Corruption And The Rise Of A Deep State

When Diogenes, a Greek philosopher, was asked why he was carrying a lantern in broad daylight he replied: “I am looking for an honest man.”

Our country is being eaten alive by corruption. Corruption used to be a cottage industry but has now become a multi-billion affair, a cancer that has spread to the vital organs of our nation.

Corruption was previously confined to the BIR (you know that), Customs (even small DHL packages are now routed to the Central Mail Exchange Center where you are shaken down), Public Works (you know that too), the Land Transportation Office (670,000 drivers licenses cannot be issued because there is no agreement with the supplier on the cut) and the Energy Regulatory Agency (ask the ERC why your Meralco bill is so high); but now has moved to agriculture, education and health. Syndicates have trolled the latter for years but it has now reached industrial strength.

The corruption in agriculture is principally in the importation and distribution of key food supplies resulting in run-away inflation. Early into this Administration there was a scandal involving the importation of 300,000 metric tons of sugar with nobody quite sure who authorized it. The number was reduced by half when somebody spilled the beans.

This is the scam. The Philippines produces 2 million MT of sugar but consumes 2.5 million MT. The deficit of 500,000 MT is covered by imports. Yet in the last year we brought in over 600,000 MT which is more than our shortage with another 150,000 MT allegedly on the way.

Our sugar production is divided into “A” sugar (5% of total country production) for export to the U.S.; “B” sugar (appx. 95% of production) for domestic consumption; and “C” and “D” for world export and reserves (these are minimal since we have a sugar shortfall). The classification is done by the Sugar Regulatory Authority (SRA) which also issues the import permits.

Industry sources say sugar can allegedly be imported at a landed cost of as low as P54,000/MT and sold locally for over P64,600/MT for a profit of over P10,600/MT. Recently the SRA granted just 3 traders (out of several hundred) the permit to import 440,000 MT of sugar apparently without bidding. The traders’ estimated profit: P4.7 billion of which it is said P1 billion went to “the boys”.

Agriculture USec. Ding Panganiban defended the choice of the 3 traders saying they were “responsible” and would not fleece the consumer. Ding is a funny guy.

It does not stop there.

To ease the local shortage the SRA can reclassify some of the “A” sugar into “B” sugar but the reverse is said to happen. For the right price the SRA allegedly may re-classify and divert local “B” sugar into “A” sugar thereby increasing the local sugar shortage. For the right price this same SRA then issues the import permits to cover this artificial shortage. Knowing that prices will rise local producers hoard their sugar from the market further driving up prices to the consumer. It is not rocket science but it works.

There are shenanigans in rice, pork and onions where the dynamics are different than sugar but the MO is kinda the same. Anything requiring a signature you have to pay for.

In education, the scam is in the purchasing of books and computers. In the past Administration the COA discovered that laptops for teachers were overpriced by over four times. I am told DepEd Sec. Sara has stopped payments to the suppliers upsetting many under-secretaries who are parties to the scam. Sara is fighting a multi- headed monster but if anybody can succeed she with her reputed toughness can.

In health Dr. Ted Herbosa was recently appointed DOH Sec. to assume the long vacant position. Some years back the Inquirer reported that Ombudsman Conchita Carpio-Morales charged Herbosa, then a DoH Under Secretary (together with then DoH Sec. Enrique Ona), with graft over the P392 million modernization program of the Region I medical center. She reportedly found both guilty of grave misconduct and ordered they be permanently disqualified from public office. Yet here is Ted promoted to DoH head.

Herbosa is known for red tagging the food pantries that helped the poor during COVID. He also denigrated the health care workers who protested against poor working conditions.

Herbosa is an Upsilonian as is Speaker Martin Romualdez.

The corruption in the DOH is in the purchasing of supplies for Government hospitals and health workers; but the big money is in Philhealth which is the heart and soul of our universal health system.

The Philhealth scams take various forms. One, premiums are paid to ghost seniors who have long died. In 2021 an estimated P4.5 billion was paid to 8,156 cadavers.

Two, premiums are paid to health providers (mainly dialysis centers) for services not rendered.

