over Ferdinand Marcos in 1986 and the popular ouster of Joseph Estrada in
January 2001, which was triggered by a damning investigative report of Philippine
Center for Investigative Journalism of his lifestyle and undeclared assets.

From watchdog work such as monitoring of specific government activities by vigilant

organizations (e.g. Procurement Watch, Government-Watch, Concerned Citizens of
Abra for Good Government, Fellowship of Christians in Government, Kilosbayan-
Bantay Katarungan 81) and researches to draw attention and deepen understanding of
the problem and its debilitating effect in the society (e.g. Social Weather Stations
surveys, investigative reports of PCIJ*), civil society involvement in anti-corruption
coalesced with the formulation of its own anti-corruption agenda (through the
initiative of the Transparency and Accountability Network82) and the formation of
broad partnerships in the implementation of anti-corruption measures (e.g. Lifestyle
Check Coalition, Coalition Against Corruption) .

Civil society organizations that enjoy a relationship with their members or the group
of individuals they represent based on trust will be able to channel information
between these and public actors both ways. For instance, based on the practical
experience of their members, business associations may have insights on how to
reform the public procurement system or the customs administration in order to
reduce corruption practices. Conversely, business associations will be able to inform
their members of new laws and measures, and encourage them to adapt their
management and increase the transparency of their operations in consequence
(OECD, 2000). As in the case of the Philippines, the Procurement Watch, whose
members include experts in government procurement, had been instrumental not only
in lobbying but more so in providing technical assistance in the preparation of
alternative versions of the procurement reform bill. The Makati Business Club,
through it Transparent and Accountable Governance Project, is able to engage its
81
Bantay Katarungan (sentinels of justice) is an independent, non-partisan, ethics-oriented organization, formed
for the purpose of reforming and modernizing the system of justice in the Philippines. One of the salient functions
of the organization is the oversight of the judicial appointments process and cases of public interest before the
Supreme Court and the Anti-Graft court (Sandiganbayan). Kilosbayan (literally “people action”) is a non-profit,
non-partisan, independent, ethics-oriented people’s organization founded in 1993 by concerned pastors and lay
leaders after former Senator Jovito Salonga read an letter to President Ramos opposing the latter’s proposal to
enter into a compromise settlement with the Marcoses on the ill-gotten wealth cases against them.
*
“Although PCIJ is held as a model for the fourth estate, it is hardly typical of how the media operates in the
Philippines. [My impression is that the rest of the media is considered more of the "ACDC" mode (attack collect,
defend collect).] It would be useful to have more analysis on the sector (e.g., ownership structure). Having a
freedom of information law won't do a lot of good if the media is captured by the elites” (Comment from World
Bank Reviewer).
82
The Transparency and Accountability Network (TAN) is a civil society coalition formed primarily for the
purpose of exchanging information on developments and initiatives in transparency and accountability. It has a
membership base of about 30 organizations composed of academe, private sector, and civil society groups with
strong interest in anti-corruption and good governance. This includes the Ateneo Center for Social Policy and
Public Affairs, and Ateneo School of Government, Caucus of Development NGO Networks,Center for Local
Governance Research and Development, Concerned Citizens of Abra for Good Government, Concerned Women
of the Philippines, Development Academy of the Philippines, Evelio B. Javier Foundation Inc., Fellowship of
Christians in Government, Government Watch, HAGIT-Bisdak, Institute for Politics and Governance, Institute for
Political and Electoral Reforms, Institute for Popular Democracy, Kilosbayan-Bantay Katarungan, Konsensyang
Pilipino, La Salle Institute of Governance, Lawyers’ League for Liberty, Makati Business Club, National Institute
for Policy Studies, Pagbabago@Pilipinas, Philippine Center For Policy Studies, Procurement Watch, Inc., Social
Weather Stations, Transparency and Public Accountability Today and Tomorrow (TAPATT),Transparency
International-Philippines, Philippine Governance Forum, and The Asia Foundation (TAN, 2006; Lopez-Wui,
2006).
 46

members and the government in a continuous dialogue on how to address corruption

especially in tax and customs administration.

In addition, according to OECD (2000), civil society organizations that have

successfully avoided questionable allegiances around the state sphere or in political
parties, will enjoy a position that allows them to act as watchdogs. Free of the
governmental obligation of balancing interests, such independent civil society
organizations can relentlessly recall the need to fight corruption. They can monitor
whether politicians comply with their commitments in terms of fighting corruption, or
through the media, expose cases of corruption (such as those being diligently
undertaken by PCIJ and “investigative” programs on television) and put pressure for
investigations and sanctions.

Government procurement is perceived to be one of the fertile grounds for corruption

and it is in this area where civil society monitoring is intense. Many civil society
watchdogs had been involved in monitoring critical and substantial government
procurement. In close coordination with education department, the Government
Watch (G- Watch) initiated the Textbook Count in 2003. The project aimed to
resolve the recurrent “losses and diversion of books to unknown recipients” by
engaging civil society volunteers mainly from the Boy Scouts and Girl Scouts of the
Philippines in monitoring and inspecting actual delivery of procured textbooks at the
district level.83 To date, the Textbook Count has gone three cycles, with another
NGO such as the National Movement for Free Elections (Namfrel) getting involved in
subsequent inspection activities. To attend to the bidding and proper dispatch of
medicine and medical supplies, Namfrel also set off, in collaboration with the
Department of Health, the Medicine Monitoring Project in 2004.84

Inspired by the triumphs of local organization like the Concerned Citizens of Abra for
Good Government (CCAGG) in monitoring local public works, civil society
organizations are now setting their eyes on the Priority Development Assistance Fund
(PDAF) and Internal Revenue Allotment (IRA). The CODE-NGO, in partnership with
the departments of Budget and Public Works, initiated the “Pork Barrel Watch” to
check where the appropriated PDAF funds for congressional districts go.85 A similar
83
Prior to the execution of the project, it is estimated that about 40 percent of textbooks for public schools are lost
during deliveries. With the project, the number of lost textbooks considerably decreased. When the Textbook
Count Project was launched in 2003, a variance of 40 percent or 90, 719 textbooks between textbooks and actual
delivery reports was detected. Insufficiency of teacher’s manual was also observed. In 2004, the Text Book
Project 2 yielded an 85 percent monitoring coverage nationwide which translates to approximately 12 million out
of 14 million textbooks checked and inspected (Gonzalez, 2004). The Text Book Count 3 (in 2005) monitored
delivery of 1,265,218 textbooks and teacher’s lesson guides in around 176 school divisions with as much as 76
percent of the delivery receipts, or approximately PhP48 million out of PhP63 million worth of textbooks and
manuals, were accounted for by the CSOs (ASG, 2005).
84
Having trained a number of members as BAC observers, currently, it has 170 volunteers monitoring 55 of the 72
Department of Health-managed hospitals and 12 of the 16 Centers for Health Development. From January to April,
the team composed of volunteers monitored 14 public biddings in 12 retained hospitals primarily consisting of
drugs and medicines worth PhP143.6 million; medical, surgical, and dental supplies worth PhP5.5 million; medical
and laboratory equipment worth PhP58.8 million; and PhP6.6 million for janitorial and security services. As an
important outcome of the monitoring scheme, failure of bidding procurement of medicines, supplies, and
equipment worth PhP11 million in one regional hospital was detected and proper administrative response was
imposed (TAG, 2006).
85
With only eight out of 235 representatives and 23 senators willing to share information, the group persisted in
reviewing utilization of IRA using available data from the Departments of Budget and Management and Public
Works. The group has evaluated the projects and accomplishments of about 103 representatives in 2003 and
another 74 in 2004. A formal cooperation agreement was signed between the CODE- NGO, the Department of
Public Works and Highways, and the Department Budget and Management in February 2005 (TAG, 2006).
 47

effort to monitor barangay funds for local development projects, known as IRA
Watch was recently launched by the Catholic Bishops Conference of the Philippines
and its National Secretariat for Social Action (CBCP-NASSA). In cooperation with
the Department of Budget and the Barangay League officials, the CBCP intends to
deploy members of its Basic Ecclesial Community as observers of procurement
activities at the barangay level.

