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Congressional Blind Man’s Bluff

02/04/09

Posted under Philippine politics, Rule of law, US relations

The President -and the Palace- is extremely pleased about wangling an invitation to attend the National Prayer Breakfast in Washington, D.C. on Thursday, thereby dispelling the conventional wisdom that it is in bad odor with the Obama administration, and that the President and her husband are in hot water concerning their financial transactions. To be sure, the ever-active rumor mill says the President enjoys diplomatic immunity and so, wouldn’t undergo any actual indignities going to, or while in, the United States; but that it’s an entirely different story for her husband (and so supposedly explains his sudden deplaning in Tokyo and his absence at the Pacquiao fight).

The Palace is being unusually tight-lipped about who, exactly, invited the President and who or how the invitation was wangled; it remains to be seen if the President actually gets any face time with the new American president or a superficial “photographed in the same room” Kodak moment. Still, the signal’s clear: reports of the President’s sinking status in Washington are greatly exaggerated.

Interestingly enough, a Filipino in Macao apparently texted a sighting at the international airport, of the President’s husband. No announcement has been made in the media of his having gone off overseas for what can only be a bit of R&R, since Macao is the last place one would go for cardiovascular convalescence or treatment (note that the President and her husband have been there quite often). What’s significant about this sighting, if true, is that it’s par for the course as far as the President’s husband and political issues heating up are concerned. The moment an issue starts pointing to him, he hies off overseas, beyond the clutches of media, the courts, or Congress. And the issue’s getting closer and closer to the President’s husband:

Right before him, “(They) first discussed bribes. They had a rough approach.” From that meeting, it was impressed on him that “(bribe) money was important to do business in the Philippines.”

This was how the Japanese contractor described his meeting with First Gentleman Miguel “Mike” Arroyo and a former senator to World Bank

investigators who looked into alleged collusion and rigging in the Bank’s funded road projects.

On another occasion, the Japanese executive met the former senator and “it had been made clear to him that there would be no business in the Philippines without paying money,” the WB report, as prepared by its Integrity Vice Presidency (INT) unit, noted. He was also told “that money would have to be paid as high up as the president, senior government officials and politicians in order to do any further business in the country.”

The Japanese contractor, however, had no direct contact with the President.

The report further added: “To win a contract, it would also be necessary to pay the head of the bureau and politicians several million yen.”

We obtained parts of the World Bank report but we are not disclosing the name of the Japanese contractor and other witnesses. The Japanese contractor has since left the country.

The Japanese contractor was among those interviewed by the INT in connection with its probe on bid rigging. His firm purportedly participated in two bid packages, which were later confirmed to be false. In fact, the company denied placing any bid and that the signatures of the company president were forged.

It was the only direct testimony in the WB inquiry alluding to the First Gentleman’s possible link to bid rigging controversy that has led to the blacklisting of seven firms and one individual for alleged collusion in WB funded road projects worth $33 million. Three other interviewees gave testimonial evidence that indirectly linked Mr. Arroyo to bid manipulation.

The problems of the congressmen’s patrons aside, this is not a good time for the House of Representatives. While I was in the hospital, much as I try not to follow the news, I had the impression the whole World Bank contractor issue, combined with the Legacy Group’s collapse, could have been much worse.

Consider the situation of the Speaker of the House. Uniffors lays it out as follows:

Mikey Arroyo’s errand boy, putative Speaker Prospero Nograles, is in deep shit because of the collapse of rural banks owned by Celso de los Angeles Jr. His ever-changing stories about his relationship with the man whose classmates at the Ateneo called “Boy Kadena” have been the subject of an editorial by the Philippine Daily Inquirer. See “Prospero’s Legacy?”

Also, a former president of the Philippine Deposit Insurance Corp revealed that Nograles tried to pressure him to go easy on de los Angeles. Nograles disputes the expose.

But here’s something Nograles admitted and Boy Kadena confirmed at the Senate hearing on the Legacy collapse. Nograles invested millions, around 18 to 20M, in the failed banks.

So the question is this: Was Nograles’ investment in the form of deposit accounts?

