Speaker 1: Bloomberg Audio Studios, podcasts, radio news. The Philippines is no
Speaker 1: stranger to storms, but this year the country's been hit
Speaker 1: with some of the most brutal monsoons in the years.
Speaker 2: Hipen Cormeggie ripped through the Philippines, killing more than one
Speaker 2: hundred and eighty eight people.
Speaker 3: Over's forecast to cause widespread damage, power, ouchages and flooding
Speaker 3: across the island of Louzon.
Speaker 1: Hundreds of people were killed when several typhoons barreled through
Speaker 1: the archipelago earlier this year. In the aftermath, Bloomberg reporter
Speaker 1: Andrea Golonzo and our colleagues traveled to one of the
Speaker 1: hardest hit regions, in a village called Francis on the
Speaker 1: outskirts of the capital of Manila. He met Estlita Bagnan annan.
Speaker 3: Esilita was cleaning the mud on her front yard when
Speaker 3: we spotted her. She had a broom, she was wearing
Speaker 3: rubber boots.
Speaker 1: She was cleaning up flood debris that washed up when
Speaker 1: the nearby river overflowed during the storms.
Speaker 3: When we talk to her, she told us that she's
Speaker 3: already exhausted from cleaning her house every time a flood
Speaker 3: comes in. She said, she's already getting sick. She's already old.
Speaker 3: She can't do this every single time.
Speaker 1: Like many people in Francis, Estaliita's house is built close
Speaker 1: to the Pampanga River. For years, villagers have relied on
Speaker 1: the river water for farming, but for at least half
Speaker 1: the year, the river is also a liability.
Speaker 3: Francis village is also what is called a catch basin,
Speaker 3: so whenever there are floods in nearby towns in nearby provinces,
Speaker 3: all the water also end up in that village.
Speaker 1: This region floods every year. After years of fielding complaints,
Speaker 1: the Philippine government finally stepped in a few years ago.
Speaker 1: It allocated money for a dike to stop floodwater from
Speaker 1: inundating the village.
Speaker 3: The villagers were telling us that they were very happy
Speaker 3: when they saw that the dike was being built. They
Speaker 3: thought that it was already the end of their struggles
Speaker 3: with the flooding and the high tide.
Speaker 1: It wasn't, villagers said. The dike, which was completed in
Speaker 1: twenty twenty three, made the flooding worse. When Dreo visited
Speaker 1: Francis at the end of November, it hadn't rained for weeks,
Speaker 1: but the floodwater was still there.
Speaker 3: The residents told us that before, when it rains, the
Speaker 3: water subsides in a couple of days or a maximum
Speaker 3: of a week, but now the water stays on for months.
Speaker 1: An initial government inspection of the dike found it wasn't
Speaker 1: built properly and it wasn't the only one.
Speaker 3: Kamramin pruekto pars of flodlalpat.
Speaker 1: In his State of the Nation address in July, Philippine
Speaker 1: President Ferdinand Marcos Junior announced that his government had uncovered
Speaker 1: a web of corruption that potentially touches thousands of public
Speaker 1: flood control projects. Some were constructed shoddily or had serious defects.
Speaker 1: Others were paid for by the government but never built.
Speaker 1: It's one of the biggest corruption scandals the country has
Speaker 1: ever had to contend with. The Government's probe implicated dozens
Speaker 1: of contractors, public works officials, and politicians who allegedly colluded
Speaker 1: with each other to receive kickbacks over the years. The
Speaker 1: network of corruption may have looted as much as seventy
Speaker 1: percent of the public money allocated to flood control projects
Speaker 1: in the last two years. That's an estimated two billion
Speaker 1: US dollars.
Speaker 2: Corruption is something that's been going on for years in
Speaker 2: the Philippines, but even by Philippine standards, this scandal has
Speaker 2: been pretty shockying.
Speaker 1: Rosalind Matheson is the Chief Asia Course at Bloomberg. She
Speaker 1: says countries across Southeast Asia have struggled with flooding this year,
Speaker 1: but the situation in the Philippines has been complicated by
Speaker 1: a corruption scandal that has struck a nerve with its
Speaker 1: citizens and put intense public pressure on President Marcos.
Speaker 2: There's quite a lot of anger there, frustration, and a
Speaker 2: lot of anxiety about what will happen next year. A
Speaker 2: lot of economists are expecting this to really be a
Speaker 2: drag on the economy and for a lot of businesses
Speaker 2: who are looking at the Philippines and saying is this
Speaker 2: the place to invest or to continue to invest? Is
Speaker 2: their fundamental reform because of theirs.
Speaker 1: This is the Big Take Asia from Bloomberg News.
