Carlos Garcia

Untrustworthy

That seems to be the label which the instigators of ‘memogate’ want to attach to the Vice President Jejomar Binay.

As the 2013 race for the senate heats up, members of the rival faction within the Palace opposing Jojo Binay have leaked a confidential memo he wrote to the president concerning a case involving corruption in the military. The advice contained in the memo was for the government to enter into a plea bargain deal with the former AFP comptroller General Carlos Garcia.

This mirrored the views of the office of the Ombudsman which at the time was held by Merceditas Gutierrez, Mrs Arroyo’s former justice secretary, who subsequently resigned as an impeachment case loomed against her in the Senate which was filed by palace supporters in the House incensed over her acceptance of the deal.

The tactic of the leakers is quite clear: make the public doubt Binay’s anti-Arroyo credentials, and by doing so, shed light on the fact that he too may have skeletons hidden in his closet. This follows news that the coalition headed by Binay and former president Joseph Estrada announced that it might field Arroyo allies not implicated in cases filed against her in their senatorial ticket come 2013.

Concerns over the integrity of the former mayor were conveniently swept under the rug during the heady days of the anti-Arroyo protest movement. Makati became a bastion of opposition in those days when most local government officials were allied with the administration of Mrs Arroyo. When the remains of former president Corazon Aquino were moved from La Salle Greenhills to Manila Cathedral, the cortege snaked through the streets of the central business district in recognition of the critical role it played as a staging ground for massive rallies.

What memogate reveals is the intention of loyalists associated with his political rival within the administration Secretary Mar Roxas to counter the vice president’s popularity by painting him with the same brush that tarnished Mrs Arroyo’s reputation by exposing his willingness to compromise with her on matters of principle that they deem sacrosanct. These insiders may have wanted the case against Garcia to proceed despite the weak and inadmissible evidence because of Mrs Arroyo’s alleged involvement in the “golden parachute” scheme involving large sums of money in exchange for military support for her government that the case had the potential to expose.

Reacting to an article about the incident reported on Rappler, which speculated on his potential motives for supporting the Ombudsman’s position (according to the report his wife had a pending case before her at the time), Binay called the media organization “reckless, irresponsible and malicious”.

Rappler for its part conceded that Binay got it right. The plea bargain was approved by the Sandiganbayan for lack of strong solid evidence. Although, the president and his allies in the house went to great lengths to reverse both the Ombudsman’s and the Sandiganbayan’s decisions, the general was only pinned down by the AFP for holding a green card to the US while in active service. He is currently serving a two year jail sentence for this infraction.

For his part, the vice president alleges that by making such sensitive deliberations ‘fair game’, the palace insiders have caused harm to the government. This is the fallout of such a propaganda war. By elevating narrow partisan interests above the national interest, these insiders have forgotten their role as custodians of the affairs of state.

On the other hand, such cannot be said of his ally Ernesto Maceda, a prospective senatorial candidate, who in a televised interview connected the case to remove Chief Justice Renato Corona from office with the electoral protest filed by Sec Roxas questioning the vice presidential election results of 2010. “With friends like these, who needs enemies,” the vice president must be saying to himself.

It appears this early that battle lines are already being drawn. The “knights of the round table” in Camelot are laying claim to the mantle of good governance and are intending to lump Binay along with the opposition that was comprised up to this point of Arroyo supporters. Binay on the other hand portrays them as saboteurs out to wreck the president’s effective governance of the nation.

The president for his part is not willing to make a split with his vice president an ‘inevitable’ proposition. He will after all need the support of his deputy in corralling votes in the senate for his proposals if indeed the vice president’s allies control a majority of the upper chamber as polling indicates they will.

The question now is whether the president can and would be able to control the machinations of those that serve in his team to prevent a dysfunction from setting in, if it hasn’t already.

The National Development Project, part 3: Renovating the Bureaucracy

This is the third of a three-part series on the Philippine Development Plan 2011-2016.

