Is corruption really worse?

LAST WEEK, news came out that the Hong Kong-based Political and Economic Risk Consultancy, Ltd. (PERC) reported worsened corruption in the Philippines since last year, based on its latest survey covering 16 countries in the region. While the Philippines’ ranking as third most corrupt did not change, its corruption score had worsened from 8.25 to 8.9 on a scale of 0 to 10, with 10 being the worst. The latest results still had Cambodia as most corrupt (with a score of 9.27), followed closely by Indonesia (9.25). Both also had worse scores than they had in 2009.

The survey polls middle- and senior-level expatriate business executives working in Asia, the United States and Australia. According to PERC, respondents are asked to rate only the country where they are working and their country of origin. Thus, the results supposedly reflect their actual experience and observations.

It may be puzzling to many that corruption is seen to have worsened in the country since last year, even as the new government clearly enjoys far greater trust from the people than the previous government did. I, too, was initially puzzled. But hearing various sentiments from friends and colleagues on the issue (particularly in active online discussions), I see at least three reasons why such result would come about from a perception-based survey.

First, the investigation of corrupt officials (especially in the military) has hogged the national news in past months, making corruption a top-of-mind issue for anyone residing in this country reached by mass media. It doesn’t matter that the corruption being probed occurred more than five years ago. This did not prevent the Armed Forces of the Philippines from being currently perceived as the most corrupt government agency, based on a recent Pulse Asia survey. Perceptions can be blind to actual time differences.

Second, expatriate business executives may not always be the best judges of what actually goes on in their host governments. Actual changes in quality of governance, whether for better or for worse (particularly in the control of corruption), are not necessarily first felt in business transactions with government, particularly with foreign firms. I have constantly noted a seeming inconsistency between foreign and domestic investors’ perceptions and sentiments for some time now. I see this in how domestic and foreign direct investments (FDI) have moved in opposite directions in past years, and even now.

In many periods in the past, we have seen rapid growth in FDI accompanied by significant declines in domestic investments. In economic briefings I have given to various audiences over the years, I would often interpret this, half jokingly (but half seriously as well), to be an indication that foreign investors knew something that Filipino investors didn’t—or more likely, didn’t know something their Filipino counterparts did. Nowadays it is the reverse: private domestic investments surged over the past year even as FDI inflows dropped 22 percent, based on Bangko Sentral ng Pilipinas data. Indeed, private domestic investment was so strong that steep drops in public construction and FDI could not keep overall investments (i.e., the sum of domestic and foreign, and of public and private investments) from jumping 17 percent last year. All this suggests that private domestic investors have a high level of confidence that is somehow not (yet) shared by their foreign counterparts.

Third, people may debate on whether corruption got worse, but it is unlikely that it has gotten any better so far under P-Noy—which is not to say that he is no less corrupt than his predecessor. A friend who had held a high government position in a past administration argues: “Why would we even expect businessmen’s perception of corruption in our country to change? Our new President who is not corrupt has not been able to change Congress, the judiciary, local governments, or even the bureaucracy. New Cabinet members who are not corrupt have so far been unable to clean up their departments in any degree of depth. So there is really no substantive reason to expect the reality of corruption in our country to change, just because we now have a President who is not corrupt. But at least we have stopped the bleeding at the top and we have some hope that sooner rather than later, the major bleeding will stop in many other places.”

What must P-Noy do, then? My friend suggests the following: First, remove the ombudsman (and replace her with an effective one) to strike fear in the hearts of the corrupt, and reclaim major artillery in the fight versus corruption. Second, appoint a new Commission on Audit chairman with the energy, will and savvy to use this institution against corruption. Third, ensure that changes being introduced in the budget process, particularly in its execution, will mobilize activist groups around the monitoring and oversight (and exposure of corruption) of public spending. Fourth, conduct a thorough purge of corruption in the agencies of government most notorious for it. This includes prompt removal of any Aquino appointee who might be proven guilty of corruption, which would be a most powerful signal to all that this government is indeed serious about corruption. And fifth, organize a strategic management and policy unit that will help the President on the preventive approaches for eliminating corruption via policy, organizational and process reforms. This is quite apart from and would complement the punitive function that the Office of the Ombudsman fulfills. With these, P-Noy can perhaps truly be the clean-up President that he promised to be.

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