WEBVTT - The $2 Billion Flood Control Scandal Rocking the Philippines

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news. The Philippines is no

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<v Speaker 1>stranger to storms, but this year the country's been hit

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<v Speaker 1>with some of the most brutal monsoons in the years.

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<v Speaker 2>Hipen Cormeggie ripped through the Philippines, killing more than one

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<v Speaker 2>hundred and eighty eight people.

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<v Speaker 3>Over's forecast to cause widespread damage, power, ouchages and flooding

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<v Speaker 3>across the island of Louzon.

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<v Speaker 1>Hundreds of people were killed when several typhoons barreled through

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<v Speaker 1>the archipelago earlier this year. In the aftermath, Bloomberg reporter

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<v Speaker 1>Andrea Golonzo and our colleagues traveled to one of the

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<v Speaker 1>hardest hit regions, in a village called Francis on the

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<v Speaker 1>outskirts of the capital of Manila. He met Estlita Bagnan annan.

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<v Speaker 3>Esilita was cleaning the mud on her front yard when

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<v Speaker 3>we spotted her. She had a broom, she was wearing

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<v Speaker 3>rubber boots.

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<v Speaker 1>She was cleaning up flood debris that washed up when

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<v Speaker 1>the nearby river overflowed during the storms.

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<v Speaker 3>When we talk to her, she told us that she's

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<v Speaker 3>already exhausted from cleaning her house every time a flood

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<v Speaker 3>comes in. She said, she's already getting sick. She's already old.

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<v Speaker 3>She can't do this every single time.

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<v Speaker 1>Like many people in Francis, Estaliita's house is built close

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<v Speaker 1>to the Pampanga River. For years, villagers have relied on

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<v Speaker 1>the river water for farming, but for at least half

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<v Speaker 1>the year, the river is also a liability.

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<v Speaker 3>Francis village is also what is called a catch basin,

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<v Speaker 3>so whenever there are floods in nearby towns in nearby provinces,

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<v Speaker 3>all the water also end up in that village.

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<v Speaker 1>This region floods every year. After years of fielding complaints,

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<v Speaker 1>the Philippine government finally stepped in a few years ago.

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<v Speaker 1>It allocated money for a dike to stop floodwater from

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<v Speaker 1>inundating the village.

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<v Speaker 3>The villagers were telling us that they were very happy

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<v Speaker 3>when they saw that the dike was being built. They

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<v Speaker 3>thought that it was already the end of their struggles

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<v Speaker 3>with the flooding and the high tide.

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<v Speaker 1>It wasn't, villagers said. The dike, which was completed in

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<v Speaker 1>twenty twenty three, made the flooding worse. When Dreo visited

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<v Speaker 1>Francis at the end of November, it hadn't rained for weeks,

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<v Speaker 1>but the floodwater was still there.

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<v Speaker 3>The residents told us that before, when it rains, the

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<v Speaker 3>water subsides in a couple of days or a maximum

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<v Speaker 3>of a week, but now the water stays on for months.

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<v Speaker 1>An initial government inspection of the dike found it wasn't

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<v Speaker 1>built properly and it wasn't the only one.

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<v Speaker 3>Kamramin pruekto pars of flodlalpat.

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<v Speaker 1>In his State of the Nation address in July, Philippine

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<v Speaker 1>President Ferdinand Marcos Junior announced that his government had uncovered

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<v Speaker 1>a web of corruption that potentially touches thousands of public

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<v Speaker 1>flood control projects. Some were constructed shoddily or had serious defects.

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<v Speaker 1>Others were paid for by the government but never built.

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<v Speaker 1>It's one of the biggest corruption scandals the country has

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<v Speaker 1>ever had to contend with. The Government's probe implicated dozens

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<v Speaker 1>of contractors, public works officials, and politicians who allegedly colluded

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<v Speaker 1>with each other to receive kickbacks over the years. The

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<v Speaker 1>network of corruption may have looted as much as seventy

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<v Speaker 1>percent of the public money allocated to flood control projects

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<v Speaker 1>in the last two years. That's an estimated two billion

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<v Speaker 1>US dollars.