We have looked at the PNoy government’s development strategy in Part 1 in which infrastructure was seen as the problem to unlock investment and that better governance of projects would work a treat. In Part 2, Re-defining Good Governance, we scanned three possible models for good governance. We concluded that the best approach, the East Asian model, was difficult to emulate but not insurmountable.

In this third part, we investigate specific ways of renovating the bureaucracy along East Asian lines. In part 2, the work of Peter Evans* on the lessons of political institutions and development illuminated much of the discussion. It will also help inform this one.

The task at hand

Finding a recipe for good governance is something that every nation has to figure out on its own as the East Asian experience has demonstrated. There is no ‘one size fits all’ policy. While Evans attests to the importance of establishing minimum levels of probity, he also does not recommend that we attempt this renovation with the bureaucracy universally.

The main focus of capacity building in East Asia has been the economic bureaucracy. The role and scope of this project covers tax and subsidy policy, industry, trade and investment policy, planning and development as well as regulatory policy. In the Philippines, we have to include some enforcement mechanisms as well.

When he announced his presidential bid, PNoy talked about his recipe for countering the calculus of corruption. The two basic ingredients include both carrot and stick. The president has yet to outline basic reforms to put that in action. It is towards informing that agenda, that the following policy recommendations are submitted.

Policy Recommendations

1. Corporatization of Revenue Agencies.

So far the government has been emphasizing the ‘stick’ component of the recipe through schemes aimed at enforcing the law against tax cheats, smugglers and the colluding elements within the bureaus of internal revenue and customs.

Though it has produced some modest returns, it is time to put the next element, namely the ‘carrot’ in place to address long-term improvements in the professionalism of our revenue agencies. This implies tweaking the career and compensation systems working within them.

Corporatization is the way by which the government has been able to pay its agents salaries commensurate to, if not exceeding that of, their private counterparts. Singapore achieved this for its entire bureaucracy, but it is the sole Confucian state to do so. The others achieved it through a combination of salaries, allowances and benefits.

The newly minted GOCC law now provides greater safeguards against abuse done by non-performing companies. It will govern the corporatization of the BIR and BoC. In exchange for the higher compensation, transition into the new agencies must be based on merit and not guaranteed for old bureau officials.

The boards of the new revenue agencies should be allowed to appoint people from among the ‘best and brightest’. Tougher qualifying exams, educational attainments, and past performance should all be part of the selection process. Where posts cannot be filled with existing staff, recruiting externally should be the resort.

2. Economic bureaucracy renovation.

To complement the corporatization of revenue agencies, key elements of the economic bureaucracy have to be beefed up. The Department of Finance, parts of the Department of Trade and Industry, those relating to industry and trade policy and the National Economic Development Agency need to be covered.

The idea is to strengthen and coordinate its policy making capacity. I will have more to say on this below under number 6, but what I would like to pay attention to here is again the recruitment, compensation and performance package.

For the independence of our economic bureaucracy to be secured, requirements for hiring have to be made more stringent. Salaries for managers and executives which might be 2/3 that of their private sector equivalent need to be augmented with benefits and allowances that could cover a more attractive retirement and health package, housing, transport, childcare and education, and communications.

What will they be expected to do that would merit such an upgrade in their compensation and why just target these agencies? Well, under the good governance model of East Asia, the economic bureaucracy is responsible for increasing the flow of investments into and from within the country.

To do that, they need to be adept at wielding both the carrot and the stick to investors. They will also need to be coherent in pursuing a development agenda and in orchestrating it using taxes and subsidies. To make them immune to outside influence whilst engaging with the business community, their rewards including both monetary and non-monetary have to be upgraded.

3. Limitations to presidential appointments.

When the controversy surrounding LTO Chief Virginia Torres a presidential appointee and shooting range pal first showed up, I took the opportunity to advocate for more serious limits to the president’s appointive powers.