Speaker 3: I'm Wanha.
Speaker 1: Every week we take you inside some of the world's
Speaker 1: biggest and most powerful economies and the markets, tycoons and
Speaker 1: businesses that drive this ever shifting region. Today, on the show,
Speaker 1: the devastating impact of one of the biggest corruption scandals
Speaker 1: ever to hit the Philippines. We look at how lawmakers
Speaker 1: and contractors fleece the government out of billions of dollars
Speaker 1: that was earmarked to mitigate floods, and how the depth
Speaker 1: of this corruption risks paralyzing the country's economy. Public outrage
Speaker 1: over the years long corruption in projects designed to reduce
Speaker 1: flooding has boiled over in the Philippines. Massive protests began
Speaker 1: this summer and continued through to the end of November.
Speaker 1: Tens of thousands of Filipinos have taken to the streets
Speaker 1: calling for an end to corruption and for prosecutions. Bloomberg's
Speaker 1: Dreoklonzo witnessed that anger firsthand in Francis. That's where he
Speaker 1: met Jesse Ciago, the village chief man.
Speaker 4: Always the people I talk to are angry at the
Speaker 4: high level corrupt officials, congressmen, senators. In the news, we
Speaker 4: see millions of pestls and kickbacks. I sometimes think that
Speaker 4: we never learn those implicated before still end up winning
Speaker 4: elections and then repeating what they did.
Speaker 1: Jesse told Reo that people in the village are furious
Speaker 1: about what they see as rampant corruption. He says, some
Speaker 1: of the people accused in the flood scheme had been
Speaker 1: implicated in corruption scandals in the past and had managed
Speaker 1: to keep their roles in public office. Then of course
Speaker 1: there's the total devastation on the ground.
Speaker 3: There were farmers who don't have farmlands anymore. Students have
Speaker 3: to build a makeshift bridge on the school so that
Speaker 3: they can go to their classes. The village chief also
Speaker 3: told us that it was a struggle for ambulance says
Speaker 3: to reach residents w or having heart attacks because of
Speaker 3: the flooding. And they also worry now that stagnant water
Speaker 3: from the flooding will say there and breathed ben ge Mosquitos.
Speaker 3: So it's really affecting their lives, their livelihoods and their health.
Speaker 1: The dike in Francis was supposed to help prevent these
Speaker 1: types of catastrophes by diverting floodwaters away from homes and businesses,
Speaker 1: but Reo says so far it hasn't worked out.
Speaker 3: Instead of keeping the water in the river and draining
Speaker 3: the water from the streets to the river, the dike
Speaker 3: is trapping the water in streets and in residences.
Speaker 1: The dike took five months to build and cracked open
Speaker 1: less than a year after it was completed.
Speaker 3: We saw that the dyke had poor workmanship. The bars
Speaker 3: were exposed. Part of the dike was already called in gress,
Speaker 3: meaning the Sementa's already been entirely washed away.
Speaker 1: The dike in Francis is just one of thousands of
Speaker 1: projects that a government investigation alleges are part of a
Speaker 1: vast corruption network. There are at least twenty four hundred
Speaker 1: contractors in the Philippines, but just fifteen of them managed
Speaker 1: to corner twenty percent of the flood control projects across
Speaker 1: the country over the past three years.
Speaker 3: The scheme starts with a lawmaker proposing a project to
Speaker 3: the Department of Public Works and Highways. It's kind of
Speaker 3: like they're sponsoring a project with expectation that they are
Speaker 3: going to get a kickback from that project.
Speaker 1: The government says these lawmakers conspired with public works officials
Speaker 1: and contractors. The lawmakers work to get the funding for
Speaker 1: flood mitigation projects through the Senate. The public works officials
Speaker 1: then rig the bids for the projects in favor of
Speaker 1: the contractors in the network. Once those contractors were paid,
Speaker 1: they kicked back a chunk of that money to the
Speaker 1: officials and politicians. How much did these corrupt networks deal
Speaker 1: It's not clear. Estimates vary anywhere from twenty five to
Speaker 1: seventy percent of the total costs of the projects, but
Speaker 1: Bloomberg's Rosalind Matheson says what is clear is that there
Speaker 1: wasn't enough money left for the actual structures to be
Speaker 1: built to standard.
Speaker 2: In some cases, the allegation is that the contractors use
Speaker 2: very substandard products to build these protective dikes. They cut corners.
Speaker 2: So one local said to us, this dike was supposed
Speaker 2: to have, you know, for every ten bags of cement,
Speaker 2: they're only used too And if you look at the dike,
Speaker 2: you can see areas where they've crumbled away and inside
Speaker 2: its hollow.