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<v Speaker 2>Corruption is something that's been going on for years in

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<v Speaker 2>the Philippines, but even by Philippine standards, this scandal has

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<v Speaker 2>been pretty shockying.

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<v Speaker 1>Rosalind Matheson is the Chief Asia Course at Bloomberg. She

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<v Speaker 1>says countries across Southeast Asia have struggled with flooding this year,

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<v Speaker 1>but the situation in the Philippines has been complicated by

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<v Speaker 1>a corruption scandal that has struck a nerve with its

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<v Speaker 1>citizens and put intense public pressure on President Marcos.

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<v Speaker 2>There's quite a lot of anger there, frustration, and a

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<v Speaker 2>lot of anxiety about what will happen next year. A

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<v Speaker 2>lot of economists are expecting this to really be a

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<v Speaker 2>drag on the economy and for a lot of businesses

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<v Speaker 2>who are looking at the Philippines and saying is this

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<v Speaker 2>the place to invest or to continue to invest? Is

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<v Speaker 2>their fundamental reform because of theirs.

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<v Speaker 1>This is the Big Take Asia from Bloomberg News.

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<v Speaker 3>I'm Wanha.

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<v Speaker 1>Every week we take you inside some of the world's

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<v Speaker 1>biggest and most powerful economies and the markets, tycoons and

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<v Speaker 1>businesses that drive this ever shifting region. Today, on the show,

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<v Speaker 1>the devastating impact of one of the biggest corruption scandals

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<v Speaker 1>ever to hit the Philippines. We look at how lawmakers

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<v Speaker 1>and contractors fleece the government out of billions of dollars

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<v Speaker 1>that was earmarked to mitigate floods, and how the depth

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<v Speaker 1>of this corruption risks paralyzing the country's economy. Public outrage

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<v Speaker 1>over the years long corruption in projects designed to reduce

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<v Speaker 1>flooding has boiled over in the Philippines. Massive protests began

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<v Speaker 1>this summer and continued through to the end of November.

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<v Speaker 1>Tens of thousands of Filipinos have taken to the streets

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<v Speaker 1>calling for an end to corruption and for prosecutions. Bloomberg's

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<v Speaker 1>Dreoklonzo witnessed that anger firsthand in Francis. That's where he

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<v Speaker 1>met Jesse Ciago, the village chief man.

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<v Speaker 4>Always the people I talk to are angry at the

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<v Speaker 4>high level corrupt officials, congressmen, senators. In the news, we

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<v Speaker 4>see millions of pestls and kickbacks. I sometimes think that

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<v Speaker 4>we never learn those implicated before still end up winning

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<v Speaker 4>elections and then repeating what they did.

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<v Speaker 1>Jesse told Reo that people in the village are furious

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<v Speaker 1>about what they see as rampant corruption. He says, some

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<v Speaker 1>of the people accused in the flood scheme had been

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<v Speaker 1>implicated in corruption scandals in the past and had managed

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<v Speaker 1>to keep their roles in public office. Then of course

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<v Speaker 1>there's the total devastation on the ground.

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<v Speaker 3>There were farmers who don't have farmlands anymore. Students have

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<v Speaker 3>to build a makeshift bridge on the school so that

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<v Speaker 3>they can go to their classes. The village chief also

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<v Speaker 3>told us that it was a struggle for ambulance says

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<v Speaker 3>to reach residents w or having heart attacks because of

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<v Speaker 3>the flooding. And they also worry now that stagnant water

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<v Speaker 3>from the flooding will say there and breathed ben ge Mosquitos.

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<v Speaker 3>So it's really affecting their lives, their livelihoods and their health.

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<v Speaker 1>The dike in Francis was supposed to help prevent these

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<v Speaker 1>types of catastrophes by diverting floodwaters away from homes and businesses,

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<v Speaker 1>but Reo says so far it hasn't worked out.

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<v Speaker 3>Instead of keeping the water in the river and draining

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<v Speaker 3>the water from the streets to the river, the dike

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<v Speaker 3>is trapping the water in streets and in residences.

