EDITORIAL. Why zero tolerance for corruption is what PH needs

BY THE MANILA TIMES     NOVEMBER 06, 2018

We think it timely to call attention today to a startling opinion piece by Dan Steinbock, published yesterday on page A5 of our Op-Ed section — titled “The economic costs of corruption in the Philippines.”

If some of us are still wondering why President Rodrigo Duterte has placed such high importance on eradicating corruption under his administration, Steinbock lays bare the compelling reasons why the President must continue and succeed.

Steinbock is part of our international stable of journalists and experts whom we publish regularly in this paper. He is the founder of the Difference Group, a think tank that studies policy issues in Asia, particularly India, China and Southeast Asia.

In his latest comment on corruption in the Philippines, he not only catches the readers’ attention with his title, he breaks the problem down to alarming numbers that no serious Filipino citizen would wish to just put away.

Jumping off from the recent $200 million Customs debacle and traffic of illegal drugs, Steinbock in his latest column contends that drug smuggling is just the tip of the iceberg.

Even more costly to the country are the gigantic illicit financial outflows involved. Tax evasion may be just as costly as the smuggling.

While illegal drugs entered the Philippines before the erstwhile administration of President Benigno Aquino 3rd, it was during his watch that drugs became embedded in most Filipino neighborhoods.

Besides the multibillion-dollar drugs business, illicit financial flows have been defrauding the country of billions of pesos of revenue. Steinbock explains: “Illicit financial flows involve huge economic stakes that are not disclosed in national accounts or balance of payments figures. Rather, these flows typically comprise trade mispricing, bulk cash movements, informal transactions and smuggling.

“According to research, illicit flows nearly doubled to $130 billion in emerging Southeast Asia between 2003 and 2014. Concurrently, their cumulative value amounts to more than $1 trillion.

“In country comparisons, Malaysia ranks highest in cumulative illicit financial flows. Between 2003 and 2014, it lost $420 billion in this way. Next come Thailand and Indonesia, while the Philippines ranks at par with Vietnam. Our two countries lost more than $90 billion in cumulative illicit financial flows during the period.”

Since corruption weakens the state’s capacity to raise revenue and perform its core functions, it increases tax evasion. According to the 2017 UNU-Wider report (2013 data), tax evasion cost the Philippines almost $7.4 billion annually, or 2.7 percent of its GDP. In these terms, the country ranks at par with Haiti, Morocco and India.

By inflating costs in the public procurement process, corruption undermines the quantity and quality of public spending. In addition to procurement abuses, the pork barrel scam (involving PDAF) illustrates such challenges.

As corruption raises the cost of accessing financial markets, resources are allocated to rent-seeking rather than productive activities.

In his conclusion, Steinbock wrote: “No country can or should tolerate a status quo, where growth and employment prospects remain subdued while a number of high-profile corruption cases undermine economic growth.”

There is evidence from Singapore, Hong Kong and China that anti-corruption efforts can be effective, when the anti-graft authorities report directly to the chief executive — not to government agencies, policymakers, police, or military.

Hence, “What the Philippines needs is effective zero tolerance toward corruption.”

It may be difficult for some to simply accept the criticism and prescriptions of a foreign analyst. The point, however, is that no serious student of Philippine affairs and national economic performance will dispute the validity of Steinbock’s numbers and conclusions.

Rather than dispute the numbers, it is better to take down the structure of corruption in this country. And that is what President Duterte is doing in his own unique way.

https://www.manilatimes.net/why-zero-tolerance-for-corruption-is-what-ph-needs/463058/