Joint Membership Meeting
World-Class Corruption

11 June 2009 – As the nine-year term of President Gloria Macapagal-Arroyo nears its end, economic and business analysts have varied opinions on how the Philippine economy fared under her almost decade-long leadership. Wallace Business Forum president Peter Wallace shared his views on the matter during the first Independent Business Clubs Conference held on 11 June 2009 and co-organized by the Cebu Business Club and the Makati Business Club.

“Over the last eight years, things have gotten worse, not better,” said Wallace. “Official poverty and unemployment statistics show that there are more people living in poverty today, and more people are unemployed today than in 2000.” He noted government statistics showing the poverty rate increasing to 32.9% in 2006 from 30% in 2000, which means roughly 1.7 million more Filipinos fell into poverty. There were 600,000 more unemployed Filipinos in 2008 and 2.5 million more underemployed.

On the upside, Wallace mentioned some areas that did well over the years. “Our international reserves are very strong, and our banks have done extremely well in lowering non-performing loans. The balance of payments has also improved by $598 million, and foreign debt is not so bad either.” While the budget deficit fell to only 0.9% of GDP in 2008, it is likely to shoot up in 2009. But the good news, he believes, ends here. “During the past 18 years, the Philippines attracted the least amount of FDI in Asia, except for some minor countries, and we see no significant change happening.” According to Wallace, 2009 has been particularly bad since the country received almost no foreign investments during the first five months of the year. Furthermore, both foreign and local businesses are not expanding or modernizing, as reflected in the 18% decline in equipment investment and the 16% drop in fixed investment. The most alarming part, he said, is that nobody seems to be asking why.

“The pluses are the people. The minuses are the government.” This was Wallace’s conclusion after identifying the major attractions and concerns of foreign investors in the Philippines. “Foreign investors see a workforce that is vibrant, efficient, and loyal. We are very pleased with all levels of skills for the workforce, but we can’t take uncertainty. If laws and regulations change unexpectedly and capriciously, it throws all planning into chaos. And the bureaucracy here takes forever. It takes 58 days to register a business.”

Legal restrictions also hinder the entry of foreign investment, said Wallace. He highlighted the restrictions on foreign land ownership and equity, foreign banks’ participation, and the practice of profession as barriers to foreign direct investments. But over and above these, he identified corruption and unethical activities as the major blocks to the inflow of investments. “Our competitiveness ranking has generally fallen through the years, but we are No. 1 in Asia in corruption.”

Coalition Against Corruption chairman Jose Cuisia Jr., who spoke at the same Cebu conference, echoed Wallace’s sentiments on corruption. “In this day and age, with the advancement of technology, the rise and fall of the financial markets, here we are still facing the same foe—corruption,” he said. Cuisia cited the World Economic Forum’s Global Competitiveness Report released this year, which showed the Philippines, out of 134 countries, ranking 71st in competitiveness. Looking at the subcategories, the Philippines ranked 117th in both the diversion of funds and favoritism in decisions of government officials, 123rd (or 9th worst) in public trust of politicians, and 120th (or 14th worst) in wastefulness of government spending.

Cuisia presented the projects of CAC designed to combat corruption, from medicine monitoring and textbook counting, to bidding and procurement monitoring for government agencies. Underscoring the significance of citizen’s participation, he said that studies have proven the correlation between high levels of corruption and low levels of civil society activity. Thus, even a small list of successes must be celebrated, according to Cuisia. “[CAC] experiences show that the spirit of volunteerism is alive. It has also mobilized everyday citizens to be mindful of what goes on in their communities . . . and hold their local officials accountable.” He mentioned the case of overpriced lamppost and lighting facilities in Cebu where one individual was charged with graft and yet the case still seems to “reek with collusion by multiple parties to conceal the truth.” To track cases like these, the Cebu Business Club and Mactan Island Chamber of Commerce and Industry adopted CAC’s “Catch a Big Fish” Project, which aims to prosecute a high official for corruption, and renamed it, “Catch a Big Pugapo” Project

But corruption does not only happen in public offices—corporate boardrooms, offices, and shops are also exposed to the menace of corrupt practices. This is why laws were made requiring companies to disclose their operations, financial performance, and other reports to their stakeholders and the government. “If stakeholders can demand such responsibilities from officers of an organization, then every citizen of this country can demand that their public servants are equipped with the skill and understanding to carry out their responsibilities,” said Cuisia.

Both Wallace and Cuisia have high hopes for the Philippines, but, as Wallace pointed out, important reforms will have to be undertaken. “We believe in the great potential of the Filipino people. We share the dream of every Filipino that the Philippines will be a first-world economy, [but] it is not, and it is unlikely to be for a long time unless many things change.”

ABOUT THE SPEAKERS

Peter L. Wallace
Mr. Wallace first came to the Philippines in 1975 to build a factory for an American company in the maintenance industry. He was connected with two other multinational companies before founding the Wallace Business Forum in 1982. As president of the latter, he provides consulting services to more than 150 multinational corporations and aid agencies, as well as shared inputs on foreign investment and policies affecting business with the Philippine government over the years.

Jose L. Cuisia Jr.
Mr. Cuisia, chairman of the Coalition Against Corruption, is also the vice chairman of the Philippine American Life and General Insurance Company. For 16 years, he was Philamlife’s president and CEO, and AIG Philippines’ country head, until his retirement in August. Before joining Philamlife, he served as governor of the Central Bank and chairman of the Monetary Board from 1990¬–1993. Prior to this, in 1986–1990, he was the administrator and CEO of the Social Security System.