Although a number of CSOs have participated well in the monitoring scheme of some
government procurements, still the utmost potential of generally being involved in all
activities regarding government purchases is not met. The PWI, TAN and CAC are
collaborating with the OMB and GPPB in the training, accreditation and deployment
of CSO observers but more CSOs must cooperate to be able to comply with the law
and have a firm grip on government procurement at all levels and sites.86

Philippine watchdogs did not confine monitoring work to procurement. To monitor

whether politicians can comply with their commitments to good governance and raise
the bar in filling up critical positions, the Transparency and Accountability Network,
initiated the Appointments Watch. Starting with the Ombudsman Watch in 2003,
TAN, Libertas, and the Alternative Law Group mounted the Supreme Court Watch in
2005 and recently the Comelec Watch. This spadework paved the participation of
civil society even as just observers in the interview process and in gathering both
positive and negative information about the candidates. While civil society inclusion
in the process is still token and civil society participation in the process is still
wanting, accountability is raised since more pressure is put on the appointing
authority and the eventual office-holder. The appointments watch must permeate
other equally critical positions in government.

Nevertheless, as OECD (2000) suggests, a well-developed civil society can represent

a wide variety of interests. Civil society organizations with varied organizational
cultures will allow seeing the problem of corruption from different perspectives which
will bring together diverse viewpoints to design a strategy and increase its chances of
success. Besides, a political will to fight corruption based on a broad support from
various sources in civil society ensures that the measures taken are not politically
biased. The variety of interests ensures that the anti-corruption drive responds, in the
end, to the public interest.

When civil society is franchised, collective action blossoms, and institutional

restraints within the state are let loose, allowing the country generally to successfully
confront internal pressures for reform. When civil society is repressed, ambitious
reform campaigns flounder at the implementation stage. The existence of campaign
finance watchdogs (the PCIJ is one shining example) can turn the tide against
corruption in the use of campaign funds. Yet all is not well with many civil society
organizations. A principal drawback is that accountability structures among NGOs

86
TAN provides through its member organization the PWI the necessary training for the volunteers who would sit
in these committees (for the monitoring and evaluation of actual public procurement practice), which later was
joined by the Fellowship of Christians in Government and Concerned Citizens of Abra for Good Government in
conducting training sessions and La Salle Institute of Governance that helped develop the deployment matching
software for third party procurement monitoring (Lopez-Wui, 2006). The CAC has deployed observers in the Bids
and Awards Committees of the Departments of Public Works and Highways-Region IV-A (DPWH), Department
of National Defense (DND), Department of Tourism (DOT), Philippine National Police (PNP), Department of
Health (DOH), Public Estates Authority (PEA), and National Police Commission (Napolcom) (TAG, 2006).
 48

have been slow to emerge. In contrast to government agencies which have long life
spans, civil society groups, at least many of them, have brief shelf lives. The price of
organizational flexibility is sometimes an unsure, fly-by-night existence. Some NGOs
assisting in electoral reform had been known to disappear as soon as grants from
donors dry up. Others, like Namfrel, are too focused on election reform. Yet a few
others have been created by politicians themselves, or have been co-opted, to serve as
instruments for a broad range of illicit or unethical practices. Still, despite fragile
structures, NGOs are here to stay, and the key to is to strengthen their culpability, so
that they are made answerable for good governance initiatives such as campaign
finance reform.

On the part of media, visible involvement of few groups in the fight against
corruption is a shortcoming. Majority of in- depth investigative reports are greatly
fruits of labor of the PCIJ with a number of participation from other electronic and
print news media. Also, a relatively significant fraction of the media caters news that
were often skewed in favor of the superficial—something that is saleable. A study on
Philippine media involvement in national and local elections explained that these
information gatekeepers recognize the internal problems87 in their organizations
which limit the reportage effectiveness, however, the extreme commercial orientation
of media impede them to address these concerns and make them less responsive to
their true onus to the public (Coronel et. al, 2004).

Although the civil society has been empowered by the constitution to participate on
activities concerning to national interest, they should be instilled and be guided that
their contribution must be for the betterment of the society. However, the attainment
of such an output from CSOs can hardly occur due to the financial limits imposed to
them. Grants may be given to them in accomplishing projects and programs, but the
underlying query is “ after the engagement, what happens next?” It can be construed
that there is no guarantee for the perpetuation of any program as long as budget and
time constraints are there. In this regard, an immediate source of funds must be ready
for CSO needs. In the surveys conducted by the Social Weather Station, businessmen
are willing to share three percent to five percent of their profits to put up a permanent
anti- corruption and governance fund to aid and support CSOs and NGOs in their
work. Currently, the business community thru the CAC started to raise funds for
observers in their training, but still not enough to fulfill the present demands.

To encourage CSO observers, like those participating in the BAC, a kind of honoraria
might help them to be more active in their monitoring involvement. Yet, like a double
edge knife, this action can facilitate the losing of their objectivity and independence-
an avenue that can be vulnerable to corruption.

87
News media fair reporting is halted by ratings and news- for- sale driven attitude. Likewise, inadequate
preparation and skills of media practitioners allow greater avenue for spinmasters to incorporate their agenda into
the reportage.
 49

And justice for all . . .

For its part, the Supreme Court has been addressing issues against it such as delays in
the resolution of cases, perception of graft and corruption in courts, perception of
politicization of the judicial appointment process, and limited access to judicial
services particularly by marginalized people. Under a reform-oriented Chief Justice
Hilario Davide, the Supreme Court undertook a wide- ranging set of reforms through
the Action Program for Judicial Reform (APJR) to enhance judicial capacity and
efficiency. The APJR covered six areas of concern: (1) judicial systems and
procedures, (2) institutions development, (3) human resource development, (4) reform
support system, (5) institutional integrity development, and (6) access to justice by the
poor.

Recognizing that the Philippine judicial system and procedures are susceptible to
externalities such as quasi-judicial bodies, law enforcement, investigative and
prosecutorial systems of the Department of Justice and the Philippine National Police,
the Supreme Court forged partnership with the various pillars of justice and sought
active involvement with these agencies to improve the overall judicial system. To
improve judicial processes, decongest courts and minimize their vulnerability to
corruption, the APJR enhanced court management procedures and speedy trials. The
Supreme Court believes that strengthening of the capacity of the institution, as a
whole, is crucial in the pursuance of reform.

An independent judiciary is crucial in maintaining rule of law and curbing corruption.