Three, premiums paid by private companies to Philhealth are diverted to anomalous bank accounts. In one instance P100 million paid by a reputable private corporation was reportedly never received by Philhealth. One bank teller and one Philhealth employee were subsequently found dead.

Four, advances are made to hospitals for absent medical procedures. During COVID Philhealth advanced a reported P30 billion to select private hospitals for “COVID expenses” most of which remain unliquidated.

Five, financial statements released by Philhealth reportedly differ largely from the Commission on Audit findings. For example the insurer reported a net income of P33 billion in 2021 even as Philhealth almost went bankrupt and had to be saved by a capital injection from Government. Private hospitals report billions of unpaid receivables from Philhealth and threatened to leave the system. To cover the shortfalls Philhealth is reportedly raising insurance premiums that are paid by us.

Criminal charges were filed against the old management of Philhealth but nothing substantive has come of them. Six months ago, Mandy Ledesma, a former CEO of PSALM (Power Sector Assets and Liabilities Management Corp), a Government corporation; was appointed acting President of Philhealth. When recently questioned by Sen. Tulfo in a Senate hearing, Ledesma said he has not found any evidence of corruption in his organization throwing Tulfo into a fit. Ledesma is either naive, incompetent, untruthful or worse. Media reports that in 2015 the Board of PSALM put Ledesma on a 90 day preventive suspension after over one hundred PSALM employees reportedly accused him of corruption in the failed privatization of the Sucat thermal plant.

There is currently a move to transfer Philhealth from the DoH to the Office of the President (OP). Ledesma has reportedly said this would enhance the “management efficiency” of the insurer without saying how. Critics say it will weaken the financial accountability of Philhealth. Which COA auditor or whistle blower in his right mind would want to squeal on the Office of the President?

A cursory Google search will unearth the checkered past of these two DoH appointments. The question therefore is why have they been selected or is finding two honest and capable men or women among 70 million adults just impossible? Their appointments speak as much about them as about the powers who anointed them.

The World Bank reports that corruption is largely correlated with poverty and economic growth. The corruption in our nation is being institutionalized with the creep now extended to the key monied agencies in Government. The centers of Government coffers be it in Philhealth, in agriculture and the new behemoth Maharlika Fund are or will be wired directly to Malacanang for “management efficiency”.

Corruption is like an iceberg. What you see is only a small part of the mass of ice. Beneath the tip of corruption is a government within a government, a fully funded deep state more powerful than Government itself with its own rules. Think “omertà” and the code of silence. This shadow Government operates outside any public accountability, audits, legislative scrutiny or chain of command. Today the heads of the Government money centers like Customs, the BIR, LTO and now the DoH are handpicked by Malacanang even if on paper they report to their respective department heads.

How does one stop the rot? For starters we as a society must treat the criminals (we know who they are) as social pariahs , not golf or have selfies with them.

Second, like Diogenes we need to find good and honest men in Government but that, seemingly, is exactly what our leaders do not want.

They Got What They Wanted

The controversial Maharlika Bill was passed by the Legislature.

To be fair the bill was approved through the democratic process in the House and the Senate. Never mind that some 300 Congressmen signed off on a complex bill in merely seven days (the time it took God to create the world) what it took some 5 months for 24 Senators to assess. This tells us our Representatives are either intellectually more gifted than their Senate peers or, as is more likely the case, they never read it. The Senate vote was 19 in favor and one against (Sen. Hontiveros). Sen. Nancy Binay abstained and Senators Imee, Escudero and Pimentel did not show up. The latter probably thought it better to remain silent and absent than bend over.

Never mind that Maharlika will weaken our financial system. The BSP is now mandated to hand over 100% of its dividends to the Fund, monies that were allocated to shore up the BSP’s capital. The DBP and the Landbank will have to contribute P75 billion to Maharlika diverting funds allocated for lending to SMEs and agriculture.

Never mind that Maharlika will crowd out resources for education, health and social safety nets.

Never mind that the Dept. of Finance wants to merge the DBP and the Landbank to strengthen their capital base (and lay off several thousand DBP employees); while in the same breath forcing them to hand over 50% of their capital to the Maharlika Fund which will weaken them.

Never mind that the Fund was deemed too risky for the GSIS and SSS to invest in but not too risky for the DBP, the LB and the Filipino taxpayer to do so.