You see,according to a PDI news report “The rural banks held a combined P14.03 billion in insured deposits in 132,642 bank accounts that each held amounts at or below the P250,000 limit of Philippine Deposit Insurance Corp.”

So the enticement behind the de los Angeles’ double your money ponzi scheme is that all your deposits are guaranteed because they are insured by the PDIC. Your capital is safe.

However, the maximum amount any one depositor can collect from the PDIC is P250,000. So, even if one has multiple accounts, those accounts will still be considered as one depositor account. In other words, the limit is on the depositor not on the account. So, to get around this limitation, depositors use fictitious names for their other accounts.

However, they still run the risk of getting caught by the PDIC and, if caught, if the PDIC finds out about the dummy accounts, those accounts will be counted as accounts in the name of one depositor and will be subjected to the P250,000 limit.

Now, Nograles had 18 to 20M in the Legacy banks.

Was he a depositor with a single account? Or were his deposits made under different names? If his deposits were made in his name then he will recover only 250K from PDIC. If his deposits were in different names, then Nograles knowingly participated in a scheme to defraud the PDIC, which incidentally, his brother now heads.

Now if Nograles has a brother in the PDIC, which has to bail out banks, like the ones Speaker Nograles invested in, that’s quite a big public relations pickle to be in. Worse, it plays straight into the hands for someone lusting for the Speakership or simply, to take Nograles down.

Personally, besides the long-standing mutual antipathy between Lakas Speaker Nograles and Kampi Grand Pooh-Bah Villafuerte, the Speaker is embattled on a front in which Villafuerte happens to have some experience -investment banking- and let no one forget Villafuerte’s wife sits in the Monetary Board, which has a say in the bailing out of the PDIC which has to bail out depositors; who wouldn’t put it past Villafuerte to have politically career-killing information on the Speaker now, thereby toppling him?

That would make two Lakas Speakers toppled for careless deal-making, and strengthen Kampi’s demand to be the dominant partner in the new Ruling Party.

But instead, it seems the full arsenal of administration crisis management’s been deployed.

Step I: Delay

The Palace and friends had months to digest the contents of the World Bank report and dot all the i’s and cross all the t’s with regards to a legal defense, as well as lobbying; after doing their bit to maneuver legislation that might be beneficial to the Legacy Group and other friends, and failing, the House still had time to maneuver things so that when the issue broke wide open, some sort of damage-control could be undertaken. Notice the length of time the Ombudsman’s been in possession of the WB Report, with no preliminary investigations taking place. But then, if pressure keeps up, they can use preliminary investigations as a way of buying time (remember the handling of ZTE?)

Step II: Dispute

The Senate wants to investigate contractors? The House will investigate, too -faster, and gentler, too (see Contractors in Congress). At the very least everything’s reduced to House-said, Senate-said.

Step III: Decamp

The President goes overseas. Her husband goes overseas. Out of sight, out of mind. No lightning rods.

Step IV: Divert

And so, after being so quiet as to make everyone think they were comatose, or resigned to the status quo, the Committee on Constitution Amendments of the House has announced that the Nograles Resolution has made it out the gate and can be sliced and diced in plenary, which will hog the headlines for a few weeks, making opposition and administration congressmen happy.

Richard Gordon’s given Congress another way to get what it wants (so long as enough of them get reelected… see, it’s all connected, somehow!):

Gordon… said that the Charter should be revised by the elected lawmakers of the Senate and the House of Representatives sitting as delegates of a Constitutional Convention.

He filed Senate Joint Resolution 20, which calls for a Constitutional Convention after the May 2010 elections with the newly-elected members of the 15th Congress as its delegates.

Meanwhile, get the 2010 Beauty Contest going, just to create buzz but no real political momentum. Take your pick:

A. Scuttlebutt on candidates, such as Bossman Eduardo Cojuangco anoints Escudero and not Teodoro; or Manuel Villar wooing Vice President de Castro to join the Nacionalista Party.

B. Ordering that long-delayed merger to proceed.

C. Additional efforts to muddle things by means of spectacles (see Pagcor chief launches 2010 Coalition) that give reform a bad name.