Prosecutors can bring cases to courts, but a competent and independent judge is
needed to impose sanctions and render justice to victims. But how “independent” are
Philippine courts? One indicator is fiscal autonomy. Reforms at the Supreme Court
are challenged by the issue of autonomy88 since the courts continue to have
“mandatory subjugation” to certain institutions such as Congress in the appropriation
of funds, the Department of Budget and Management in the release of budget; the
Commission on Audit for stringent accounting, etc. Relative to the increasing trend in
the case of the Office of the Ombudsman, a sudden decline of funds appropriated for
the judicial branch is observed. In 1999, the judicial budget (PhP6.6 billion) is about
1.13 percent of the national budget. In the 2004 budget, only 0.88 percent (PhP7.6
billion) is allotted to the judiciary-- a noticeable decrease of 25 basis points (Supreme
Court, 2005). The lower budget is ascribed to Congress, which has deliberately
lessened the funds for the judiciary relative to the earlier allocations. The Supreme
Court contends that the Constitution provides that the “appropriations for the
Judiciary may not be reduced by the legislature below the amount appropriated for the
previous year and after approval, shall be automatically and regularly released”
(Philippine Constitution, Article III, Sec. 3). Such act of Congress has overridden this
provision.

In this regard, the Supreme Court stresses that although they are zealous in pursuing
anti-corruption initiatives, their enthusiasm cannot fill the expenditure gap. With
budget reductions, Congress has opened the doors for corruption to enter and make its

88
Autonomy discussed here is called by the implementers as “full autonomy” in the context of “semi- autonomy”
since fund allocations are predetermined not by the courts but by other government agencies. Coupled with this
form of autonomy is the capacity of the judiciary to be independent in terms of its own functioning, and decision-
making.
 50

home in the judicial chamber (Dadivas, 2002). The Salary Standardization Law---a
compressed pay schedule for government employees that included judicial personnel,
aggravates the problem. The SSL is yet another condition according to Dadivas
(2002) that undermines the kind of autonomy that must be accorded to the judiciary to
ensure that courts render performance that is objective, impartial, free and
independent.

The other facet of fiscal autonomy, according to Fjeldstad (2003), is that autonomy
may also contain seeds of its own destruction. Judicial personnel may become
attractive targets of political interference due to both comparatively favorable
remuneration packages and to rent-seeking opportunities. If an institution is given the
leeway to do whatever it likes, it is tempting and easier to be private interest- driven.
Monetary benefits tend to become handsome when minimal checks and balances are
present. Fiscal autonomy, as Fjeldstad points out, must be employed with the doctrine
of mean -- everything that is of shortage or excess is not beneficial.

On the whole, it can be said that the implementation of the APJR has been a
significant force in maintaining rule of law and in deterring wrongdoing. In fact, the
Supreme Court imposed sanctions on justices and court personnel found guilty of
administrative charges filed against them89. However, the whole program essentially
serves as an ex-ante (preventive) rather than an ex-post (curative) mechanism to curb
corruption. There is no direct mode of sanction execution since the focus of the
program is management and network establishment among civil society groups and
other divisions of the government. Nonetheless, its perceived impact on strengthening
the judicial branch of the Philippine government has been significant---it has slowly
restored the faith of the citizens on the rule of law.

These choices about the structure of institutions affected the trajectory of the anti-
corruption campaign. The institutional context is strong on some “fundamentals”a
fairly developed nationwide judicial infrastructure, the presence of independent and
authoritative constitutional bodies which could be responsible for the integrity of all
issues regarding corrupt practices, civil society watchdogsbut is as yet not strong
enough to deliver the minimum necessary underpinnings for long-lasting reforms.

In the end, the variation in institutional outcomes reflected poor choice of institutional
structures. The country’s political managers opted for institutions---unstable political
formations, weak OMB/Comelec interventions, agencies hounded by principal-agent
problems---which did not demonstrate much accountability. That suggests the critical
importance of policy innovation and strategic vision in altering the course of
development of integrity-building in the Philippines.

89
From 1999 to 2005, penalized Supreme Court, Court of Appeals, Sandiganbayan justices totaled to five.
Sanctioned Supreme Court employees per court resolution and lower courts personnel, as of September 31, 2005,
were 322 and 795 respectively.
 51

Box 3

Breaking the chain

A chain is only as strong as its weakest link. To break the corruption cycle, it is important to
know its soft spots, which can serve as entry points for counter-initiatives. Luckily, there are several
access points on both supply and demand sides.
The key to strengthening weak institutions, for example, is to ensure that both international
and domestic stakeholders play an active part. Foreign investors and domestic NGOs, for example, can
keep up the pressure on central government authorities to play by the rules and avoid cutting corners in
carrying out policies. Businesses can show, through demonstration effect, good governance practices
that can be emulated by government agencies. Government authorities themselves can prove their
credible commitment to change by adopting measures that are benchmarked against the best rules and
procedures found elsewhere.
Governance as a whole must be solidly based on restraint. In the absence of countervailing
institutions, good regulatory quality is a source of strength. Pressure must be exerted on regulatory
agencies to do a good job, and resist regulatory capture. Introducing competition not only breaks the
market power of monopolies; it also gives governance relief in the absence of strong institutions. Other
ex-ante measures include decentralizing power to local governments and the private sector, and
correspondingly, keeping central government involvement only to areas where it has comparative
advantage. That would provide smaller power holders and the private sector a stake in the use of this
political resource. Ex-post, courts must be in a strong position to restrain executive power and prevent
abuse of discretion. That implies the presence of safeguards that guarantee judicial independence.
Low productivity, waste of resources and poor delivery of services can be approached through
performance monitoring and the right incentives (say, a merit-based system of rewards and sanctions),
adoption of information technology in a knowledge-based system and systems change (improved
management to meet the changing needs).
Civil society pressure (through lobbying, exposes of irregularities), public education (seminars
and forum on ethics, social justice and social responsibility) and broad-based participation
(representation of major stakeholders in decision-making processes) can reduce public apathy and the
prevalence of “business as usual” attitudes.
These initiatives are not stand-alone measures. They need a “big push” through extensive
coordination amongst many stakeholders.

Figure 6. Breaking the cycle of corruption

 52

IV. CROSSING THE THRESHOLD

Two immediate things make change a likelier outcome than stasis. One is that
pressures to deliver have given the government a continuing motive for reform, while
persuading most other stakeholders, whatever their snarls of criticism or resentment,
not to stand in its way. The second is that the actions implied by that motive are
likely to draw the government into new acts and new types of engagement, whether it
likes it or not. The passage and later amendment of the Anti-Money Laundering Law
to conform to global standards came about due to strong pressure from the
international community and the threat of countermeasures against the Philippines by
the Financial Action Task Force. Even its detractors had to grudgingly give their nod,
or risk being accused of being in harm’s way. The same level of pressure from
international finance community may eventually weaken resistance to the bank
secrecy law. SWS and Pulse Asia surveys of dissatisfaction on government’s
sincerity to fight corruption continue to exert pressure on the Arroyo administration to
deliver at least a semblance of more credible reforms. The MCA grant has prompted
the Philippine government to earmark PhP1 billion counterpart fund to strengthen the
Office of the Ombudsman, PAGC, DOF-RIPS, BIR, BOC and other priority agencies.