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<v Speaker 1>The dike took five months to build and cracked open

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<v Speaker 1>less than a year after it was completed.

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<v Speaker 3>We saw that the dyke had poor workmanship. The bars

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<v Speaker 3>were exposed. Part of the dike was already called in gress,

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<v Speaker 3>meaning the Sementa's already been entirely washed away.

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<v Speaker 1>The dike in Francis is just one of thousands of

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<v Speaker 1>projects that a government investigation alleges are part of a

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<v Speaker 1>vast corruption network. There are at least twenty four hundred

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<v Speaker 1>contractors in the Philippines, but just fifteen of them managed

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<v Speaker 1>to corner twenty percent of the flood control projects across

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<v Speaker 1>the country over the past three years.

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<v Speaker 3>The scheme starts with a lawmaker proposing a project to

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<v Speaker 3>the Department of Public Works and Highways. It's kind of

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<v Speaker 3>like they're sponsoring a project with expectation that they are

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<v Speaker 3>going to get a kickback from that project.

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<v Speaker 1>The government says these lawmakers conspired with public works officials

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<v Speaker 1>and contractors. The lawmakers work to get the funding for

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<v Speaker 1>flood mitigation projects through the Senate. The public works officials

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<v Speaker 1>then rig the bids for the projects in favor of

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<v Speaker 1>the contractors in the network. Once those contractors were paid,

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<v Speaker 1>they kicked back a chunk of that money to the

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<v Speaker 1>officials and politicians. How much did these corrupt networks deal

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<v Speaker 1>It's not clear. Estimates vary anywhere from twenty five to

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<v Speaker 1>seventy percent of the total costs of the projects, but

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<v Speaker 1>Bloomberg's Rosalind Matheson says what is clear is that there

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<v Speaker 1>wasn't enough money left for the actual structures to be

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<v Speaker 1>built to standard.

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<v Speaker 2>In some cases, the allegation is that the contractors use

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<v Speaker 2>very substandard products to build these protective dikes. They cut corners.

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<v Speaker 2>So one local said to us, this dike was supposed

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<v Speaker 2>to have, you know, for every ten bags of cement,

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<v Speaker 2>they're only used too And if you look at the dike,

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<v Speaker 2>you can see areas where they've crumbled away and inside

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<v Speaker 2>its hollow.

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<v Speaker 1>The dikes, dams, and bridges that were built were shoddy

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<v Speaker 1>and unable to withstand the severe floods they were supposed

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<v Speaker 1>to contain. That's if they were built at all.

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<v Speaker 2>Every place we went to there was at least one

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<v Speaker 2>ghost project where they said the funds were allocated and

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<v Speaker 2>nothing ever was built, and so the money has just disappeared.

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<v Speaker 1>Government investigators are still trying to figure out exactly how

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<v Speaker 1>much has been lost to graft and corruption for all

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<v Speaker 1>these flood mitigation projects.

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<v Speaker 3>We're not talking yet about subsidel projects, so safe to

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<v Speaker 3>say that the Philippines has lost billions of US dollars

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<v Speaker 3>in this corruption scheme. For the past decade.

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<v Speaker 1>Before the scandal broke, the Philippines ranked one hundred and

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<v Speaker 1>fourteenth on Transparency International's Corruption Index of one hundred eighty

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<v Speaker 1>countries and territories. Dreo says this scandal has revealed just

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<v Speaker 1>how deep the alleged corruption reaches.

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<v Speaker 3>The Public Works chief has called this a syndicate. Everybody

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<v Speaker 3>seems to be in on the scheme, from the top,

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<v Speaker 3>from the lawmakers to the bottom to the contractors.

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<v Speaker 1>Coming up after the break, we look at the government's

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<v Speaker 1>response to the scandal. Will it be enough to reassure

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<v Speaker 1>investors worried about putting money to work in Southeast Asia,

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<v Speaker 1>a region swamped by natural disasters and often clouded by corruption.

