April, 2001: Cover Story

By Greg Rushford
Published in The Rushford Report

New Philippine president Gloria Macapagal-Arroyo is off to a good start. But will she really be able to deliver on her promises to root out her country’s entrenched corruption?

MANILA—Foreign investors who are considering taking another look at the Philippines — which they definitely should, now that President Gloria Macapagal-Arroyo has replaced the bumbling and corrupt administration of Joseph Estrada — should first contemplate what happened to Robert Tober.

Tober is president of Kimberly-Clark Philippines, which has been operating in the country since 1965. He learned a hard lesson last December about what can happen to an executive of even a prestigious American multinational corporation who gets on the wrong side of greedy local politicians. The Kimberly-Clark president was arrested and thrown in jail overnight because he refused to knuckle under to the extortionist tactics of a local congressman.

Seems that the Filipino lawmaker is the son-in-law of Kimberly-Clark’s landlord in Laguna province, where some 900 local employees make Kleenex. When Tober resisted his landlord’s efforts to (hi)jack up the rent, the congressman decided to get tough. Criminal charges filed in a local court — some nonsense about exploiting Philippine water resources, as if Kimberly-Clark would be expected to make tissues and employ some 900 Filipinos in Laguna without water. Tober declines to share his feelings on what it was like to spend the night in a Third World jail.

Welcome to Manila. The Philippines got perhaps one percent of all foreign direct investment in East Asia last year — and no wonder. The polite way to explain this is that the country has a weak legal and regulatory framework, and investors find other places more attractive. Privately, U.S. businessmen here complain bitterly that they are sick and tired of corruption, Philippine style. The corruption here, they say, is maddening compared with other corrupt Asian countries. They say that the corruption here is — Estrada’s crowd is a prime example — also incompetent as well as pervasive. “In Thailand, I can pay off one guy at the port to move my goods, which I am happy to do,” confesses one U.S. executive. “But in the Philippines, the leeches are everywhere, from Customs to the presidential palace, and you are screwed at every stop.”

There is some good news — or at least the glimmer of future good news — to report. By contrast with her hard-drinking predecessor and his band of goons, President Arroyo, who replaced Estrada in a “People Power” soft coup on January 20, is off to a reasonably good start.

President Arroyo is a PhD in economics who is also a shrewd politician. She has put out the word to her government: Stop the shakedowns. “It hurts,” Arroyo said last month when the Hong Kong-based Political & Economic Risk Consultancy released (still) another survey showing that executives regarded the Philippines as one of the more corrupt countries in Asia. “We must change that perception by all means,” the new president said. While these are just words, the street talk is that Arroyo means it. Some of the same executives who privately snickered when Estrada said the same sort of thing three years ago, now say that they think that Arroyo intends to deliver. She had better, they say.

I’ve been visiting this country since April, 1972, which was six months before President Ferdinand Marcos declared martial law and plunged his nation into the downward spiral from which it is still recovering. I think I have a feel for who the good guys are. Estrada surrounded himself with lowlife fixers, many from the gambling underworld. In the key areas of national security and the economy, Arroyo has surrounded herself mainly with people who are respected in international circles. She has begun to generate momentum.

Arroyo’s national security adviser, Rolio Golez, is a graduate of the U.S. Naval Academy who moves to his new position from the congress. Arroyo and Golez have moved quickly to get the peace talks with Muslim separatists in southern Mindanao back on track. The peace process and the hopes for Mindanao’s prosperity (this is one of the richest agricultural areas in Asia) had been upended by Estrada, who seemed to take his cue for “total war” from the violent B-flicks he had formerly starred in.

And on the economic front, Arroyo’s team is also credible. Ambassadors-at-large Raul Rabe, a former ambassador to Washington; and Roberto Romulo, a former foreign minister, are scouring the world looking to persuade skeptical foreign investors to take another look, as is the well-regarded former President Fidel Ramos. Trade secretary Mar Roxas, a popular and ambitious politician, is regarded as honest. Roxas says that he understands that the Arroyo administration will have to prove its ability to crack down on the massive corruption here.

“There are a number of instances where charges of harassment by the foreign business community are valid,” Roxas acknowledges. “This has received the highest attention in the government, and we are endeavoring to minimize it if not outright eliminate opportunities for these things to happen.”
For most prospective foreign investors, those are reassuring words. If only words and good intentions were enough, the capital that the Philippines needs would have already returned.