Since the big challenge is how to dilute the high concentration of power by vested
interests, the repertoire of reform must gradually expand to include broader structural
interdependence among core state institutions and wider giving and taking between
the state and civil society. The Solana Covenant is a clear example of how
complementation of core state institutions (such as the Ombudsman, CSC and COA)
can reinforce each other’s capabilities and achieve focus. But this is only a beginning
and Solana is vulnerable to coordination failure whenever there are changes in these
institutions. Even with IAAGCC, interdependence of state institutions must be
broadened. For instance, to score success in the prosecution of high profile cases,
closer collaboration is demanded among the prosecution agencies such as
Ombudsman, DOJ, AMLC and the Sandiganbayan. State institutions must also
nurture a sensible give-and-take relationship with civil society to rally it to its side.
Yet this is now problematic due to the state’s seeming roundabout action on high
profile cases like the failed Comelec computerization of elections and the fertilizer
scam.90

90
On January 13, 2004 the Supreme Court nullified the election counting machines contract of the Comelec and
ordered the Comelec to recover the PhP1.2 billion it misspent. The High Court directed the Office of the
Ombudsman to determine the criminal liability of the public officials and the conspiring private individuals
involved in the nullified Comelec resolution and the contract. Kilosbayan-Bantay Katarungan has filed a
Complaint-Affidavit with the Office of the Ombudsman against the Comelec Commissioners who had awarded the
contract and the conspiring private individuals. The Ombudsman, in its Order dated October 13, 2004, required all
Comelec Commissioners as well as the incorporators and stockholders of Mega Pacific eSolutions to submit their
comment on the Complaint. As of June 2005, the Ombudsman has manifested before the Supreme Court that the
various fact-finding investigations had been conducted, criminal and administrative charges filed before it against
persons who appeared to be responsible for the anomalous contract. Preliminary investigation had also been
conducted with respect to the non-impeachable Comelec officials and conspiring private individuals. Furthermore,
the Ombudsman is in the process of determining whether a verified impeachment complaint may be filed against
the officials concerned (Kilosbayan, 2005). Early in 2006, the Supreme Court reminded the Office of the
Ombudsman twice of its responsibility to determine who among the officials and private individuals are guilty of
criminal liability and set a September 30, 2006 deadline for the OMB to issue its ruling. On October 2, 2006,
OMB cleared the Comelec of any liability in the voided Mega Pacific deal. The OMB ruling is heavily criticized
as it rebuked the highest court of the land which had already declared that the awarding of the PhP1.3-billion
contract to Mega Pacific Consortium was illegal and violated the Comelec’s own bidding rules. It’s like OMB
saying there is irregularity, but no one’s to blame for it (Jimenez-David, 2006).
 53

The key focus of anti-corruption efforts should be on enhancing political

accountability and taking maximum advantage of ongoing reforms in public
management. The priorities should include creating new accountable structures
within and without agencies (e.g. making the chain of command work and ensure
resigned/retired officials cannot go scot-free), increasing formal channels of access to
decision-making (since secrecy is a formula for corruption), enhancing oversight
through participatory strategies, and deconcentrating political and economic power
through deeper decentralization and privatization. The Local Government Code is a
step in the right direction since its passage reduced the monopoly power of national
government in decision-making and the allocation of resources. But national
government can retain monopoly of economic power for as long as it is engaged in
proprietary functions. Deconcentration of economic power can be achieved through
privatization, lending itself to more impersonal exchanges. Oversight can be
enhanced through participatory strategies (e.g. observers in the budgeting and bidding
process, NGOs serving as pressure points).

Clearer and more far-reaching conflict of interest legislation could have a powerful
impact given that existing rules cannot prevent and/or are adequately not enforced.
(For instance, rules on divestment can be easily circumvented by nominally
transferring ownership or business interests of a public official to an immediate
member of the family. Public officials can still hold concurrent positions e.g. a
cabinet position and directorship in various government corporations, legislators and
other elected officials can still practice their profession despite their sworn duty to
unswervingly serve the public.) Its enforcement would require stronger verification
and audit powers and further judicial training and reform, areas that are worthy of
consideration in their own right. A credible reform program should be designed to
make more public officials answerable to a wider range of constituencies. Strong
sources of advocacy and analysis from NGOs and academic institutes are imperative
for building and empowering constituencies that generate sustained demand for
control of corruption. Public opinion surveys periodically conducted by research
outfits like the SWS and Pulse Asia mount pressure for stronger anti-corruption
measures. Think tanks like the Development Academy of the Philippines have
developed and adapted anti-corruption tools like the report card surveys, corruption
vulnerability assessment, integrity development review, and citizen’s charters to raise
transparency and accountability. Initiatives of this sort are a powerful impetus for
developing performance benchmarks, and providing a breeding ground of change
from a control-oriented framework to one of quality service delivery and
accountability.

Political accountability is perhaps the most crucial constraint needed to restrain the
behavior of politicians and public officials by organizations and constituencies with
the power to enforce sanctions on them. Kaufmann (2003) believes that corruption
and misgovernance, rather than merely a symptom of more fundamental political
forces, play an important role in shaping the political forces. The key is to increase
the cost of making decisions such as successfully convicting public officials who
made decisions that favored narrow private interests in the case of PEA-Amari deal,
RSBS, election computerization irregularity, fertilizer scam, etc. at the expense of the
broader public interest. An important step is to increase the transparency of the
decisions made by elected officials by ensuring access to information; wider
 54

publication and information dissemination with the aid of ICT, and encouraging
public debate, followed by the strengthening of institutions (for example OMB,
Sandiganbayan, AMLC, the courts) having the power to apply credible sanctions to
them. Measures in place to fortify these institutions will contribute to anti-corruption.
In favorable contexts, such mechanisms can also be created within government
bureaucracies by establishing ethics codes and disciplinary committees (such as the
Internal Affairs Board), gifts and benefits policy, mandatory disclosure of income and
assets.

Civil society groups can also express their collective demands for transparency and
accountability. Exposés of cases of poor performance associated with high levels of
corruption is an effective deterrent to corrupt behavior (World Bank, 2000b).
Because transparency depends crucially on freedom of press so that right moves and
wrongdoings on the part of the government can be publicized, a freedom of
information law ought to be enacted by Congress.91 For instance, the public can
demand the disclosure of information pertaining to campaign financiers by invoking
such law. That will reduce the informational problem between principals (citizens)
and agents (politicians and bureaucrats), thus improving accountability.92

Civil society can increase accountability pressures as part of the good governance
agenda. The Philippines has a strong tradition of collective action as part of the
political process. Thus exogenous pressures and opportunities will have a powerful
impact in reducing state capture and making steady progress in anti-corruption. Civil
society groups can act as intermediaries for communication between the populace and
the institutions of state. They can provide the critical tools of public monitoring and
accountability that are essential for placing constraints on politicians and bureaucrats.

Nevertheless, Kaufmann (2003) suggests that to attain concrete progress, it maybe

important to move away from excessive focus on the agency problem and orthodox
judicial/legal measures. To address corruption more effectively, Kaufmann proposes
to focus on the challenge of state capture and related forms of illicit influence and
political funding. This in contrast to the mainstream literature on corruption, which

