Monitoring POGO for possible corruption

The advent of Philippines Offshore Gaming Operations (POGO) has been a boon to our real estate sector and to consumption spending. There are estimates of some 100,000 well-paid Chinese workers (averaging 150,000 monthly) who are engaged in online gaming, targeting as clients their fellow Chinese in the mainland. They are here because online gaming is illegal in China. Thanks to these workers and their families, the oversupply in condominium residential and office units has been significantly reduced. Thanks to them, our restaurants — especially the Chinese ones in Makati, Fort Bonifacio, Roxas Boulevard and Ortigas — are usually full. In the area where I reside, Legaspi Village, one cannot take a walk without encountering Mandarinspeaking young men, and women as well as married couples with their children. Their presence should be generally welcome.

It would be advisable, however, for President Rodrigo Duterte to alert his anti-corruption forces to monitor closely the behavior of the managers of these POGO operations. It is well known that President Xi Jinping’s anticorruption drive has led to the arrest of more than 100,000 Chinese officials. I would not be surprised if some of those coming to the Philippines are exporting corrupt practices to our country. I have already heard from some leading real estate brokers that some of their Chinese clients insist on paying cash by the tens of millions that they carry in peso bills packed in luggages. These are signs of money laundering or attempts to avoid the currency controls now being imposed by the Chinese government that has begun to clamp down on outflows of funds abroad. These very same individuals who are able to breach the law in their country would not have any qualms bribing Filipino national or local officials to obtain favors.

This thought came to me when I read a very insightful article by Foreign Affairs columnist Gideon Rachman of the Financial Times entitled “Graft thrives in a globalized world.” Mr. Rachman reminded me of a favorite topic of mine in economic briefings I gave some ten to 15 years ago. At that time, economists from emerging markets like the Philippines were captivated by economic forecasts made by Jim O’Neil of Goldman Sachs who predicted that in the coming decades four large economies he called “emerging markets” will dominate global economic growth. They were the famous BRIC countries, i.e., Brazil, Russia, India, and China. With very large populations and the corresponding enormous domestic economies and growing at aboveaverage GDP growth rates, it seemed inevitable that the BRIC nations would attract the most investments from the rest of the world. Then Mr. O’Neil added eleven other countries which he called the Next Eleven that would follow the BRIC in global dominance. These eleven also had large populations and included the three largest Southeast Asian nations, – Indonesia, the Philippines, and Vietnam (which some of us denominated the VIP). In a meeting of the BRIC leaders on the Chinese island of Hainan, they decided to add an African country to their inner club. They chose South Africa as the most developed economy in Africa. Thus, the group started to refer to themselves as BRICS.

Alas, in no time at all two of the BRICS nations fell along the way as they mismanaged their respective economies by incurring huge fiscal deficits. These were Russia and Brazil that up to now are laboring under huge debts. Sooner than later, there seemed to be nothing common among the five emerging markets except, as Mr. Rachman pointedly wrote, corruption: “In all five countries, popular rage about graft is at the very heart of politics. And because these countries are increasingly important to the world economy, their corruption problems have global implications.” Former President Jacob Zuma of South Africa was forced to resign because of a corruption scandal. In Brazil, President Dilma Rousseff was impeached in 2016 for corruption. The ruling United Russia party is widely known as the “party of crooks and thieves.” In India, Prime Minister Narendra Modi took the drastic step of abolishing about 80 percent of the country’s currency, in an effort to squash the black economy. In China, President Xi Jinping also took drastic measures to root out corruption. Even then, Chinese exiles have spread online allegations that corruption extends into President Xi’s inner circle.

I want to give President Duterte the benefit of the doubt that he is really determined to root out corruption in the Philippines against all odds. He must realize, however, that even some of the countries that have reached First World status still have to struggle to fight corruption. Recently, Prime Minister Mariano Rajoy of Spain was forced to resign after seven years in office as a result of a scandal in his political party, the Partido Popular. Closer to home, former Prime Minister Najib Razak of Malaysia was ousted and replaced by the oldest head of state in the world, Mahathir, after allegations that Razak had embezzled hundreds of millions of dollars. To our north, South Korea, already a First World country, has had a series of presidents sent to jail for corruption.

The fight against corruption has to be a never-ending process. This has become even more obvious with the globalization of business and finance which opened up opportunities to make corrupt profits in fast-growing economies. As Mr. Rachman wrote: “Industries that often need official involvement, such as natural resources and infrastructure, are particularly lucrative targets. There are contracts to be awarded and development projects that need official approval. And the money for bribes can always be deposited offshore.” Needless to say, the Build Build Build program of the present Administration must be especially scrutinized by all the stakeholders concerned to minimize, if not entirely, prevent corrupt practices, especially at the district levels of the Department of Public Works and Highways (DPWH) and at the LGU levels.

Mr. Rachman has a sobering piece of advice: “But conquering corruption is not something that can be achieved with a single cathartic effort. Lasting progress requires strong institutions that can survive changes in the political climate: independent courts and prosecutors with training and resources; a press that cannot easily be bought off, jailed or killed; efficient civil servants who cannot be fired at the whim of a corrupt boss. Remove any of those elements and corruption seeps back into the system.” An institution that is often cited by those looking for a model in the fight against corruption is what the British established in Hong Kong during their colonial rule. It was called the Independent Commission Against Corruption (ICAC) that had the power to search homes and offices without any warrant. It made Hong Kong one of the least corrupt territories during the last quarter of the twentieth century, together with its fellow tiger economy Singapore.

Unfortunately, though, there are now growing fears that the independence of Hong Kong’s institutions is being compromised by pressure from mainland China. Rachman opines that the growing economic power of countries such as China, India and Russia may be spreading corrupt practices more widely. Countries that must necessarily have economic relations with these giant emerging markets must be constantly vigilant about this possibility. Thus, despite the very obvious benefits of POGO on the real estate and consumption sectors of the Philippine economy, the guardians against corrupt practices in the Philippines must be especially vigilant on how online gaming may be a channel for corrupt practices at all levels of the Philippine government and the private sector.

For comments, my email address is bernardo.villegas@uap.asia.