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<v Speaker 1>As recently as last month, torrential monsoon rains have triggered

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<v Speaker 1>floods and landslides across Asia, from Sri Lanka to Indonesia,

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<v Speaker 1>Thailand and Malaysia. Initial estimates put the damages for the

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<v Speaker 1>disasters in the region at twenty billion dollars just last

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<v Speaker 1>month alone. Climate change has made the extreme storms that

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<v Speaker 1>batter the region around half a year more commonplace. Corrupt

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<v Speaker 1>practices make the devastation even worse. Bloomberg's Rosalind Matheson says

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<v Speaker 1>the corrupt practices that stand in the way of trying

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<v Speaker 1>to manage class time change are most pronounced in the Philippines.

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<v Speaker 2>Does corruption go on in flood mitigation in other countries

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<v Speaker 2>quite potentially, when you've got politics and big contractors mixing,

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<v Speaker 2>it's a bit of a toxic combination, potentially, But we

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<v Speaker 2>haven't seen the scale of it come to light in

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<v Speaker 2>any way in other countries to the extent that we've

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<v Speaker 2>seen it come to light in the Philippines.

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<v Speaker 1>Since the scandal first broke in July, the Philippine government

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<v Speaker 1>has cracked down hard and fast. Authorities have frozen more

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<v Speaker 1>than two hundred million dollars in assets so far, including

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<v Speaker 1>bank accounts, cars, real estate, and nearly a dozen aircraft.

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<v Speaker 1>A handful of people have been arrested, and President Ferdinand

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<v Speaker 1>Marcos Junior has promised that moral officials would be locked

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<v Speaker 1>up by Christmas.

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<v Speaker 3>But you cannot steal from Filipido people and expect to

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<v Speaker 3>hide or fly away on your private judge you'll have

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<v Speaker 3>the money to run.

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<v Speaker 1>Bloomberg's Roslind Matheson says the current administration wants to show

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<v Speaker 1>the public they're taking the scandal seriously.

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<v Speaker 2>They've frozen hundreds of millions of dollars from bank accounts.

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<v Speaker 2>Have they actually recouped that yet, not necessarily, and it's

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<v Speaker 2>still a small amount of what they estimate was siphoned off.

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<v Speaker 2>They say the investigations are ongoing. Some people have been arrested,

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<v Speaker 2>but so far it's mostly lower level officials who've been arrested,

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<v Speaker 2>and the government says that they have to do really

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<v Speaker 2>proper probes of more senior names, more senior politicians.

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<v Speaker 1>But Roslind says the promise of accountability has done little

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<v Speaker 1>to quell anger in the country. She says, deep rooted

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<v Speaker 1>graft and corruption have been tolerated, even accepted as part

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<v Speaker 1>of life in the Philippines, but this scandal feels different.

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<v Speaker 2>Corruption is something that's been going on for years in

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<v Speaker 2>the Philippines. It's not that startling in a way, it's

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<v Speaker 2>sort of seen as a facet of life. But even

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<v Speaker 2>by Philippine standards, this scandal has been pretty shocking, and

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<v Speaker 2>that's why you've seen big street protests. I think because

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<v Speaker 2>the weather in away is so visceral for people. I mean,

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<v Speaker 2>twenty typhoons at least come through the Philippines every year.

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<v Speaker 2>People know that they have to deal with this weather

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<v Speaker 2>every year, the risk of flooding. It's quite fundamental for them,

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<v Speaker 2>and they've been putting their faith in the government to

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<v Speaker 2>fix it. And then to hear from the President that,

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<v Speaker 2>in fact, this corruption has been going on for years

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<v Speaker 2>it never came to light. So I think it's a

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<v Speaker 2>combination really of this being such a direct impact on

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<v Speaker 2>people's lives.

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<v Speaker 1>The corruption allegations and public uproar that followed have hammered

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<v Speaker 1>Philippine markets. Economic growth in the third quarter were surprisingly

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<v Speaker 1>weak and grew at the slowest piece since twenty twenty one.