Message 1: don’t tread on us. Message 2: The Speaker’s a statesman. Message 3: We’re all in this together, nyah, nyah, nyah.

What’s happening is a whitewash on one hand, and juggling political balls in the air to help the whitewash. All these things carry a price, and they’re not of the opposition’s making. The two issues involve collusion between the private sector and officials firmly in the administration’s ranks. The ranks of the administration, meanwhile, have an election coming up and need to grease the wheels of governance through pork barrel spending. As Ricky Carandang recently pointed out in his blog,

The P50 billion in additional spending will be used for infrastructure and social services. Much of that will be funneled through administration friendly lawmakers districts.

The pork comes in two forms: first is the outright earmarks that have increased in the 2009 budget. The second is in te form of “hidden” pork. Outlays included in the budget of the Department of Public Works and Highways that must be spent “in consultation with lawmakers.”

Mon Casiple, in his blog, apropos of the long-delayed Lakas-Kampi merger, describes the lay of the land:

The situation on the ground in the 2010 national and local elections is one wherein, in many places, it is Lakas and Kampi political dynasts who are vying for elective positions, including scheming at electoral cheating and, in some cases, at electoral violence. It’s a dog-eat-dog world out there, in the absence of a strong political party system.

The only attraction a GMA-brokered merger brings to the table is the political weight the presidential endorsement carries, including the financial resources and government network that goes along with it. Many, if not most, of those in the ruling coalition will definitely need it and thus will be expected to echo the merger call.

However, such an attraction will have to be tempered with the sobering fact of a hugely unpopular president. Her endorsement of a candidate–in many places–is the sole factor for a great many voters to drop the candidate. It is a kiss of death in national electoral contests and in many local contests.

The GMA endorsement will matter only in those contest areas where her popularity is not an issue. Ironically, there it will not matter much. The money and the government resources from the presidential deepwell will be the major reason if ever a candidate in these areas accepts the endorsement.

The merger likewise will actually weaken both parties in the coalition when a spurned Lakas or Kampi member who wants to run under the merged coalition bolts out and run as an independent or under other parties. As I said before, party affiliation is based on the interests of the candidate-member, not the party.

GMA’s motive in calling for a merger obviously has everything to do with her political situation and nothing to do with the 2010 prospects of Lakas or Kampi. She needs to fend off as long as possible–at least in appearance–the lameduck character of her post-Cha-cha administration. She also needs the leverage to maintain her influence over her chosen presidentiable and ensure the candidate’s victory. A merged ruling coalition (or the appearance thereof) is crucial.

Whichever way you put it -from the perspective of a President saddled with a mercenary political coalition, or the point of view of the mercenaries in that coalition, and the mercenaries in the opposition for whom election or re-election is as much an end-all and be-all imperative- this requires money. And you wonder why there are rumors of grand heists?

LPG shortage (?)–>justifies raising LPG prices. Rice price increase (again?) without any justified reason in sight. Power Lotto, on top of several megamillion Super Lotto and Mega Lotto prices recently. Buy-in in Meralco, Petron, Liberty Communications. New mining corporations. No land reform but million-hectare corporate farms carved out of public lands and land reform areas. Huge national budget, including funds for mega-infrastructures or (a new favorite) recession-proofing and poverty-alleviation. And, horrors, a jack-up in smuggling cars, rice, drugs, DVDs, and what have you. Also, “taxing” drug lords and jueting lords or arranging tax amnesties for tax evaders or laundering for a fee the infamous hoards of corrupt officials.

But now the whole cozy system’s been subjected to an unwelcome spotlight, arming political opponents (whether just as dirty or not) up and down the line with a juicy issue: squandering resources at a time when belt-tightening is in order. And pursuing a policy of shifting resources around. Today, Jarius Bondoc writes that half of the 50 billion stimulus plan will come from the Social Security System (and only revealed because the SSS Chief, Romulo Neri, Jr., was asked about it by the opposition).

As Abraham Lincoln famously said, “too many piglets, too few teats.”

Which may help explain news stories like Investors see RP defaulting:

ADB senior economist Dr. Cyn-Young Park said the widening credit default spreads lead many investors to think that the Philippine government may default on its debt, or not pay these when it becomes due.