91
Four pending bills on the Right to Information were filed in the House of Representatives and are currently
under consideration by the Committee on Public Information headed by Representative Gilbert Remulla (2nd
District, Cavite). These measures are House Bill 784, filed by Rep. Harlin Cast. Abayon (1st District, Northern
Samar); HB 2123, principally authored by Rep. Satur Ocampo (Party List, Bayan Muna); HB 2993 by Rep.
Emmanuel Joel Villanueva (Party List, CIBAC); and HB 3041 by Rep. Ernesto “Ernie” Pablo (Party List,
CIBAC). The first three bills seek to ensure access to public information by mandating government agencies to
attend to written requests made by any person for specific records and documents. Also, the bills have the
provision that in case a government agency denies rendering the request for information, the agency should notify
the requesting party in writing clearly suggesting the grounds for the denial/s. On the other hand, HB 3041 ensures
access to information by requiring the electronic publication of all resolutions, regulations, circulars, decisions,
contracts, concession agreements and similar documents made by government agencies (Congress of the
Philippines, 2006). A bill, sponsored by Sen. Jinggoy Estrada (Senate Bill 1026), is likewise pending in Senate. It
proposes to create a public information and media office (PIMRO) in all branches, subdivisions, instrumentalities
and agencies of the government (Senate of the Philippines, 2006).
92
There are tradeoffs. Reduced opportunities for political expression and participation by broad segments of the
population limit the information available to interest groups, and naturally tend to raise the concentration of power.
Sometimes, inability of the bureaucracy to collect and process information adds to the cost of negotiation among
interest-group representatives. This raises the marginal net benefits of concentrated power. A weak administrative
system also impedes information processing. Informational imperfections also tend to give rise to “wars of
attrition” in interest group bargaining, which can be costly in terms of resources and delays in adjustment. Some
increase in power diffusion may help increase credibility of policies yet in one sense, concentration of power
resolves the problem and allows a quicker and more flexible response to changing circumstances, given the
available information (De Dios and Esfahani, 2001).
 55

defines corruption as an agency problem (e.g. BIR) where lower-level bureaucrats

pervert sensible rules. The new sin tax law comes to mind in this case. The urgent
need is to shift the battleground from “small wars” (principal-agent problem, picking
of low-hanging fruits) to a “grand war” (grand corruption, state capture).

Dealing with the agency problem is clearly not enough. It is only the tip of the
iceberg. This is the point where the system/current effort might have reached its
limits. Paradoxically, the same principles of transparency and accountability,
circumscribing discretion and removing monopoly apply to overcome the limits. The
difference lies in the evolution of strategies that are more creative and rigorous.
Challenges are greater, thus, much more energies are needed.

Being a soft state, the Philippines has only few resources to do battle. Hence it makes
sense to concentrate resources on strategies that would make a big difference and
provide the impetus for changes along a broad front. That suggests doing a lot for
little instead of doing a little for a lot. To spread few resources thinly is to invite
instant failure.

There should be a shift from personal (patronage) to impersonal exchange (rules that
are enforced impartially). The country needs to develop constructs in which there are
favorable incentives to impersonal transactions. For instance, experience shows that
the new procurement rules have discouraged/decreased campaign contribution of
businessmen since the process has become tighter and more competitive. Also
necessary is the development of impersonal enforcement mechanisms to provide
effective enforcement of agreements in impersonal exchange.

Corruption is endogenous since the regime itself is predatory to state capture (Charap
and Harm, 2000). That implies that the first order of business is to put constraints on
the state’s instruments of discretion on franchising, licensing, policy-making. Rents
are known to be extracted more efficiently through the sale of policies, franchises and
contracts (again, the sin tax law, the Amari deal illustrate the point). This is the bigger
problem of corruption. A good starting point is to devolve this power of discretion
and effectively reduce state capture by ensuring big ticket items are out of the reach of
the few big players who hold concentrated authority. Of course, this might simply
decentralize corruption. But at least dealing with greater number of rent seekers
restricts any one faction to a limited domain and prevents it from capturing
regulations.

The following is a list of current programs with the best prospects of crossing the
threshold. This is based on an assessment that was validated through Delphi
consultation with experts on anti-corruption. See Annex 5 for details.

Table 1. Potential AC Winners

Policy/measure Prospects
1. OMB-Sandiganbayan connection Strengthening the OMB by providing it with ample
resources and additional power to raise deterrence,
strengthen prevention, and fast-track prosecution,
and by fortifying its independence will have high
social returns. This must be complemented by
similar effort to strengthen the prosecution capacity
and efficiency of the Sandiganbayan e.g. by

2. Solana Covenant
3. Lifestyle Probe
4. Meritocracy in civil service
5. Integrity development programs
7. Civil society watchdogs
8. Programmatic values formation
6. Campaign finance reform
Grand corruption
The following complementary programs were as well included in the consultation. It
makes sense to consider these as AC-compatible programs that ought to be
strengthened and expanded. In order to make a big push on anti-corruption, these
programs will have to be implemented hand in hand with the AC programs.
Table 2. AC-Compatible Programs
Policy/measure
1. Anti-Money Laundering
56
increasing the number of divisions to allow
continuous trials. The policy must be paired with
Solana.
Sustain Solana or regroup, strengthen coordination
of agencies
Periodic or random monitoring of assets and
lifestyles of significant decision makers in the
public sector should be reactivated. Lifestyle
probes should be conducted by an independent
agency. Design should be improved by making
checks proactive and random, not targeted (e.g. it is
the public who identifies who should be checked).
Strengthen coalition and forward linkages to score
in prosecution of the guilty officials.
Strengthening meritocracy in civil service will
stabilize the bureaucracy. It is important to fast-
track policies/measures which are in the
inception/pilot implementation stage but have very
high potential. Program should be complemented
with Lateral Attrition and Wage Bill Reform
including the adoption of a vetting system and
appointments watch.
Integrity development programs (e.g. IDAP, IDR,
IAB, Internal Audit) can significantly address
bureaucratic/administrative corruption. But these
should be complemented with other programs.
Corruption prevention programs should expand to
local government units.
Need to sustain pressure from civil society; capacity
building; establish/strengthen regional networks of
CSOs; provide CSO with handles e.g., Right to
Information Act; to include investigative reporting,
report cards
Complementation with legal enforcement and
structural reforms, widen application e.g. schools,
judiciary; link moral and structural e.g. amnesty,
prepare people to accept consequences for those
who would like to get out of the system; e.g. Ehem!
Aha! Campaign, civic education, indoctrination
Potential impact is very high since campaign
finance is one of the root causes of corruption
Remarks
Has very high potential; need for specialists; tie-up
with ratification of UNCAC; passing of a domestic
law that will exempt investigating agencies (e.g.
OMB, COA investigating the corrupt activities that
 57

led to money laundering) from bank secrecy law if

2. Revenue Integrity Protection
Service
3. Run After Tax Evaders (RATE)/
Run After The Smugglers
(RATS)
4. Action Program for Judicial
Reform
the subject is guilty of money laundering
Self-limiting; need complementarity with RATE
and RATS (e.g. prosecuting BIR/BOC personnel
who are party to tax evasion and smuggling)
Good program but has a coordination problem;
need to strengthen the prosecution side
Not designed as an anti-corruption measure; must
expand to fast-track prosecution of corruption cases

5. Lateral Attrition
6. Wage Bill Reform
7. Procurement Reform
8. New Government Accounting
System
9. Rationalization Program
Agency-specific (e.g. BIR and BOC); has its own
momentum; has greater potential if applied to the
rest of the bureaucracy
Significant if the bill is passed following the CSC
and DBM design; will have its own momentum
Effectiveness is limited to bureaucratic corruption;
need to address Build-Operate-Transfer type of
transactions; has its own momentum
NGAS is a management tool, not an anti-corruption
measure by itself; it rated high because of the
possibility of real-time auditing, but right now it is
only electronic accounting; it facilitates preparation
of financial statements, recording of accounts and
results of operation but cannot assure evaluation of
results of operation
A streamlined bureaucracy will be more resistant to
corruption; can address need for structural reform;
program has its own momentum

V. CREATING VIRTUOUS CIRCLES

Taken together, the building blocks of effective anti-corruption policies appear

overwhelming, as they entail significant changes in the nexus of relationships within
government and among government, the private sector and civil society, and in the
current policy practices of government. The lock opener is not a singular capacity to
pursue reforms all at once. The choice and sequencing of reforms must be in harmony
with both the limits and possibilities of vulnerable governance in the country.