I was met with skepticism at first by a fellow contributor to this space, but in the end some kind of consensus was formed. The issue then was cleansing the roster of the past president’s appointees.

Now that the GOCC law has in effect dealt with that, it is now high time to revisit the larger issue. From several thousands, I believe the presidential appointments need to be scaled down to several hundreds. That might be hard given the number of boards and government authorities that abound.

I believe the GOCC Commission needs to act like the Civil Service Commission in screening appointments to government boards and heads of GOCCs, just as I believe the CSC should do the same for the line agencies and the NAPOLCOM for the police. Either by convention or by law the president’s appointments should be restricted to his Cabinet and a few cabinet subalterns.

4. Outsourcing much of the Commission on Audit’s role.

Another thing I have been advocating here since the scams involving corruption in the military was uncovered was for the COA to outsource much of its functions to private auditing firms.

This has been the practice in Australia already where the Attorney General’s department merely sets policy and standards with regards to government audits. The actual audits must be done not by ‘in-house’ government auditors who are very susceptible to influence, but by external firms who must be rotated in accordance with the Code of Good Governance adopted by the SEC.

In fact the scope of audits should not be restricted to financial management alone, but to management of risk and occupational health and safety. Private auditing firms already have the capacity for performing this function. They are already subject to professional standards of excellence which if broken lead to the cancellation of their professional licenses.

5. Incentives for Prosecutors of Big Cases.

Catching and prosecuting the ‘big fish’ has been made a priority by this government. Yet, no real sets of incentives have been put on the table for addressing the task at hand.

When hundreds of millions, if not billions, of pesos are involved, the government needs to ensure that its prosecution team have a stake in winning the case. In the private sector that involves sharing in a portion of the damages.

The settlement by the previous Ombudsman in the case of Carlos Garcia demonstrates how difficult it would be to provide a similar incentive structure for the public sector.

If a reward based on a percentage of recovered ill-gotten wealth is instituted, that would have meant rewards to the past Ombudsman for settling the case. Perhaps the reward ought only to apply when cases are prosecuted and not settled out of court.

The Ombudsman and the Office of the Solicitor General (essential generals in the fight) which are given the task of prosecuting graft cases before the Sandiganbayan and Supreme Court respectively need to have more than a kind of altruistic motivation for performing their duties. The need to have protection and financial security.

Paying them higher salaries alone might not be enough to motivate them to exert maximum effort even in very winnable cases. Some sort of sharing in the spoils which would go both to their office and to chief prosecutors and their staff needs to be put on the table.

I know that some will argue that this is the people’s money and that any recovered ill-gotten or plundered wealth needs to be returned 100% to the coffers to fund social programs. This assumes that we are working with incorruptible Confucian super bureaucrats. That is not the case here. We need to live in the real world, not in some ideal fantasy land.

6. Creation of a Productivity Commission.

The importance of having a lead agency within the economic bureaucracy is one lesson learnt from the East Asian experience. This lead agency role was performed by MITI in Japan, the Economic Planning Board of Korea, the Industry Development Boards of Taiwan, the Economic Development Board of Singapore, and the Productivity Commission of Australia.

In the Philippines, I am proposing the creation of a Productivity Commission similar to Australia’s to be under the Department of Finance with direct access to the President. Elements of DoF, the government think tank PIDS, Tariff Commission, National Income Tax Research Center, and DTI need to be brought into this agency or at least made accessible to it.

Its role will be to advice the president on matters relating to government red-tape, taxes and subsidies (including to agriculture), telco, port and aviation policy and industry policy more broadly. A secondary focus could be in housing or economic development and climate change policy.

The commission in navigating the post-WTO environment should do so without engaging in what Evans calls ‘anticipatory acquiescence’ on the one hand by pushing the envelope a la China on protectionist policies when it suits our development goals, but use our external commitments as a shield against regressive private interests on the other hand (for example on sin taxes).

As part of the economic bureaucracy, it should have the same high recruitment and compensation standards as the rest of the economic bureaucracy. This will enable its agents to be immune from lobbying and rent-seeking by private agents.

