Illicit

Those are staggering numbers featured in a recent report put out by Global Financial Integrity (FGI), an anti-graft research group looking into illicit money flows worldwide.

Over a five-decade period, GFI estimates illicit money outflows from the Philippine economy totaled $132.9 billion. These illicit money outflows very likely represented proceeds from crime, corruption and tax evasion. For purposes of comparison: that dollar figure is more than twice our outstanding foreign debt.

Even more staggering, FGI estimates a five-decade total of $277.6 billion entering the Philippine economy illicitly. A major portion of that total entered by means of false invoicing of imports to evade tariff. In a word: smuggling.

For the year 2011 alone, FGI estimates the Philippine government was cheated of $3.85 billion by way of illicit money flows — primarily through rampant smuggling activities. That represents a sharp uptick over historical figures. Although data is still being collected for the last couple of years, it is believed the volume of potential government revenues lost continues to rise alarmingly.

Again, for comparison purposes to impress the reader with the magnitude of lost revenues: $3.85 billion in a year is far larger than revenues collected from the VAT and the sin taxes combined. This represents a huge amount of money that might have effectively doubled public spending for social services. The institutional weaknesses that allowed such massive illicit money flows harm the poor most.

Characteristically, the Palace greeted the FGI report with heavy propaganda spin. Spokesman Sonny Coloma thanked the anti-graft research institution for the report, saying this will guide government’s action towards reform.

Reform? This administration is rapidly moving to its dying days. Smuggling worsened rather than diminished during the past three years. A recent survey reports businessmen see an uptick rather than a decline in corruption.

There simply has been no comprehensive strategy of institutional reform, including basic reengineering of the Bureau of Customs. For three years now, alarms have been raised about massive rice smuggling, undervaluation of substandard steel imports, smuggling of onions, garlic, and many others. Yet the response has been lazy, to put it kindly.

Today, rice smuggling is back at center stage but only because the alleged rice smuggling king has been unmasked. For three years, the name David Tan has been floated over and over again — yet no action was taken against him until now.

The whole context of policy weaknesses, vulnerable institutions, and the likely collaboration of high public officials has yet to be discussed. The administration has not presented us with a menu of policy reforms, institutional innovation and improved enforcement even as this scandal burns.

For over three years, and for all the sloganeering about checking corruption, it seems no such menu of meaningful institutional reforms has been laid out. Even as the scandal burns, it seems not much thought is being invested in curing it.

Guaranty

Once every year, it seems, there is political profit to be gained from jabbing at the large amount of debt accumulated by the Home Guaranty Corporation (HGC). Once every year, too, the HGC presents a more optimistic update of its finances — although the politicians would rather not sit and listen.

The HGC is part of the cluster of government agencies addressing the serious housing shortage the country must deal with. Its specific function is to mobilize private funds for public housing through a system of guarantees and fiscal incentives.

That specific role is a tricky one, vulnerable to the vagaries of the market. It requires constantly exercising financial expertise of the highest caliber in order to enable funding of housing programs.

That role is made doubly difficult by the fact that the HGC has not been fully funded by the national government. They agency has yet to receive P35.927 billion of the P50 billion authorized by the enactment of its charter.

Nevertheless, the agency is trying to achieve its mission notwithstanding the deficiency in its funding and a number of bad decisions made in the past. Today, the HGC is still trying to collect P4.47 billion from the National Housing Authority relating to the failed (but politically mandated) Smokey Mountain Development and Reclamation Project.

Current HGC president Manuel Sanchez commits to “recovering HGC’s other assets and going after those who have illegally enriched themselves at the expense of (the agency) and the government” although this will involve complex legal battles down the road.

Much improvement was achieved under Sanchez, with guidance from Vice-President Jejomar Binay. Over the last three years, HGC’s operating expenses dropped to about half of what the agency earns.  The acquired assets the agency now holds is much greater in value than its debts — and those debts may be quickly extinguished if the agency receives its remaining capitalization.

Even as HGC pays around P1 billion annually in debt service, the agency forecasts a net income of P554 million in 2015 and P870 million in 2016, having recently paid off a P12 billion debt. The current HGC management commits not to resort to another bond flotation to pay down its remaining obligations.  If it is able to liquefy its large portfolio of acquired assets — including the Central Market and the Bilibid compound in the City of Manila — the debt service could be manageable.

Notwithstanding the challenge of working down the agency’s debts, the HGC over the last three years guaranteed P79.68 billion in private investments. That translates into 52,829 housing units built to close the nation’s yawning housing gap.

Legislators might help in closing the housing gap by appropriating the P35.917 billion government owes this vital agency in authorized capitalization.