Philippine graft fight carries risk of flight by foreign investors

By John Mair ,Reuters

MANILA — The arrest of former Philippine leader Gloria Macapagal Arroyo for vote rigging has put President Benigno Aquino’s campaign to tackle corruption where he wants it, in the headlines, as he tries to rebuild the reputation of the laggard tiger economy. Now he just needs investors to notice, while at the same time hoping that his efforts to highlight the campaign won’t backfire by hampering economic growth and cementing the image of the Philippines as hopelessly graft-ridden. Fighting corruption was the centerpiece of Aquino’s election campaign last year, and while there have been many small steps he needed a high-profile case to show supporters that his promise to end impunity and hold people accountable was genuine. “He’s taking a big risk,” said Peter Wallace, president of the Wallace Business Forum consultancy, who saw the arrest of Arroyo as a positive step in the campaign against graft. “What he’s trying to do is break the corruption trap in the Philippines.

“In doing so, he’s slowed the economy down considerably,” said Wallace. The drive to root out corruption has led to much lower-than-expected government spending and delays in putting infrastructure projects out for tender as deals are reviewed and the government sets to build watertight contracts. Wallace said had spending been as planned in the first half of the year, annual growth would have been 6.3 percent ­­— more than 50 percent stronger than actual growth of 4 percent. The payoff of hitting graft would be a cleaner and more open system in future, which should lead to better growth and more investment, but that is not a guaranteed outcome. “He’s moving more or less in the right direction, he’s just got to move more quickly,” said Wallace. The Philippines is not the only country in Asia with a corruption problem, but it is one of the worst Anti-corruption organization Transparency International rated the Philippines 134th out of 178 countries in its 2010 Corruption Perceptions Index with a score of 2.4 out of a possible 10 — worse than Vietnam on 2.7 and Indonesia on 2.8. Finance Secretary Cesar Purisima has said one of the problems of exposing corruption is it can lead to a lower ranking on such surveys, reinforcing the notion that graft is flourishing. Negative Perceptions