0:14:45.880 --> 0:14:48.640
<v Speaker 1>The peso slumped to a record low against the dollar

0:14:48.680 --> 0:14:52.160
<v Speaker 1>in October, and the benchmark stock index fell more than

0:14:52.160 --> 0:14:55.520
<v Speaker 1>fourteen percent at one point this year. To ensure that

0:14:55.600 --> 0:14:59.120
<v Speaker 1>even more money isn't lost to corruption, the government has

0:14:59.200 --> 0:15:02.840
<v Speaker 1>frozen spending for flood control projects through twenty twenty six.

0:15:03.680 --> 0:15:06.280
<v Speaker 1>That might stop the rot in the short term, but

0:15:06.480 --> 0:15:08.760
<v Speaker 1>Roslin says it comes at a cost.

0:15:09.440 --> 0:15:12.680
<v Speaker 2>It's frozen. Not just government spending, but it's frozen people's

0:15:12.680 --> 0:15:16.320
<v Speaker 2>decision making about whether to expand their business, to invest

0:15:16.360 --> 0:15:19.160
<v Speaker 2>in a new plant, to wait and see. Really, and

0:15:19.200 --> 0:15:23.080
<v Speaker 2>that kind of indecisiveness can be a real infection for

0:15:23.120 --> 0:15:27.240
<v Speaker 2>an economy because once that sentiment starts, it's hard to

0:15:27.280 --> 0:15:29.800
<v Speaker 2>know when it starts to fade away again and people

0:15:29.840 --> 0:15:31.840
<v Speaker 2>start to regain confidence.

0:15:32.320 --> 0:15:36.080
<v Speaker 1>Economists and analysts that Roslin spoke to expect the scandal

0:15:36.120 --> 0:15:38.720
<v Speaker 1>to continue to be a drag on the economy through

0:15:38.760 --> 0:15:41.360
<v Speaker 1>at least the first half of twenty twenty six, and

0:15:41.440 --> 0:15:45.200
<v Speaker 1>perhaps even longer. I asked rosalind, what's at stake for

0:15:45.240 --> 0:15:48.280
<v Speaker 1>the Philippines if leaders fail to address the more deep

0:15:48.360 --> 0:15:52.720
<v Speaker 1>rooted issues, including the lack of transparency and budget accountability,

0:15:52.880 --> 0:15:54.240
<v Speaker 1>that are behind the scandal.

0:15:54.920 --> 0:15:58.600
<v Speaker 2>Well, the sense is that unless the Philippines fundamentally addresses

0:15:58.640 --> 0:16:00.360
<v Speaker 2>some of these issues, that it will be stuck in

0:16:00.400 --> 0:16:03.920
<v Speaker 2>this doom loop of corruption and relative underperformance. And really,

0:16:03.960 --> 0:16:05.840
<v Speaker 2>if you look at the Philippines, it's a country that's

0:16:05.880 --> 0:16:08.120
<v Speaker 2>got loads going for it. I mean, it's in a

0:16:08.600 --> 0:16:12.880
<v Speaker 2>terrific location in terms of the global supply chain for trade.

0:16:13.000 --> 0:16:17.200
<v Speaker 2>It has a young, dynamic population, it's quite involved in

0:16:17.240 --> 0:16:21.840
<v Speaker 2>the BPO sector, because it's got a strong English speaking base,

0:16:22.160 --> 0:16:25.320
<v Speaker 2>it's had some success in drawing tech investment from China,

0:16:25.680 --> 0:16:27.800
<v Speaker 2>and so on the surface of it, the Philippines should

0:16:27.800 --> 0:16:31.280
<v Speaker 2>be and is an attractive investment destination. It's just that

0:16:31.360 --> 0:16:33.280
<v Speaker 2>this corruption cloud hangs over it.

0:16:34.200 --> 0:16:38.280
<v Speaker 1>And with this corruption cloud hanging over the Philippines, Rasland says,

0:16:38.360 --> 0:16:40.960
<v Speaker 1>it could pose an even bigger risk for the country

0:16:41.120 --> 0:16:45.240
<v Speaker 1>long term. It could push investors already looking elsewhere in

0:16:45.280 --> 0:16:48.600
<v Speaker 1>Southeast Asia to seek out opportunities to invest and do

0:16:48.680 --> 0:16:51.400
<v Speaker 1>business in places like Vietnam and Thailand.