7. Limitations to the scope of rent-seeking.

As highlighted by Evans, rent-seeking did continue to a surprisingly large extent in East Asia even as their economic bureaucracies forged ahead with many productivity enhancing measures.

Traditionally the agriculture or construction departments were used by reformist governments to engage in clientelism with their constituents usually ex-military men, party mates or in the case of Taiwan, former residents of the mainland.

This makes the task of emulating them within reach for countries like the Philippines where the practice of paternalism is embedded in our culture. This means that while the areas of rent-seeking are limited on the one hand, it will continue nonetheless and will be an essential part of governing.

The purists will argue against pork barreling and the dispensing of largesse through the PCSO, PAGCOR, DPWH, DOA and so on, but we must remember that a certain amount of populist clientelism is necessary. We have to take a balanced view of things. If it helps the executive push for more substantial reforms, then the area of rent-seeking will gradually diminish.

Conclusion

The long road to economic development has many twists and turns. Perhaps what PNoy’s government has to acknowledge is that sometimes the shortest distance between two points is not a straight line. An understanding of the lessons of good governance in East Asia is essential for appreciating this fact.

Without the ability to withstand rent-seeking on the part of private agents in the sphere of economic policy, the national development project never advances very far. The need for a solid economic bureaucracy is the first step in emulating the ‘fast-paced growth’ these nations experienced.

The ‘carrot and stick’ approach articulated by PNoy at his presidential bid announcement needs to be further developed into meaningful policies. So far the Philippine Development Plan only covers very generic non-targeted approaches. Zeroing in on the economic bureaucracy and some key enforcement agencies is needed.

The road ahead is fraught with risk. Our country did not start off with the auspicious initial conditions of an egalitarian society that our East Asian brothers had. Regardless, a path is laid out before us that makes it attainable despite initial infirmities. If we have faith and confidence in our abilities and not succumb to fatalism, we may at least further the project of nation-building along the way in the years ahead.

* Evans, Peter (1998). Transferrable Lessons? Re-examining Institutional Pre-requisites of East Asian Economic Policies, Journal of Development Studies 34 (6), p.21.

BIR files Tax evasion charges against Garcia, Ligot and Yambao

The Bureau of Internal Revenue has filed tax evasion charges against the spouses of General Carlos Garcia and Clarita Garcia, as well as Jacinto Ligot and wife Erlinda Yambao-Ligot, and Edgardo Yambao tweeted/a> Palace Deputy spokesperson Abi Valte.

Bureau of Internal Revenue Commissioner Kim Henares revealed the move comes in light of the Senate Blue Ribbon Committee probe on alleged corruption in the Armed Forces of the Philippines. Hundreds of millions in tax deficiencies are being sought from the accused.

Merci resign grows louder

The Ombudsman, Merceditas Gutierrez is being urged to resign, as the House of Representatives is poised to impeach her.

Senator Teofisto Guingona III revealed that the Senate Blue Ribbon Committee recommended that Ombudsman Merceditas Gutierrez be impeached for betrayal of public trust. This comes from the Committee after the Ombudsman allegedly bungling the plunder case against former General and Armed Forces controller, Carlos Garcia.

According to the Philippine Daily Inquirer, 13 senators signed the committee report:

“Guingona, Senators Franklin Drilon, Francis “Chiz” Escudero, Serge Osmena, Ralph Recto, Antonio “Sonny” Trillanes IV, Juan Miguel Zubiri, Pia Cayetano, Loren Legarda, Ramon “Bong” Revilla, Francis “Kiko” Pangilinan, Manny Villar, Alan Cayateno, and Joker Arroyo.”

Over at the House of Representatives, Congressman Niel Tupas, Jr., who will lead the prosecuting team should the Impeachment case against Ombudsman Gutierrez goes to the Senate for trial said that they now have 150 votes to impeach the Ombudsman.

