Chinese Money Meets Filipino Politics

The headline-grabbing scandal roiling Manila these days over an allegedly bribe-laden nationwide broadband network contract signed between the Philippine government and China's Zhong Xing Telecommunication Equipment (ZTE) Corp. merely highlights the fact that corruption remains deeply ingrained here.

Allegations of corruption have hounded the government of President Gloria Macapagal Arroyo since she was handed power by the military and allies in the church and big business in 2001 – accusations that have dogged other Filipino leaders for decades, for that matter. The so-called People Power 2 that delivered Arroyo to power was prompted by accusations that then-President Joseph Estrada was unrelievedly corrupt, two presidencies after People Power 1 threw out the strongman Ferdinand Marcos. With the ZTE deal backfiring and nibbling uncomfortably close to Arroyo's heels, corruption could undermine her attempts to project a strong presidency in the last years of her term, which expires in 2010, although political analysts say she will probably survive.

The $329 million ZTE contract, along with two other Chinese deals – the $500 million North Rail Project to rehab the Luzon rail network, and a $465.5 million cyber-education project have provided a new twist on perceived corruption under her government. Wittingly or unwittingly, the Arroyo government's alleged weakness for tainted money has found a willing "partner" in China, political analyst Allen Surla says.

Awash with cash and lacking the accountability guidelines on corruption found in multilateral lending institutions like the Asian Development Bank and the World Bank, Chinese foreign direct investment has been soaring upwards. Figures for 2005, the latest year available from the United Nations Conference on Trade and Development (UNCTAD) showed China’s FDI outflows surged to US$11 billion – a figure hopelessly out of date -- driven mainly by large mergers and acquisitions in manufacturing and natural resources. Critics allege that Chinese FDI has become a new source of corruption. "China does not care how the money is used. For them, the bottom line is, you have a loan and you have to pay based on the terms," Surla says.

This stems from the fact that the growing Chinese presence in the Philippines and the rest of the region in terms of investments and loans has as much to do with Beijing's geopolitical expansion as it does with financial considerations. "They want to replace the US as the Philippines' key partner and ally in the region," Surla says. "They were after the debt of gratitude that we are supposed to pay back."

At present, some $513 million in loans has already been poured into the country by China and another $600 million has been committed for projects, according to data by the National Economic and Development Authority (NEDA). In January this year, the Philippine and Chinese governments signed 19 memoranda of agreement involving about $4.9 billion worth of investments alone. The agreements are mostly agricultural in nature.

Explaining the deluge of financial assistance from China, NEDA deputy director general Rolando Tungpalan explains that "compared with other donors, the People's Republic of China could rapidly commit large loans with low interest rates and long repayment periods to finance priority projects."

This infusion of Chinese money has drawn predators and influence peddlers out to make quick bucks. Combined with the Chinese attitude on financial accountability, it seems to be a potent mixture for corruption.

Critics say the allegedly overpriced North Rail Project, which aims to build a 32-km commuter rail link from Manila to Bulacan, was reportedly engineered by House Speaker Jose de Venecia. The state-run Export Import bank of China is financing the project to the tune of $395 million, with the balance of $108 billion to be borrowed through commercial loans. The ZTE broadband project, on the other hand, is said to have been brokered by recently resigned Commission on Elections head Benjamin Abalos. De Venecia and Abalos are close allies and associates of President Arroyo.

The cyber-education project, which aims to provide online teaching to elementary and high school students, is supposedly being pushed by education secretary Jesli Lapus, a former congressman and ally of the president. Critics say the costly project is not the answer to the declining level of education in the country, as there are more pressing problems, like a shortage of classrooms.

In the rush for the spoils, some are inevitably left out, fomenting discord, headlines and Senate hearings. Greed has a way of destroying tested alliances and friendships.

In the broadband scandal, de Venecia's son, businessman Jose de Venecia III, has publicly accused the president's husband, "First Gentleman" Mike Arroyo, of being linked to the bribery-tainted project. He has also charged that Abalos was the broker for the Chinese company. De Venecia III represented Amsterdam Holding Inc., ZTE's rival, which lost out on the broadband contract. He has said that he was offered bribes by Abalos to get out of the way of the deal.

His testimony was echoed by former NEDA secretary Romulo Neri, who told a Senate hearing that Abalos attempted to bribe him with P200 million in exchange for approving the contract.

The revelations forced Arroyo to abruptly cancel the contract. Opposition politicians who have been trying to back her into a corner for years on various charges are searching for Presidential fingerprints on the bribery, hoping it could lead to a successful impeachment in the House of Representatives.

ZTE itself seems unfazed by the antics of their erstwhile Filipino partners. The project "is an isolated case. It will not affect ZTE's business development in the Philippines and around the globe. Since the NBN (National Broadband Network) project is still not an effective contract, it will not also affect ZTE's annual performance," Howard Xue, ZTE global marketing director, said in a statement.

Xue insisted the company had offered the best technical and financial proposal for the project, which was approved by the Philippine government. He said ZTE "will respect the decision made by both the Chinese and Philippine governments" to cancel the contract.

It may be a lesson for the Chinese, however, who can now witness the practice of democracy, Philippine-style, as the scandal seems certain to be played out for months to come in an open and contentious media environment light years away from the censored press of China.

Former Congressman Prospero Pichay, who at one time challenged de Venecia for the house speakership, says there are few heroes in any of this. He believes that the younger de Venecia's intentions in blowing the whistle are hardly noble and that the ZTE scandal can be summed up simply as a squabble over commissions.

This was also the contention of mercurial Senator Miriam Defensor Santiago, who angrily declared recently that parties competing for commissions from the Chinese deal were wasting the Senate's time. The younger de Venecia and Abalos were both on the receiving end of Santiago's tirade. The ZTE project has been estimated by some analysts to be 50 percent overpriced due to kickbacks.

The presidential palace, meanwhile, earlier this week invoked "executive privilege" before a Senate investigation, refusing to disclose details of how ZTE got the contract or what was discussed in cabinet sessions devoted to the matter. Opposition Senator Panfilo Lacson was furious when the government refused to release some documents and details, a tactic Arroyo has used successfully for years to keep administration laundry away from her enemies in the upper house. "They're hiding anew behind the cloak of executive privilege," Lacson said Wednesday.

Lacson claims that Arroyo herself changed the terms of the ZTE deal and accused her of flying to China "like a thief in the night" to witness the April 21 signing of the contract.

Damage already has been done to the government, claiming one casualty in Abalos, who resigned rather than face an impeachment complaint filed against him in the House of Representatives. The ZTE bribery controversy has also wounded Arroyo's once-firm hold on the ruling party coalition in the House.

An impeachment complaint has been filed against Arroyo for betrayal of public trust over the ZTE deal and de Venecia will be the key player in deflecting the scandal from the President. De Venecia is president of Lakas, the dominant party in the House of Representatives with 89 members. Kampi, the party founded by Arroyo in 1998 when she ran for vice-president, has 51 seats. Lakas and Kampi are the major parties in the ruling coalition in the House of Representatives. Provided that he could rally his entire party, de Venecia can prevent the impeachment of the President, which requires a two-thirds majority.

With the president out by 2010, however, her hold may be waning as junior leaders look toward their political futures. There are allegations of other irregularities in Chinese deals and critics may find lots of material to throw at newspaper reporters in an effort to chip away at Arroyo's credibility, despite the country's solid economic performance in recent years.

Political analyst Surla says that to the President's good fortune, the ZTE scandal is survivable, although it further reinforces the general perception that her government is pockmarked with graft and corruption. "She is a lucky lady," Surla said. "The gods must be crazy."