Focus is important in the design of programs. Doing a lot for a little means providing
more substantial assistance to a narrow set of strategic programs. Better risk analysis
of anti-corruption programs must be made. It may not make much sense to target sure
winners, they would have succeeded anyway (e.g. COA did not need additional
resources when it successfully implemented NGAS). On the other hand, it is a waste
of resources, to target “lemons” or those which are bound to fail and “flavor of the
month” projects as these are merely transients. Targeting projects with high social
returns is what makes economic sense. The key, too, is to avoid strategic behavior,
such as that which encourages moral hazard (for instance DOJ adverse rulings on
RATE, if they are no longer exceptions to the rule, serve as “guarantees” that
encourage moral hazard). Finally, a basic rule is avoiding programs that overlap, or
adversely affect each other.
 58

Compliance should be easy and not costly; agencies will have an incentive to avoid
any attempt to comply and simply risk the legal consequences. In such cases, a
discretionary approach may provide the benefit of lifting the level of compliance by
encouraging agencies to meet an intermediate standard. Rather than an all or nothing
option, discretion can provide agencies attainable intermediate goals (Dee, 2006).

Proactive strategies would have higher dividends than reactive strategies. Proactive
approaches encourage (via education), coerce (via the possibility of audit) or require
(via enforceable rules) compliance before the breach occurs. Some proactive
approaches can appear resource-intensive (e.g. education), but they may still be more
cost-effective than reactive strategies (e.g. lifestyle checks). Reactive approaches may
be effective for “demonstration effect.” But the breach must be concentrated (high
profile cases) and easy to trace back to the offender.

A serious anti-corruption campaign cannot be commanded from the outside, but needs
committed leadership from within, correctly from the topmost levels of the state.
While pressure for reform can come from below—indeed, this can effectively supply
a broad social consensus—any effective program must be supported from the top. Yet
any strategy that relies only on high-level leadership will be vulnerable to the many
uncertainties of the political process. Marshalling credible commitment should cover
key state institutions and organizations within civil society. A “convergence” of
strong players would make for a breakthrough performance against corruption---the
CSC attempting to reduce the politicization of the career bureaucracy, the Supreme
Court putting restraint on executive power, NGOs acting as watchdogs against abuse
of power. A broadly-based leadership makes the difference in devising means for
sustaining ends. Broadening the number of stakeholders in various sectors and
encouraging their participation in decision-making can end policy biases, while
ensuring that the decisions are made above board, open to the scrutiny of the public.

In anti-corruption, leadership can come from a determined Office of the Ombudsman

with the clout and resources to launch reforms in its area of responsibility. Of course,
its reform efforts will require the combined energies of the executive department,
legislature, judiciary, constitutional bodies such as the COA and CSC, private sector,
civil society and international donor community. The National Anti-Corruption
Program of Action (NACPA), under the leadership of newly-appointed Tanodbayan
Merceditas Gutierrez, already planted the seeds of this convergence.93 Certainly, any
leadership will produce mistakes. The point however is without it, worse things can
happen. Leadership is needed where others cannot be expected to step in so readily
and directly. Paradoxically, even limited reforms also set the stage for state capture,
enabling narrow interests to shape policies to their liking, in the end undermining
public trust and weakening the impetus for further reform.

93
In December 2004, President Arroyo, through Executive Order No. 407, designated Chief Presidential Legal
Counsel Merceditas Gutierrez as Anti-Corruption Swift Action Team (SWAT) Leader (also known as Anti-
Corruption Czar). The directive seeks to consolidate and strengthen past and current anti-corruption efforts of the
government, the business sector and civil society. Gutierrez carried this reform when she assumed office as the 4th
Ombudsman in December 2005. In a summit held in March 2006, she brought together the leaders of the
executive, legislature, judiciary, constitutional bodies, private sector, and civil society to commit to a common
program of action, articulated in NACPA.
 59

Developing dialogues with institutions of government, private sector and civil society
are critical for gaining knowledge beyond the narrow limits of the governance
typology employed in this paper. Dialogues are also important in building
constituencies. In anti-corruption, it is imperative to focus confidence-building efforts
among the civil society, whose skepticism and apathy in combating corruption are
widespread. How workable specific reform instruments are is closely linked to the
way in which people feel trust in their institutions and in each other. Trust is a critical
ingredient of social capital in the public-at-large.

The existence of state capture constitutes an extreme manifestation (yet a realistic one
in many settings) of the importance of understanding the private-public sector
governance nexus, and as a result requires rethinking the traditional advice of
controlling corruption as if it was solely a problem within the bureaucracy
(Kaufmann, 2003). Addressing state capture requires deeper understanding of the
private-public sector governance nexus. There is a need to focus on the links between
elective public officials and private sector through campaign finance; links between
appointive public officials and the private sector through regulation, policies,
contracts, etc.

Whether an enabling or constraining environment is created, along with incentives

and disincentives for change, would be decisive in the choice and stepwise
implementation of reform initiatives. That requires assessing political culture, as it
relates to the way authority is exercised, and the extent to which power is deployed
across different institutions. Pinpointing where the discretion is would be a significant
step in breaking the links between money and influence, and reversing state capture.
Political finance goes to the heart of the country’s political culture. The high spending
abilities of politicians and the weak powers of parties affect the way political culture
progresses. The culture of governance is also linked to accountability: the goal is to
destroy patron-client structures, especially in political parties, and replace them with
explicit rules.

Sustainability has been defined as “the resilience to risk of net benefit flows over
time.” As demonstrated earlier, stand-alone efforts are likely to be vulnerable to state
capture. Isolated islands of reform can provide valuable demonstration effect but may
only survive a brief period before being swamped by inefficiencies at other levels.
Initial reforms ought to grow into more comprehensive programs. These include
strengthening OMB by providing it with ample resources and additional power to
fast-track prosecution, increase deterrence, and strengthen prevention. Despite
attempts to limit government’s role to enabler and facilitator, it remains the biggest
player, in terms of its own public management stakes.

At this stage, it makes good sense fortify coalition of anti-corruption institutions to be

able to cover grand corruption. The constellation of institutions such as the OMB,
CSC, COA can act as field generals to orchestrate the war on corruption. It is also
important to encourage the Philippine Supreme Court to be more proactive---similar
to the role the US Supreme Court took to enforce affirmative action during the time of
racial unrest. The Supreme Court can pursue cases with the same proactiveness (e.g.
instructing the OMB to fast-track Comelec computerization case, following up cases
like the fertilizer scam). But there is a need to grant more statutory independence to
these institutions. It would help to model these institutions after the Bangko Sentral
 60

ng Pilipinas, acknowledged as the only Philippine agency with true statutory

autonomy. For starters, giving COA the mandate for real-time auditing, or CSC the
authority to make the appointments below the cabinet level, will put limits on power
concentration. Civil society such as the PCIJ must be strengthened and must be
supported to do more exposés on state capture. More international pressure such as in
AMLA can create the necessary impetus for hard reforms.

Sustainability also means digging deeper into the underlying sources of institutional
weaknesses and strengthening institutions that can resist them. One key measure is to
build public service neutrality: ensure that the public service is politically neutral and
that public servants are neither allowed nor required to make contributions to political
campaigns as a way of obtaining public sector employment. This will contribute to a
meritocratic public service that will resist party bias and will encourage decision-
making in the public interest. Another is to strengthen the lower courts so that anti-
corruption cases are decided fairly and with dispatch. Likewise, there is a strong need
to strengthen corporate governance. Restraining business misbehavior obviously will
limit the range of public policies that are potentially “for sale”, thus constraining
illegal payments.