But of course words and intentions aren’t enough for potential investors worried about the corruption problem.

Everyone knows that nobody important here ever seems to go to jail.

Ask Romerico Serrano.

Romy Serrano is Motorola’s chief Philippine representative. He found himself thrust into scandal, Philippine style, shortly after Joseph Estrada was elected president in 1998. At the time, Motorola was in the middle of an ongoing $50-plus million contract to design specially-equipped radios for the Philippine National Police, the first stages of which had been negotiated with the Ramos administration.

Serrano soon learned that the Estrada people wanted their own politically connected agents to push aside the connected agents that Motorola had dealt with in the Ramos administration. What happened exactly is not quite clear. Nobody’s talking. Motorola — a company that has a culture of working the inside in whatever country it finds itself — won’t even say the amount of the radio contract. Suggestions that this should be basic public record, as the bill is footed by Philippine taxpayers, fell on deaf ears. Everything about the case is a bit blurry.

Blurry or not, it seems that Serrano — aware of the anti-bribery requirements of the U.S. Foreign Corrupt Practices Act — refused to be shaken down. Someone at Motorola blew the whistle to Philippine authorities. The episode hit the Philippine newspapers in 1999. There was the usual flurry of accusations and counter-accusations. In October of that year an independent citizens’ committee headed by former Sen. Rene Saguisag recommended that Estrada’s Interior secretary, Ronaldo Puno, be indicted for graft.

The Saguisag panel accused Puno of pressing Motorola to steer a portion of the radio contract through a firm controlled by one of Puno’s brothers and another close relative. The amount of that portion of the multi-phase contract was roughly $5 million, according to press accounts at the time. Sagsuisag also recommended that a former Motorola manager named Victor Reyes be indicted.
Apparently Motorola had earlier flown its employee out of the country, where he was presumably safe from both Philippine authorities and any U.S. Department of Justice officials who might be curious about a possible violation of the Foreign Corrupt Practices law.

Puno denied any wrongdoing. He told me at the time that he wasn’t the one who signed off on the Motorola contract anyway. That would be President Estrada, Puno said. Estrada told reporters that while he hadn’t read the Saguisag report, Puno had his support nevertheless.

Puno also told me that Motorola had hired politically connected consultants to win the original contract from the Ramos administration, implying that the company should have understood that the politics of finding the right agents had changed with the succeeding Estrada administration.
When the dust settled, the case disappeared from sight. Nobody has been successfully prosecuted. The allegations against Puno are still before a Philippine anticorruption court called Sandiganbayan, where basically corruption cases go to be buried.

Motorola’s Serrano wouldn’t take repeated calls before I flew out of Manila in mid-March. When I got back to Washington and kept calling, a Motorola spokeswoman in Manila denied that the company’s public-relations strategy is to cover up the entire public record. Why don’t I just fly back to Manila and prowl around the Philippine courts, she offered. Seems there is also some continuing civil litigation in the Court of Appeals in Manila.

Puno resigned as Interior Secretary shortly after the fuss in late 1999, but remained close to Estrada until this January’s People Power coup. Still another Puno brother is currently running for the Philippine senate. These days, Rene Saguisag, the lawyer who investigated the Estrada administration, is defending Estrada on the constitutional issue of whether the former president was ousted legally. (Saguisag, a Harvard Law graduate, has a point, although it seems destined to become a only a legal footnote.)

Nobody seems to know what sort of radios the Philippine police are using these days, or whether they cost $5 million or $50 million of taxpayer’s money. This is the way business is done in the Philippines.

There is a lot more.

In a week here, I picked up more examples of the difficulties faced by investors here than there is room to cite: customs shakedowns, nuisance lawsuits, the nightmares of getting permits from corrupt and incompetent local officials who are safely beyond the reach of national leaders like President Arroyo, and on and on. While it is extremely difficult to persuade American businessmen here to talk publicly about the problems, in private they are livid. Their English-speaking Philippine employees are so talented, one hears over and over again from American executives. So talented — and so impoverished by the pervasive corruption that tarnishes their country’s entire legal and regulatory framework. Entire families here are fed and educated by money sent home in envelopes by Filipina maids in places like Hong Kong — often educated women themselves who cannot find decent jobs in their homeland.

For Gloria Macapagal-Arroyo, who inherits an absolute mess, the challenge is clear: She will be judged by her success, or lack thereof, in cleaning up a very dirty, long-running act.

Stay tuned.

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