Speaker 1: The dikes, dams, and bridges that were built were shoddy
Speaker 1: and unable to withstand the severe floods they were supposed
Speaker 1: to contain. That's if they were built at all.
Speaker 2: Every place we went to there was at least one
Speaker 2: ghost project where they said the funds were allocated and
Speaker 2: nothing ever was built, and so the money has just disappeared.
Speaker 1: Government investigators are still trying to figure out exactly how
Speaker 1: much has been lost to graft and corruption for all
Speaker 1: these flood mitigation projects.
Speaker 3: We're not talking yet about subsidel projects, so safe to
Speaker 3: say that the Philippines has lost billions of US dollars
Speaker 3: in this corruption scheme. For the past decade.
Speaker 1: Before the scandal broke, the Philippines ranked one hundred and
Speaker 1: fourteenth on Transparency International's Corruption Index of one hundred eighty
Speaker 1: countries and territories. Dreo says this scandal has revealed just
Speaker 1: how deep the alleged corruption reaches.
Speaker 3: The Public Works chief has called this a syndicate. Everybody
Speaker 3: seems to be in on the scheme, from the top,
Speaker 3: from the lawmakers to the bottom to the contractors.
Speaker 1: Coming up after the break, we look at the government's
Speaker 1: response to the scandal. Will it be enough to reassure
Speaker 1: investors worried about putting money to work in Southeast Asia,
Speaker 1: a region swamped by natural disasters and often clouded by corruption.
Speaker 1: As recently as last month, torrential monsoon rains have triggered
Speaker 1: floods and landslides across Asia, from Sri Lanka to Indonesia,
Speaker 1: Thailand and Malaysia. Initial estimates put the damages for the
Speaker 1: disasters in the region at twenty billion dollars just last
Speaker 1: month alone. Climate change has made the extreme storms that
Speaker 1: batter the region around half a year more commonplace. Corrupt
Speaker 1: practices make the devastation even worse. Bloomberg's Rosalind Matheson says
Speaker 1: the corrupt practices that stand in the way of trying
Speaker 1: to manage class time change are most pronounced in the Philippines.
Speaker 2: Does corruption go on in flood mitigation in other countries
Speaker 2: quite potentially, when you've got politics and big contractors mixing,
Speaker 2: it's a bit of a toxic combination, potentially, But we
Speaker 2: haven't seen the scale of it come to light in
Speaker 2: any way in other countries to the extent that we've
Speaker 2: seen it come to light in the Philippines.
Speaker 1: Since the scandal first broke in July, the Philippine government
Speaker 1: has cracked down hard and fast. Authorities have frozen more
Speaker 1: than two hundred million dollars in assets so far, including
Speaker 1: bank accounts, cars, real estate, and nearly a dozen aircraft.
Speaker 1: A handful of people have been arrested, and President Ferdinand
Speaker 1: Marcos Junior has promised that moral officials would be locked
Speaker 1: up by Christmas.
Speaker 3: But you cannot steal from Filipido people and expect to
Speaker 3: hide or fly away on your private judge you'll have
Speaker 3: the money to run.
Speaker 1: Bloomberg's Roslind Matheson says the current administration wants to show
Speaker 1: the public they're taking the scandal seriously.
Speaker 2: They've frozen hundreds of millions of dollars from bank accounts.
Speaker 2: Have they actually recouped that yet, not necessarily, and it's
Speaker 2: still a small amount of what they estimate was siphoned off.
Speaker 2: They say the investigations are ongoing. Some people have been arrested,
Speaker 2: but so far it's mostly lower level officials who've been arrested,
Speaker 2: and the government says that they have to do really
Speaker 2: proper probes of more senior names, more senior politicians.
Speaker 1: But Roslind says the promise of accountability has done little
Speaker 1: to quell anger in the country. She says, deep rooted
Speaker 1: graft and corruption have been tolerated, even accepted as part
Speaker 1: of life in the Philippines, but this scandal feels different.
Speaker 2: Corruption is something that's been going on for years in
Speaker 2: the Philippines. It's not that startling in a way, it's
Speaker 2: sort of seen as a facet of life. But even
Speaker 2: by Philippine standards, this scandal has been pretty shocking, and
Speaker 2: that's why you've seen big street protests. I think because
Speaker 2: the weather in away is so visceral for people. I mean,
Speaker 2: twenty typhoons at least come through the Philippines every year.
Speaker 2: People know that they have to deal with this weather
Speaker 2: every year, the risk of flooding. It's quite fundamental for them,
Speaker 2: and they've been putting their faith in the government to
Speaker 2: fix it. And then to hear from the President that,
Speaker 2: in fact, this corruption has been going on for years
Speaker 2: it never came to light. So I think it's a
Speaker 2: combination really of this being such a direct impact on
Speaker 2: people's lives.