While valuable windows of opportunity may arise in specific occasions, it is

necessary to manage expectations and emphasize the long-term character of reform (it
is impossible to completely wipe out corruption), while still taking swift, decisive
actions (such as putting to jail the big time corruptors). Government must assign
budget resources as well as capable managers to execute a targeted and programmatic
anti-corruption campaign. Civil society can offer only what it has, which is not much
to begin with. Business associations and NGOs can help identify priorities and can
monitor results, but they cannot deploy the political will and resources of the state that
eventually are needed to create transparent and accountable institutions of campaign
finance. The challenge ahead is awesome and the task will not be easy.

In sum, it would be wise to consider the following points in setting the subsequent
Philippine anti-corruption agenda in order to achieve further breakthroughs.

Do a lot for little. Maintaining a few but high-visibility initiatives can be more
critical when resources are few and there is a strong need to jumpstart the drive
against corruption. These undertakings can likewise alter the behavior of public
officials. In the calculus of the corrupt or would-be corrupt public official, the
probability that his/her corrupt acts would be detected and investigated can increase
significantly with highly focused campaigns employing innovative techniques like
lifestyle checks in the case of PAGC and RIPS and scrutiny of bank records in the
case of AMLC. The chance of building an airtight case against corrupt public
officials and by extension, the probability of convicting them can also improve. In
other fields, it doesn’t make sense to have redundancies. The costs of addressing
corruption are prohibitively high and the few resources available should be spent on
strategic measures such as enforcement.

Mind the forest as much as the trees. It is important to gradually move away from
excessive focus on the agency problem and orthodox judicial/legal measures. The
focus on “pettier” forms of corruption must give way to addressing “grander” forms
of corruption, such as state capture. State capture work as powerful brakes on anti-
 61

corruption initiatives, eroding their effectiveness and sustainability, since the political
and economic forces associated with capture play a pivotal role in shaping anti-
corruption policies and outcomes. Focus should be more on the forest than the trees.

Avoid stand-alone efforts. The repertoire of reforms must prefer structural

interdependence among core state institutions and build alliances. Without
harmonization of effort within government, islands of reform (i.e., BIR working so
hard to build up RATE cases only to be reversed by DOJ) are doomed to fail. While
sustaining Solana type collaboration, coalition with several civil society groups and
even donor alliances ought to be nurtured to maximize results. Civil society must be
provided with information in order to participate meaningfully.

Don’t target “lemons” – they are bound to fail. Actions such as crash programs on
moral regeneration may not add up to meaningful changes in this early period of the
anti-corruption campaign--- it is long-term value formation programs (e.g., Ehem!
Aha! Program and values education in the basic education curriculum) which can
make the difference. Neither is it worthwhile to invest in costly low value-adding
advertising campaigns and promotional gimmicks. Activities like these easily wear
off unless they are part of a wider strategy to build social capital. Consciousness
raising has very low impact in a society where corruption is endemic.

Focus on prevention rather than cure. Measures that will root out pathologies and
erode the breeding ground for corruption are part of long-term solutions. Deterrence
is better that cure, hence preventive measures must be given the priority attention they
deserve. Short-term measures are important to obtain quick wins but they should
build/contribute to long-term outcomes. The entrenched nature of corruption requires
breakthroughs, but incremental improvement over the long run may be more cost-
effective and give the campaign more dividends.

Don’t attack symptoms, go to the root of the problem. Global experience suggests
that efforts to combat systemic corruption have to go beyond raising consciousness
and instituting deterrence. It is important to determine the points of vulnerability to
corruption, analyze exactly how “corrupt buyers and sellers” find each otter, how they
enforce “implicit contracts”, and break up whatever pattern is disclosed. The country
must begin to break up alliances that are responsible for state capture and related
forms of illicit influence and political funding that underlie corrupt practices.

Devolve and deconcentrate power. Political power wielded to influence and/or shape
policies in order to penetrate, preserve and expand economic power must be
restrained. Deconcentration of economic power through devolution and privatization
can shift personal exchanges (patronage) to more impersonal exchanges. Devolution
of central powers to local governments will reduce the importance of the outcomes of
national contests since it would remove sole discretion from national agencies and
vest this to local governments. It maybe argued that devolution merely shifts
discretion from one level of government to another. The big difference lies in that
investors under a decentralized regime would have choices among different locations
effectively achieving a competitive regime. In such circumstances, as stressed by De
Dios and Esfahani (2001), rents and exactions tend to be small as different local
governments compete with each other for investment. Globalization fosters
deconcentration of power. To the extent that a country is compelled to compete for
 62

trade and investment on equal footing with others, there is much less room for
national authorities to exercise discretion in changing the rules of the game since the
country must effectively vie with others offering similar terms. In effect government
may choose to reduce their discretionary power by entering into global commitments.
This also binds their successors and thus ensuring policy stability (De Dios and
Esfahani, 2001). This might be the best manner of dealing with state capture.

Catch the big fish and not the small fry. To the public, punishment is still the best
way to fight corruption. For instance, the government’s pursuit of big time tax evaders
is able to send a strong signal to the public that it is serious in reducing tax leakages.
In the same vein, a no holds barred and expeditious prosecution of high officials
involved in grand corruption can restore public confidence in the government’s
resolve to fight corruption. Weak state in relation to strong societies. What are the
dynamics that allow society to dominate and what are some of the victories that the
state has had. There are times that the state can’t triumph over society. The presence
of big fish only indicates that the state can hardly catch these influential personalities.
The reason for talking about catching big fish and talking about penalties and
prevention boils down to the fact that public perception on these areas is driven by the
lack of penalties. People think that corruption, in procurement for example, has not
been reduced (when in fact it empirically did) because they don’t see people in jail.

Stabilize the civil service. Stability of tenure up to a certain level of government (i.e.
undersecretary) can provide continuity of policies. In the Philippines, the bureaucracy
is underpaid and deficient in training and qualifications, making it vulnerable both to
patronage politics and corruption. Political appointments frequently go down to six
levels thus affecting positions as far as those of assistant regional directors. Security
of tenure, higher pay and better training would go a long way toward improving the
bureaucracy’s autonomy and shielding it from patronage (De Dios and Esfahani,
2001).

A performance-based roadmap

The anti-corruption campaign is a tortuous journey. There are many obstacles along
the road that make it easy to fall into the travails of those who lost the path to a
fulfilling end. If there will be any milestone to the journey, it will be due to the
political will and determination of crusaders to chase held-up goals and follow the
“road less traveled” despite the risks and setbacks.

What is the road less traveled that can spell the difference? Following is a roadmap to
surmount the challenges to the current anti-corruption campaign and to restore the
fleeting progress in the control of corruption. This performance-based roadmap
consists of coherent and coordinated policy and actions needed on the part of
government, private sector, civil society and international community. Three stages,
with specific action points and targets, are carefully conceived to boost the campaign.
Many activities are impetus for the next set; each succeeding stage is dependent on
the outcomes of preceding actions. Progress will depend on the “good faith efforts”
of all duty-bearers and will require compliance with sworn duties and obligations.
 63

Stage One: Stocktaking, fortifying foundations (immediate term)

1. Assess the effectiveness of anti-corruption initiatives: At this juncture, it is

important to take stock of existing anti-corruption efforts, separate chaff from the
grain, and select those programs with best chances of pulling through. Indicators will
have to be developed which will account for the progress made in the different
program activities. As was done in this paper, anti-corruption policies and programs
were evaluated on the basis of their impact in reducing opportunities for corruption,
increasing the risk of exposure and punishment, increasing the severity of penalties,
increasing public pressure to reduce corruption, strengthening accountability of public
sector programs, equity, and ability to hurdle agency and environmental constraints.
The Delphi evaluation involving a number of domestic anti-corruption experts points
to a set of potential winners, namely strengthening of OMB-Sandiganbayan
connection, Solana-type covenant, lifestyle probe, meritocracy in civil service,
integrity development programs, civil society watchdogs, programmatic values
formation, campaign finance reform and a number of AC-compatible programs to
focus on. Initiatives should focus on the delivery of tangible results. A unified
monitoring system must be put in place to keep track of progress.

