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We use this ethics infrastructure to identify inventive policy responses aimed at some of the principal constraints in the fight against corruption in the Philippines. We briefly discuss some recent policy reform experiences to find out if the anti-corruption measures adopted were equal to the task, that is, if government targeted each policy response as closely as possible to where reform was supposed to yield the greatest gain.

19.2 Control

Control mechanisms embody the defined limits of public official behavior. They work mainly through the country’s legal framework, and secondarily, through forms of administrative accountability such as mandatory reporting requirements, audit inspection, transparency measures, and formalized public scrutiny. As a regulatory dimension, the control component facilitates prosecution of misconduct (Mills, 1998). And yet, as the Organization for Economic Cooperation and Development (OECD, 1997) points out, if there is too much control, nothing will get done; but if there is too little control, the wrong things will get done.

19.2.1Laws that Break Up the Alignment of Forces to Minimize State Capture

From time to time, political will can bring about ethical policy changes even in the presence of closely aligned interests. A worthy example is the passage in 2003 of the Philippine antimoney laundering law, which successfully broke intra-elite alignment by opening suspicious bank accounts to scrutiny. Money laundering is, by defi nition, 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). Stepwise, however, it took 3 years and two Philippine Congresses to diminish the degree of power concentration among colluding factions in government and reverse the Philippines’ blacklisting as a moneylaundering entity. Another positive step is the Philippines’ support for the “establishment of clear rules and tools for identifying and managing confl icts of interest” within the framework of the ADB-OECD Anti-Corruption Action Plan for Asia-Pacific. OECD (2007) cites the Philippines and Vietnam as among those who have already used the Guidelines in the development of new laws.

Under more normal circumstances, the Philippine legislature tends toward entrenching the incumbents’ political and economic power rather than balancing and rewarding competing interests in society (with a view to upholding the welfare of those with neither political nor economic power); its policies, laws, and resource priorities are widely seen as directly favoring powerful constituencies (Gonzalez and Mendoza, 2002). An example of a possibly captured legislation is the new “sin” tax law, which increased the tax rates on cigarettes and alcoholic beverage in 2005. The law retained old levies (which were low) on old brands, most of which belong to a single monopoly producer. Standard and Poor suggested 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” (Congress of the Philippines, 2004).

The patron-client structures in the Philippine political system have conditioned the responses of the political actors to policy development, and, thus, set the stage for policy failure. Various interpretations of the Philippine political economy commonly suggest the likelihood of state capture by vested interests anchored on political clans (De Dios and Esfahani, 2001). Rule of law itself

© 2011 by Taylor and Francis Group, LLC

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is a concept that sits uneasily within the Philippine patron-client culture. Public agencies serve as conduits for capturing both policies and public resources, in the process blurring the separation between public duties and private interests. This type of corruption, according to Azfar (2008), is comparable to organized crime: the players do act not on their own but in tandem with each other, maintaining the system that allows them to extract rents.

19.2.2 Executive Measures that Optimize Deterrence

Beaming a spotlight on mischief makers can persuade them not to misbehave if they are sure that they will be caught and punished if they do, according to Florini (1999). Three recent initiatives from the executive branch, with fairly differing outcomes, illustrate the point. The Presidential Anti-Graft Commission (PAGC) was set up in 2001 through executive fiat to screen political appointees (i.e., assistant director up to department secretary) and recommend to the president appropriate administrative sanctions (e.g., cancellation of civil service eligibility, dismissal from government service) to be applied to those who commit irregular or corrupt practices. Between 2003 and 2005, of some 326 cases the PAGC handled, 292 have been affirmed by the Office of the President.

To build up deterrence in revenue generation—a corruption-prone field in any developmental setting—President Arroyo created in 2003 the Revenue Integrity Protection Service (RIPS), through another executive order. RIPS is tasked to be the anti-corruption watchdog in the Bureau of Customs and Bureau of Internal Revenue. If the evidence warrants, RIPS (1) files corruption charges against officials under its jurisdiction before an appropriate court of law or administrative body, and (2) assists the prosecuting agency toward the successful prosecution of these cases. Compared to PAGC, RIPS has a lean record of successful prosecution.

