Aquino Invokes Eliot Ness in Philippine Corruption War to Lure Investors

Philippine President Benigno Aquino has ordered his guards to protect officials hunting tax evaders in an anti-corruption drive aimed at drawing investors to his country, which he says offers a “far greater” return than its Southeast Asian neighbors.

“We’re going after very entrenched and very vested interests,” he said in an interview in the presidential palace in Manila. Al Capone “got caught on tax evasion, not murder, not corruption, by not paying his taxes, that amazed me,” said Aquino, who recalled being inspired by Capone’s nemesis Eliot Ness as portrayed in the 1959 series The Untouchables.

Besides pursuing tax cheats, in his first year in office Aquino has narrowed a record budget deficit and been rewarded with higher credit scores by all three major ratings companies. Now he needs to lure foreign direct investment to upgrade roads, railways and ports that are a drag on the economy and meet his target of 8 percent annual growth in a country where the World Bank says one in four live on less than $1.25 a day.

“In terms of corruption he’s doing a pretty good job,” said Edwin Gutierrez, who helps manage about $7 billion of emerging-market debt at Aberdeen Asset Management Plc (ADN) in London. When it comes to attracting investment, “the Philippines is just pretty horrendous in the amount of FDI compared to regional peers.”

Photographer: Edwin Tuyay/Bloomberg

Benigno Aquino, president of the Philippines. Close

Benigno Aquino, president of the Philippines.

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Photographer: Edwin Tuyay/Bloomberg

Benigno Aquino, president of the Philippines.

Foreign Investment

From 1970 to 2009, the Philippines lured less foreign direct investment than its Southeast Asian neighbors, according to the United Nations Conference on Trade and Development. It attracted $32.3 billion, compared with $285.8 billion for Singapore and $104.1 billion for Thailand. Net foreign direct investment fell 13 percent to $1.7 billion in 2010 from a year earlier, the central bank said in a March report.

“The return will be far greater here than, for instance, Singapore, Thailand,” said Aquino, 51, the son of former President Corazon Aquino who helped oust dictator Ferdinand Marcos. “There will be a wait-and-see attitude as far as Thailand is concerned,” he said, referring to the recent election victory there by Yingluck Shinawatra, the sister of exiled former Prime Minister Thaksin Shinawatra.

Higher returns will come from the country’s natural resources “that have been untapped for such a long time,” Aquino said, citing plans to explore for oil and gas in the South China Sea. There are 140 energy companies interested in blocks the Philippines plans to offer, he said on July 25.

Airports, Roads

Aquino is counting on investments in airports and roads to boost economic growth which slowed to 4.9 percent in the first quarter, the smallest gain since 2009. The government is inviting Singapore’s Changi Airport Group to invest in airport projects, Finance Secretary Cesar Purisima said on July 1.

Since Aquino’s administration announced plans to find investors for almost $3 billion of infrastructure projects last year, it has yet to complete any bids. The bidding process for “five or six” of the projects will be completed by the fourth quarter, he said.

When it comes to removing red tape, Aquino said things are moving too slowly and he has told his advisers “to explain exactly why we are not as fast as we want to be.”

Building a toll road through north Manila took 10 years to complete -- two years to construct and eight years to wend its way through “the bureaucratic maze,” Aquino said, seated in the Music Room in the palace where former First Lady Imelda Marcos received visitors. “That didn’t serve as a lure to investors. What we’re trying to do is compress the regulatory requirements to six months.”

Jailed Father

Aquino’s father was jailed by Ferdinand Marcos and assassinated in 1983 on his return from the U.S., where he had undergone heart surgery after falling ill in prison. Aquino, an economics graduate from Ateneo de Manila University, served for 12 years in Congress before he became president in June last year. Aquino worked as retail supervisor and promotions manager at Nike Inc. (NKE)’s Philippine unit before entering politics.

Credit rating upgrades from Fitch Ratings, Moody’s Investors Service and Standard & Poor’s show the progress the Philippines has made under Aquino in reducing a budget deficit that has plagued the nation for 22 of the past 26 years. Fitch raised the country’s foreign currency debt to one step below investment grade on June 23, days after Moody’s upgraded the Philippines to its highest rating since November 2004.

“The administration’s emphasis on good governance has improved the business climate and should result in more favorable assessments of institutional strength if that focus can be sustained,” said Christian de Guzman, a Singapore-based assistant vice president at Moody’s.

Tax Revenue

The peso gained 6.5 percent in the past 12 months, touching a three-year high on Aug. 1, according to Tullett Prebon Plc. The Philippine Stock Exchange Index climbed 25 percent in the past year and on Aug. 1 closed at a record. Still, it’s lagging behind benchmarks in Indonesia and Thailand.

Tax revenue has risen to about 14 percent of gross domestic product, Aquino said. The government’s tax take climbed under Corazon Aquino and her successor Fidel Ramos, peaking at 17 percent of GDP in 1997, according to World Bank data. It has since averaged 13.5 percent and was 12.8 percent last year, data from the bank and the government show. Tax revenue averaged 16 percent of GDP in Thailand since 2003, which is the earliest World Bank data available.

Aquino campaigned on the slogan “If There’s No Corruption, There’s No Poverty.” He has since filed more than 120 complaints against suspected smugglers, corrupt officials and tax evaders, though he hasn’t secured any convictions yet in a country that was ranked 134 out of 178 on Berlin-based Transparency International’s corruption perception index in 2010.

“It takes six years to litigate cases, that’s why we have been trying to get the right people in the various spots in the judiciary,” he said. “We told the department of justice that as far as prosecutors are concerned, the measure of your performance and therefore your promotions are based on the conviction rate.”

To contact the reporters on this story: Peter Hirschberg in Manila at phirschberg@bloomberg.net; Clarissa Batino in Manila at cbatino@bloomberg.net; Joel Guinto in Manila at jguinto1@bloomberg.net

To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net

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