Never mind that the DOF wants to reduce pensions of the military for fiscal reasons while diverting hundreds of billions to a Fund with no track record, no value added and no disclosed management.

Never mind that the DOF wants to downsize the Government bureaucracy potentially laying off 300,000 civil servants; when Maharlika will be spending in its first year P2 billion for salaries and admin expenses.

The DOF Secretary will likely chair the Fund with an attractive compensation.

The bill’s passage is what investment bankers call a “cram- down”. The essence of a cram-down is the application of superior power however legitimate to screw hapless and unsuspecting minority holders.

What makes the Maharlika bill a cram-down?

One, the President assured reporters in January the bill would be passed even before he knew what it would look like. A Chief Executive only speaks this way when he knows the deal has been wired.

Two, the House approved the bill in record time with minimal due diligence. The Senate superficially consulted a few business groups and academics but by and large dismissed their key concerns. The Senate President shortened interpellations even if there were no real reasons to rush the bill. There are unanswered questions like who will manage the Fund, an essential disclosure.

Three, the bill was passed against the opposition of the academic community, the intelligentsia and business associations. The latter’s  CEOs most of whom compose the Presidential Private Sector Advisory Council; were mum.

The average Filipino did not oppose the Maharlika bill because he does not understand it. Like mushrooms, the public is kept in the dark and fed manure.

Four, the Fund was cleverly designed so its sources of funding – GFI monies, BSP and PAGCOR dividends and privatization proceeds – and its uses are not subject to budgetary scrutiny. Sec. Diokno was previously Budget Secretary so he knows where all the dead bodies are.

Five, the Fund has no reason for its existence. Our finance team assures us the Fund will trigger “inclusive and sustainable economic growth” without saying how.

What have we learnt from Maharlika?

One, after a year of treading carefully lest it be compared to the first Marcos Administration, this Government is now playing hard ball. The passage of Maharlika has shown how easily it can get away with what it wants. 

Two, we have a failed democracy. The constitutionally mandated system of checks and balances among the three branches of Government – the Executive, the Legislative and the Judiciary – is gone. The House is severely compromised with the President enjoying a super majority. The Supreme Court is the last bastion of democracy so let us see what happens when the Maharlika bill is brought before it. 

Three, there are no longer any safety valves in the Executive. Our economic team is now drinking from the same political Koolaid as its master. Our technocrats are now totally politically subservient to Malacanang. In its eagerness to please the Palace, our finance team rushed an initial Maharlika draft to the House which was so shabby even our Congressmen and women berated it. And these are the people tasked with protecting our Treasury.

There have been some differences of opinion between BSP Gov. Philip Medalla and DOF Sec. and ex-BSP head Diokno on Maharlika with the former initially expressing reservations. Medalla’s term ends this month and Diokno has said: “The new BSP head should be better than the incumbent”, degrading words for someone he recommended to replace him last year.

The Maharlika Fund is seemingly the last piece in a scheme to politically and economically dominate this country for decades. There is no visible opposition although there are rumblings from the Sara group now allied with GMA and Imee with former President Duterte stirring the pot. PPRD is still bent on making his daughter President. He is extremely popular with the military and police whose salaries he doubled; and the general population. Sara will not go against BBM to whom she has pledged loyalty and she is probably good for her word; at least until 2028. Malacanang insiders however are fair game. Note that Sara won the VPship with 32 million votes vs the 31 million votes of BBM for President.

The “pinks” are another solid political base (Leni garnered some 14 million votes) but they are lacking a strong leader. It is hard to see them ideologically allying with Sara for what would be a formidable group but if sufficiently angered by what is going on anything could happen.

The military has remained silent but there are ripples of discontent with the announcement their pensions will be cut. The Palace with the help of the U.S. will try to appease them. PBBM is a little more comfortable now that his trusted friend Gibo Teodoro is Defense Secretary but the jury is still out on this one.

The rapid and easy passage of Maharlika will embolden this Government to push the limits of its power. The rumor is a BBM family member will run for the Senate in 2025 to further cement their hold on the nation. With the money in place and the Legislature in its pocket our Government looks to be a family affair for some time.