“This is the investors’ assessment of the creditworthiness of the Philippine government,” Park said in a seminar organized by the Yuchengco Center and the De la Salle University.

“Generally, the market is more cautious in giving credit… that’s why sourcing funds overseas may be too costly at this [time],” she added.

A company’s credit-default swap spread is the cost per annum for protection against a default by the

company. Park, however, said that with the global economic crisis, the Philippines fares well compared with newly industrialized economies in Asia, such as Hong Kong, Singapore, South Korea and Taiwan.

She said most of these have been heavily affected since they have a “substantial financial market,” mainly being linked with the United States market.

It will be in the hands of the national governments in the region to spur the economy—such as what the Arroyo administration is doing—by providing stimulus packages to perk up market and consumer demand, she said.

Here are some readings on the issue. As far as the (reading, and specifically, On Line) public knows, what is floating around is pretty much an Executive Summary from the World Bank.

Much has been made of “collusion” being the main, provable, offense. To understand the process is to see where people like the President’s husband come in (see Newsbreak’s Bidders spill names, modus operandi in bid fixing):

But this time, it is now the politicians who set the rules. “Contractors engage in a sort of auction, where the contractor willing to pay the largest bribe can win the politician’s support,” one local contractor told WB probers…

Normally, one has to deal with politicians in both the national and local level—the former who controls the implementing agency and the latter, whose area is hosting the project…

At this point, word of honor is not honored. The one who has the money reigns supreme. Bribe, preferably, should be given at once to seal any agreement.

It is also crucial to be in the favor of the ‘facilitator’ of the bidding manipulation, which bidders say is contractor Eduardo de Luna, owner and proprietor of the now-blacklisted E.C de Luna Construction Corp. for public works projects. Contractors interviewed by WB says de Luna has connections in the public works department who are part of the cartel…

Several witnesses told WB probers that de Luna enjoys the backing of First Gentleman Miguel “Mike” Arroyo. De Luna, they say, acts as Mr. Arroyo’s go-between in foreign assisted projects.

One contractor said E.C de Luna is so powerful that it controls most of the bidding at the Department of Public Works and Highways. The WB source said it was through E.C. de Luna operations that China Geo Engineering Corp., China Road and Bridge Corp, and China Wu Yi Co. Ltd., three of the blacklisted firms by the WB, won the bidding for WB-funded projects. The source had predicted that these three Chinese would win the bids before the tender offers were opened.

Once the ‘winning’ firm has been identified with the blessing of the cartel, the sham bidding begins. Designated ‘losing’ bidders, in collusion with the syndicate, complete the charade.

The previous standard operating procedure (SOP) was for the ‘winning’ bidder’ to provide three percent of the advance payment for the project to the losing bidders. SOP to the politicians is also taken from the advance payment…

But recently, the practice is to split a percentage of the advance payment between the politicians and the intermediary. A lawmaker who acts as sponsor to the bidder gets 15-20 percent of the project value while local officials share between 2-3 percent. The intermediary is responsible for the share of the losing bidders…

The kickback is nothing to scoff at. Total payoff, according to the local contractor, ranges from 15-27 % of the total value of the contract. This does not include up to 20 percent in “unnecessary costs added to the project,” a former government official with intimate knowledge of bidding in the public works told the WB’s Integrity Vice Presidency unit. The “unnecessary costs” are mean to cover the costs incurred for the bribe.

Expectedly, all payments are in cash. “Company books do not reflect any of these payments in any event, because the books are faked to avoid taxes, ” said a local contractor.

The former government official supported this assertion, adding that bribery extends to internal revenue officials to keep the company’s financial books above board.

For a report on how this process may have worked, see the PCIJ’s Special Report on the World Bank’s bidding findings (As for why the behavior of Congress can be said to constitute a whitewash, see the Inquirer editorial, Whitewash, from January 30, 2009.

You may want to visit The Legacy Group Watch blog, set up by a disgruntled investor.

For a broader perspective, see these papers:

Corruption in Asia Pervasiveness and Arbitrariness