Speaker 1: The corruption allegations and public uproar that followed have hammered
Speaker 1: Philippine markets. Economic growth in the third quarter were surprisingly
Speaker 1: weak and grew at the slowest piece since twenty twenty one.
Speaker 1: The peso slumped to a record low against the dollar
Speaker 1: in October, and the benchmark stock index fell more than
Speaker 1: fourteen percent at one point this year. To ensure that
Speaker 1: even more money isn't lost to corruption, the government has
Speaker 1: frozen spending for flood control projects through twenty twenty six.
Speaker 1: That might stop the rot in the short term, but
Speaker 1: Roslin says it comes at a cost.
Speaker 2: It's frozen. Not just government spending, but it's frozen people's
Speaker 2: decision making about whether to expand their business, to invest
Speaker 2: in a new plant, to wait and see. Really, and
Speaker 2: that kind of indecisiveness can be a real infection for
Speaker 2: an economy because once that sentiment starts, it's hard to
Speaker 2: know when it starts to fade away again and people
Speaker 2: start to regain confidence.
Speaker 1: Economists and analysts that Roslin spoke to expect the scandal
Speaker 1: to continue to be a drag on the economy through
Speaker 1: at least the first half of twenty twenty six, and
Speaker 1: perhaps even longer. I asked rosalind, what's at stake for
Speaker 1: the Philippines if leaders fail to address the more deep
Speaker 1: rooted issues, including the lack of transparency and budget accountability,
Speaker 1: that are behind the scandal.
Speaker 2: Well, the sense is that unless the Philippines fundamentally addresses
Speaker 2: some of these issues, that it will be stuck in
Speaker 2: this doom loop of corruption and relative underperformance. And really,
Speaker 2: if you look at the Philippines, it's a country that's
Speaker 2: got loads going for it. I mean, it's in a
Speaker 2: terrific location in terms of the global supply chain for trade.
Speaker 2: It has a young, dynamic population, it's quite involved in
Speaker 2: the BPO sector, because it's got a strong English speaking base,
Speaker 2: it's had some success in drawing tech investment from China,
Speaker 2: and so on the surface of it, the Philippines should
Speaker 2: be and is an attractive investment destination. It's just that
Speaker 2: this corruption cloud hangs over it.
Speaker 1: And with this corruption cloud hanging over the Philippines, Rasland says,
Speaker 1: it could pose an even bigger risk for the country
Speaker 1: long term. It could push investors already looking elsewhere in
Speaker 1: Southeast Asia to seek out opportunities to invest and do
Speaker 1: business in places like Vietnam and Thailand.
Speaker 2: For the Philippines has quite a lot at stake in
Speaker 2: this in terms of its ability to present itself as
Speaker 2: an attractive destination for investment and business, especially when it's
Speaker 2: competing against a lot of other countries in the region,
Speaker 2: and those countries are actively touting for business and all
Speaker 2: trying to draw companies as well away from China. As
Speaker 2: the global trade map gets redrawn and global supply chains
Speaker 2: get redrawn, there's a real opportunity here for the Philippines.
Speaker 2: But the danger is if this remains an overhang for
Speaker 2: the next year, other countries will have a one year
Speaker 2: head start on the Philippines in doing so. The warnings
Speaker 2: that we're hearing from investors, economists, and so on is
Speaker 2: that the Philippine government really needs to demonstrate fundamental action here,
Speaker 2: not just you know, here's a few people we found
Speaker 2: who we've arrested and charged, but we really tried to
Speaker 2: rout out the people who are behind the scheme.
Speaker 1: As the Philippine government works to fix the country's reputational damage,
Speaker 1: the villagers of Francis are focused on fixing the damage
Speaker 1: to their town. With no projects being funded next year,
Speaker 1: they're not likely to get a new dake for the
Speaker 1: foreseeable future, and says they're taking matters into their own hands.
Speaker 2: They're like, we're just going to have to get on
Speaker 2: and find a way. So they're trying to dig drains
Speaker 2: down the sides of houses, They're trying to raise roads
Speaker 2: in order to prevent further flooding. What surprised me is
Speaker 2: how stoic people are about it, how is lyn they are.
Speaker 2: They say they're not getting a ton of help, and
Speaker 2: their big concern is obviously that the floodwater will finally
Speaker 2: fully recede, and then you get into the next rainy
Speaker 2: season and it all just begins again.
Speaker 1: This is The Big Take Asia from Bloomberg News.
Speaker 3: I'm one half.
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Speaker 4: The Spy and d