President Aquino’s liberal party according to Congressman Danilo Suarez will not be hard pressed to get the 94 votes needed to impeach the Ombudsman, but said Gutierrez would stand a better chance at the Senate, where she would need only 8 senators to foil to win.

The Game of the Generals

As the nation welcomed the Year of the Rabbit with a bang, pyrotechnics were being set alight in the halls of Congress as the investigations into the Carlos Garcia plea bargain drew to a close. It now appears that Ombudsman Merceditas Gutierrez will seek the withdrawal of the deal before the Sandiganbayan graft court after she was prevailed upon by some eminent members of the august chamber of the Senate to do so.

Meanwhile Ms Heidi Mendoza, the former auditor who uncovered evidence of plunder by Garcia, is being hailed as a hero and enlisted by P-Noy for a senior appointment in the fight against corruption. Before she entered the scene, all it seemed had been lost. The Ombudsman said the evidence it had was not admissible in court making its case weak. Garcia was allowed to retain most of what was alleged he had stolen. Pleading to a lesser offense, he was allowed to post bail and was subsequently set free. Enter Heidi Mendoza, and everything changed.

It is rather ironic that Ms Mendoza, who holds a rank of lieutenant colonel as a reserve officer but normally works quietly behind a desk crunching numbers, should bring the military establishment to its knees. This is in contrast to Lt Antonio Trillanes IV who was all sound and fury. Having used the barrel of a gun (twice in fact during the Oakwood Mutiny and the Manila Pen Siege) to throw a spotlight on the condition of soldiers in the field, he and his cabal failed to effect any meaningful change save for getting himself elected Senator.

P-Noy who campaigned and got elected on a platform of anti-corruption (kung walang corrupt, walang mahirap) and prosecuting his predecessor for graft, was muddling through in this regard having a hostile Ombudsman to contend with and his Truth Commission declared unconstitutional by the Arroyo-appointed Supreme Court.

Yet when he announced his candidacy back in 2009, P-Noy who prided himself with being a trained economist demonstrated an understanding of the calculus of corruption and the tools required to counter it. The present case of corruption in the military demonstrates just how lopsided the incentives are in favor of being dishonest.

The game of the generals as I would like to call it is no different in fact from the practices of chief executives at any S&P500 corporation. Consider the manner by which AFP budget officer Lt Col George Rabusa recounted them: (1) upon assuming office, the chief of staff received a 10 million peso pasalubong or signing bonus, (2) while in office, each chief was given 5 million pesos in addition to his salary, an expense account in other words, and (3) upon retiring, a general was sent away with a 50 million peso pabaon or golden parachute.

Their method for appropriating such wealth to themselves? Creative accounting: just as chief executives cook the books in the short-term to claim bonuses and move on to a new company before auditors are able to decipher what they have done, these generals seem to have done the same using PCDA (or provision for command-directed activities) as the vehicle.

Just as in the corporate world, the only way to prevent such practices from spiraling out of control and protecting the interests of shareholders when the CEO controls the board and is in cahoots with the auditing firm is through whistle blowers from inside the company (women have been found to be more conscientious and less prone to corruption and are more likely to blow the whistle on the practices of the “bad boys” in the board room, which is the argument for appointing more women in senior positions).

To those who supported Gibo Teodoro in the last presidential derby, it must be exceedingly clear at this point why the revelations in the Senate would have never happened under his administration. In a democracy, it is always healthy for a turnover of the reins to occur from one party to the next. And so it is in our situation.

The question now is, what is likely to happen over the next five and a half years under P-Noy? Many have questioned his ability to run the government competently despite his probity. But as we have just witnessed, competence can be outsourced but not probity. P-Noy needs a few good men and women, especially women, in championing the cause of good government. Without them, he could  just be running in circles, manipulated by the masters of the game.

Erratum: the original version of this article referred to Lt Antonio Trillanes as being the 3rd instead of the 4th as it now appears in the article.

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