04/24/2001
The Asian Wall Street Journal

By Greg Rushford

MANILA -- The good news for foreign investors taking another look at the Philippines is that President Gloria Macapagal Arroyo -- in contrast to her predecessor -- is off to a fresh start. On the national security front, Ms. Arroyo has moved quickly to restore stability since she was sworn in Jan. 20 in the wake of the "People Power" movement that toppled Joseph Estrada. The new president has resumed peace talks with leftist insurrectionists, and with Muslim rebels in southern Mindanao -- processes that had been upended by Mr. Estrada's bloody "total war" policy.

Unlike Mr. Estrada, Ms. Arroyo has a team of sober economic advisors -- men with good international reputations like Roberto Romulo, a former foreign minister; Raul Rabe, former ambassador to Washington, former President Fidel Ramos, and Trade Secretary Manuel Roxas. The Arroyo team is scouring the world for much-needed investment.

The bad news, however, is that the Philippines' legal and regulatory framework is still so weak, and corruption so deeply entrenched, that potential investors are right to remain skeptical and aloof. Business executives here say corruption is particularly infuriating because it is so outrageous.Ask Robert Tober, president of Kimberly-Clark Philippines, which has been making personal-care products here for 36 years. In December, Mr. Tober learned how unpleasant it can be when even top executives of prestigious American multinationals get on the wrong side of local politicians.

Mr. Tober was arrested and thrown into jail for a night after he refused to knuckle under to the demands of a local congressman. The lawmaker was the son-in-law of Kimberly-Clark's landlord in Laguna province, where some 900 Filipinos make Kleenex. When Mr. Tober resisted his landlord's efforts to hike the rent, the congressman got tough and filed criminal charges in a local court, alleging that Kimberly Clark was exploiting local water resources. Mr. Tober is hoping the Arroyo administration will be able to untangle the legal mess.

Similarly, Romerico Serrano, Motorola's chief Philippine representative, is still trying to cope with a corruption scandal that erupted in 1998, shortly after Mr. Estrada succeeded Fidel Ramos as president. At the time, Motorola was providing the Philippine National Police with state-of-the-art radios. Mr. Ramos launched the project in 1994 after police officials had suffered through some well-publicized
embarrassments because they lacked modern, secure communications equipment.

In 1992, for example, the perpetrators of a major robbery escaped pursuing police officers because of an accessible police-communications network. By 1998, the PNP had purchased $10.5 million worth of Motorola radios, which had been used, for example, to help provide security for Pope John Paul II's 1995 visit.In August 1998, PNP officials intended to buy an additional $3.4 million of Motorola radios. But Mr. Serrano soon learned that Mr. Estrada's interior minister, Ronaldo Puno, had put the contract on hold. When Mr. Serrano and other Motorola officials tried to find out what was wrong, they were given the runaround.Meanwhile, pressures were brought to bear on the PNP bureaucracy. A key police superintendent in charge of a technical reviewing committee that had recommended continuing with the Motorola contract was given a report to sign that claimed Motorola's equipment was deficient. When the superintendent refused to sign the false report, he was replaced. A new superintendent then signed it.

Mr. Serrano finally wrote letters to bring the case to the personal attention of President Estrada. But it turned out that Mr. Estrada -- who had ordered all government contracts involving more than $1 million go through the presidential palace -- had backed Mr. Puno. Indeed, Mr. Estrada had approved Mr. Puno's request to buy low-tech radios with "open" or "nonproprietary" channels, instead of the secure Motorolas.

Why was Mr. Estrada -- who was elected, in part, because of his promise to crack down on crime -- telling the police to return to the days when criminals could tap insecure government communications systems? An answer was suggested in October 1999 when an official investigating panel headed by former Sen. Rene Saguisag recommended that Mr. Puno and several colleagues be prosecuted for graft. In a 138-page report, the Saguisag committee charged that Mr. Puno's real interest had been in steering police-radio business to one of his brothers and a brother-in-law. Mr. Puno denied the allegations, which are now pending in an anticorruption court called the Sandiganbayan.

It would surprise nobody in the Philippines if the case is never heard of again, since the Sandiganbayan is the kind of place where corruption cases go to be buried. Nobody important in the Philippines ever seems to go to jail, although a cell is reportedly being prepared for Mr. Estrada, who faces arrest if a charge of economic plunder is ever laid against him.Motorola's Mr. Serrano declined to be interviewed. But privately, other American businessmen in the Philippines offer plenty of examples of shakedowns and say they are fed up.

In particular, many complain bitterly about Philippine customs officials. For example, a group of Philippine-American doctors who donate medical supplies to their homeland say customs officials rake off as much as 30% of their equipment. Even a company as large as Ford Motor Co., which has some $300 million worth of investments here and which refuses to pay bribes, has had to complain vigorously behind the scenes to prevent their vehicles from being held up in the ports by officials with their hands out.

In addition to corruption, there are the miseries of getting clearances and licenses from various levels of the government's bureaucracy. One example of how suddenly the goalposts can move is the delay of the $5.5 million Ocean Adventure marine theme park in Subic Bay. John Cochran, president of Ocean Adventure, says that his project received the necessary environmental clearance from Subic authorities. But then he recently received a letter from a regional office of the Philippine Department of Environment and Natural Resources saying the project is under investigation.

Ocean Adventure plans to employ families of impoverished fishermen who presently catch fish with cyanide and dynamite. Mr. Cochran says he hopes to work things out in time for Ocean Adventure's scheduled opening this summer, and that he is still bullish on the Philippines.

At least the Arroyo administration seems to have a realistic understanding of why so many other businessmen are definitely not bullish on the Philippines."There are a number of instances where charges of harassment by the foreign business community are valid," Trade Secretary Manuel 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."

Last month, the Hong Kong-based Political & Economic Risk Consultancy released yet another survey showing that foreign business executives regard the Philippines as one of the more corrupt countries in Asia."It hurts," President Arroyo responded. "We must change that
perception by all means."For Ms. Arroyo, her success -- or lack thereof -- in doing exactly that is likely to define her presidency.

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