Yet another anti-corruption program is the Run After Tax Evaders program (RATE). Based on government figures, the average income tax evasion rate across all sectors in the Philippines is 35%, which translates into a yearly loss of PhP85.4 billion (US$2.1 billion) in skirted taxes. This high-profile chase of tax cheats, launched in 2005, was supposedly a no-holds barred effort. At the outset, it targeted prominent individuals and corporations, netting, among others, a cabinet member, a military general, a large pre-need company, and a host of entertainment celebrities, all of whom were recommended for prosecution. Very few of these cases have prospered, in part due to reversals by the Department of Justice. Civil society watchdogs observed that RATE also lost luster after a new management took over, which was open to compromise agreements with taxpayers with pending cases.

Administrative remedies, such as presidential punitive sanctions initiated by PAGC, are easy to dispense and inexpensive to administer. They lend themselves to quick action and create a continuing and credible deterrent. However, they are also open to abuse by field officers and those with power to issue penalties, 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.

The RATE program proves that anti-corruption campaigns are ineffective without adequate penalties. 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 is unwilling to impose high penalties on persons or firms being prosecuted (which lowers the probability of being penalized),

© 2011 by Taylor and Francis Group, LLC

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government initiatives would lack credibility, and would induce public pessimism over the entire effort (Dee, 2006).

19.2.3 Initiatives that Close Regulatory Gaps

Excessive regulations, according to Bardhan (2003), offer awesome powers of discretion to bureaucrats in order to interpret and implement these rules, giving them openings to practice corruption. As part of its corruption resistance strategy, the Philippine government attempted to tighten safeguards, plug loopholes, and root out pathologies. To deal with regulatory ine ciency, the government introduced a new public accounting system and took steps to rationalize the bureaucracy.

The monitoring and detection of fraud gained a new lease of life with the adoption of the New Government Accounting System (NGAS) introduced by the Commission on Audit in 2002. NGAS is a modified accrual-based system that follows internationally accepted standards. Its primary intention is to simplify government accounting, but perhaps the most important feature of the system is its adoption of responsibility accounting that enables managers to understand and rein in excessive disbursements. An electronic version of NGAS links the government accounting system with the budget mechanism, a step that 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. Yet, until the system is fully computerized and implemented, government agencies will have to continue to deal with ex-post appraisals.

In 2004, President Arroyo issued an executive directive requiring the Department of Budget and Management to undertake a strategic review of the functions and organization of all government agencies. This administrative track aims to arrest the “wasteful” allocation of resources to non-core, obsolete, and redundant functions of government. Although rationalization has the potential to reduce opportunities for corruption by providing clearer lines of authority and accountability, this is a case of a government initiative that has limped along, unable to find or sustain the right moves. Excepting the Civil Service Commission (CSC), only a handful of small, largely inconsequential agencies have been tidied up.

Although government is focused on addressing regulatory inef f ciency, its more important task is to keep an eye on the bigger ethical transgression—regulatory capture. Regulatory agencies are a point of political access for purchasing major influence over government policy. Arguably, major regulators are the focus of demands to align governmental preferences with the interests of firms and individuals seeking (or maintaining) influence over public policy. Regulatory capture also suggests purchase of laws and policies to get both the legal framework and the policy-making process out of shape—in a systematic striving for concentrated rents. Effectively, representation in the regulatory process could cause regulators to allow incumbent firms to earn excess profits, perhaps as a reward for cross-subsidizing select users (such as government officials). Regulatory capture has encoded advantages in both old and new rules and institutions for narrow vested interests. In effect, the Philippines, as a rent state, has generated a market for rules (Fabella, 2000), with the “products” such as laws, rules, policies, regulations, and even legal interpretation going to the highest bidder.

In time and with close familiarity, it is the industry that ultimately regulates the regulator. For instance, the Civil Aeronautics Board’s policies have favored privately owned Philippine Air Lines and discouraged granting more flights to foreign airlines to and from the Philippines. Consequently, efforts to boost the economy through tourism are effectively hindered. The Maritime Industry Authority’s licensing power has been used to protect incumbents in the shipping industry by

© 2011 by Taylor and Francis Group, LLC