2. Preserve the gains and the credibility of the campaign: It is essential to preserve
whatever gains derived from existing anti-corruption efforts. Feeding forward to the
public the stories of small and big “wins” could reverse negative perception and raise
the country’s score on control of corruption. A good communication plan could
address the asymmetry of information on accomplishments and expectations. But AC
programs must consistently produce positive results to ensure continuous flow of
positive information. To regain public confidence, the need to fast-track resolution of
high profile cases and punish the corrupt cannot be overemphasized.

Anti-corruption institutions also ought to take moves to arrest any erosion of public
confidence in their sincerity to fight corruption. Undeniably, weak leadership and
agency capture seems to be a grim reality in some institutions.94 It is important to
deal with the problem since it lowers the credibility of the agency and adversely
affects the anti-corruption campaign. Civil society, donors and international
community can raise the pressure to severe the links between agency operatives and
vested interests. Internal reformers and agents with “conscience” should be protected
and encouraged to speak out within the bounds of CSC rules.

3. Strengthen coordination of anti-corruption institutions: To the extent workable,

strengthen partnerships and coordination that were forged among anti-corruption
organizations. The structural interdependence among core institutions such as the
OMB, CSC and COA (as is the case of Solana) can be translated into a collective
power and used as countervailing force against vested interests that undermine major
anti-corruption initiatives. In cases when one sponsor falters, it would be necessary to
find strength elsewhere. Regrouping is an option. Untapped avenues can be used to
fill the slack created by the current situation. For instance, CSC, COA, DBM and
PAGC, even if they have no prosecutorial mandate, must be encouraged to take a
more vigorous anti-corruption campaign. Congress, through legislative oversight, can
bring large-scale corruption cases to public attention and plug loopholes by passing
94
The biggest challenge for the crusaders is how to deal with the perception that what is happening is government
buy-out of insurgent agencies, rather than government buying-in the anti-corruption programs.
 64

remedial legislations. Civil society coalition can also open up other avenues e.g.
going directly to courts and keeping-up media exposés.

Interdependence of other state institutions must also be fortified. To score success in

the prosecution of high profile corruption cases, closer collaboration is demanded
among the prosecution agencies such as OMB, DOJ, AMLC and the Sandiganbayan.
All these agencies must be adequately equipped since the likelihood of prosecuting
the corrupt is only as high as the competence of the weakest link.

The combined energies of the constitutional bodies, executive, legislative, judiciary,

private sector, civil society and donor community is essential to achieve success. But
at this stage, what is more important is to prevent a fall-out from the coalition and to
keep the key players, especially those from the civil society, in the ring.

4. Pass remedial legislations: Despite the existing anti-corruption laws, it is still

important to arm the anti-corruption bodies with foolproof instruments. An urgent
legislative measure is the proposal to create more divisions in the Sandiganbayan to
allow continuous trial and hasten the resolution of pending corruption cases. Policy
inadequacies that lend to reversal of victories should also lead to remedial legislation
(e.g. granting powers to DOF to pursue its tax evasion cases in court, narrowing the
discretion of OMB on ascertaining liabilities and culpabilities as in the case of the
election computerization anomaly). Effectiveness of laws dealing with corruption can
be maximized by including provisions on whistleblower protection, criminalization of
bribery, amendment of the forfeiture law, more far-reaching conflict of interest rules,
among others. For the independent media and the civil society to function effectively,
there must be freedom from harassment and freedom of information. Thus, it is also
important to decriminalize libel and pass the right to information act.

To bring the legal regime versus corruption at par with global standards and to
facilitate international cooperation, the country would do well by ratifying the UN
Convention Against Corruption (UNCAC).

5. Stabilize the civil service: Stability of the civil service is crucial in creating a
bureaucracy that is more resistant to corruption. Stability of tenure up to a certain
level of government (i.e. undersecretary) can provide continuity of policies and
broaden the support base for anti-corruption programs. Reforms should give
particular attention to de-politicization of appointments and decompression of salaries
of government executives.

Stage 2: Consolidation, pushing the limits (medium-term)

6. Push the limits of “winning” programs: At this stage, winners should start
crossing the threshold. For instance, lifestyle checks can raise the ante and include in
the random probe the powers that be. COA could shift from post audit to real-time
audit. The Solana covenant could graduate from sharing of resources and information
to tightly coordinated joint actions e.g. OMB building up corruption cases using real
time audit from COA and CSC information on operatives. Integrity development
efforts would be linked to budget such that DBM will not release agency funds unless
safeguards are in place. ICT possibilities could be maximized to bring monitoring to
a higher level e.g., all government electronic based systems like e-procurement, e-
 65

NGAS, e-government personnel information systems, SALN databases, e-tax

payment and the like, are already integrated. Procurement reform can focus on big
ticket contracts such as build-operate-transfer.

AC programs can move from small wars to big wars, from bureaucratic corruption to
grand corruption. This time, AC programs should tackle the more difficult reforms
such as police corruption, defense procurement, campaign finance and regulatory
capture.

7. Localize anti-corruption initiatives: Horizontal expansion---from central to local--

-is called for at this juncture. Localization means replication of projects in all regions
and expansion of the anti-corruption activities at the local level. The main target at
this stage is to strengthen accountability of local government units. Expansion also
means increasing the number and participation of local communities in the campaign.

8. Continue to build the culture of vigilance and intolerance: Reform efforts will be
in vain unless the culture of corruption is reversed. It takes time to transform
generations thus schools and religious institutions must continue to invest on values
formation and education campaign. Moral and spiritual renewal programs must be
complemented with legal enforcement and structural reforms. To raise intolerance,
civil society can do its part by ostracizing in public those who cave in to vested
interests. Media can help promote a climate of public opinion that regards the guilty
and the corrupt, however powerful they may be, with the contempt that they deserve.

9. Reengineer anti-corruption bodies: Reengineering could make anti-corruption

agencies more robust that vested interests would no longer find easy to capture.
Structural improvements in anti-corruption institutions would make gains irreversible
and anti-corruption programs sustainable. In terms of independence, it would help to
model anti-corruption institutions after the Bangko Sentral ng Pilipinas, which is
regarded as the only Philippine agency with true statutory autonomy. The capacities
and competence of anti-corruption agencies should be benchmarked with their
counterparts such the Independent Anti-Corruption Commission of Hong Kong and
New South Wales in Australia.

Stage 3: Self-regulation (long-term)

10. Threshold maintenance: High levels of efficiency in anti-corruption operations

are attained in this last phase, suggesting significant reductions in the levels and
extent of corruption. Anti-corruption actors are already self-directed at this time. Anti-
corruption programs are self-propelling and incentive-compatible. Gains in policy
reforms, capability and culture building, refinement of incentive system, and
localization can now be consolidated and perfected. Corruption is kept at a minimum,
which translates into higher revenue collection and efficient and more accountable use
of public resources. Social engineering accounts for public intolerance of corruption,
vigilance of civil society, and good corporate governance.
 66

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Annex