0:16:51.800 --> 0:16:54.080
<v Speaker 2>For the Philippines has quite a lot at stake in

0:16:54.120 --> 0:16:57.360
<v Speaker 2>this in terms of its ability to present itself as

0:16:57.400 --> 0:17:01.360
<v Speaker 2>an attractive destination for investment and business, especially when it's

0:17:01.360 --> 0:17:04.000
<v Speaker 2>competing against a lot of other countries in the region,

0:17:04.040 --> 0:17:07.480
<v Speaker 2>and those countries are actively touting for business and all

0:17:07.520 --> 0:17:10.080
<v Speaker 2>trying to draw companies as well away from China. As

0:17:10.119 --> 0:17:14.160
<v Speaker 2>the global trade map gets redrawn and global supply chains

0:17:14.200 --> 0:17:17.680
<v Speaker 2>get redrawn, there's a real opportunity here for the Philippines.

0:17:17.680 --> 0:17:20.040
<v Speaker 2>But the danger is if this remains an overhang for

0:17:20.080 --> 0:17:22.960
<v Speaker 2>the next year, other countries will have a one year

0:17:23.000 --> 0:17:26.200
<v Speaker 2>head start on the Philippines in doing so. The warnings

0:17:26.200 --> 0:17:29.639
<v Speaker 2>that we're hearing from investors, economists, and so on is

0:17:29.680 --> 0:17:34.440
<v Speaker 2>that the Philippine government really needs to demonstrate fundamental action here,

0:17:34.720 --> 0:17:36.880
<v Speaker 2>not just you know, here's a few people we found

0:17:36.960 --> 0:17:40.720
<v Speaker 2>who we've arrested and charged, but we really tried to

0:17:40.840 --> 0:17:43.520
<v Speaker 2>rout out the people who are behind the scheme.

0:17:44.240 --> 0:17:48.320
<v Speaker 1>As the Philippine government works to fix the country's reputational damage,

0:17:48.440 --> 0:17:51.760
<v Speaker 1>the villagers of Francis are focused on fixing the damage

0:17:51.920 --> 0:17:55.560
<v Speaker 1>to their town. With no projects being funded next year,

0:17:55.880 --> 0:17:58.040
<v Speaker 1>they're not likely to get a new dake for the

0:17:58.040 --> 0:18:03.399
<v Speaker 1>foreseeable future, and says they're taking matters into their own hands.

0:18:03.960 --> 0:18:05.520
<v Speaker 2>They're like, we're just going to have to get on

0:18:06.040 --> 0:18:08.320
<v Speaker 2>and find a way. So they're trying to dig drains

0:18:08.320 --> 0:18:12.520
<v Speaker 2>down the sides of houses, They're trying to raise roads

0:18:12.560 --> 0:18:17.119
<v Speaker 2>in order to prevent further flooding. What surprised me is

0:18:17.119 --> 0:18:20.720
<v Speaker 2>how stoic people are about it, how is lyn they are.

0:18:21.200 --> 0:18:23.439
<v Speaker 2>They say they're not getting a ton of help, and

0:18:23.480 --> 0:18:26.919
<v Speaker 2>their big concern is obviously that the floodwater will finally

0:18:27.119 --> 0:18:29.879
<v Speaker 2>fully recede, and then you get into the next rainy

0:18:29.920 --> 0:18:32.280
<v Speaker 2>season and it all just begins again.

0:18:37.359 --> 0:18:39.720
<v Speaker 1>This is The Big Take Asia from Bloomberg News.

0:18:39.960 --> 0:18:40.640
<v Speaker 3>I'm one half.

0:18:41.320 --> 0:18:44.120
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0:18:50.680 --> 0:18:53.200
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0:18:53.280 --> 0:18:56.240
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0:18:56.240 --> 0:19:03.080
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0:19:01.320 --> 0:19:05.040
<v Speaker 4>The Spy and d