By ROEL R. LANDINGIN
Philippine Center for Investigative Journalism

FOREIGN aid inflows to the Philippines are soaring to their highest levels in about six years, but the availability of more money for government projects has not made life any easier for President Arroyo and taxpayers.

Indeed, the latest controversy to rock her seven-year reign stems from the sharp surge in official development assistance (ODA) from China, an emerging economic behemoth, and the Philippines’ growing inability to impose its procurement policies and procedures on ODA projects.

A six-month study of project documents by the Philippine Center for Investigative Journalism (PCIJ) also showed that seven of 10 projects reviewed fall short of economic benefits promised, even after completion and roll-out.

Serious flaws in the identification, design, evaluation, and implementation of government projects have resulted in failed or bad projects. Too often, lenders tie up ODA outlays to contractors of their choice. Worst of all, kickbacks exacted by political sponsors in some cases have yielded overpriced projects.

The $329 million national broadband network (NBN) project, which was to be funded by the Export-Import Bank of China, was cancelled following reports of alleged commissions demanded by a close political ally of the President, then elections chair Chairman Benjamin Abalos Sr. The President’s husband Jose Miguel was accused of meddling in favor of ZTE Corp., the Chinese telecommunications supplier. Abalos was also forced to resign last September despite his and the First Gentleman’s denials of irregular participation in the deal.

But revelations of alleged anomalies in the project continue, even as the scandal sparked the ouster of Speaker Jose de Venecia Jr. – father of whistleblower Jose de Venecia III – in a Congress coup last week.

Perhaps the most serious casualty in the NBN scandal, however, is the National Economic and Development Authority, the economic planning agency tasked to weed out the bad from the good among proposed large-scale government projects funded by foreign loans and private investors.

One of the most bizarre twists to the NBN saga involves a contractless consultant tapped by then NEDA director general Romulo Neri to look into the deal: electronics and communications engineer Rodolfo Lozada Jr., president of the state-owned Philippine Forest Corp. (Philforest) at the time.

Last week, unidentified men spirited Lozada away from the airport after he arrived from an overseas trip. The police later said Lozada had requested security, but furious senators said authorities were trying to keep him from testifying about NBN at the Senate. Lozada has resigned from Philforest. Last Friday at the Senate, he corroborated Jose de Venecia III’s testimonies on multimillion-dollar kickbacks demanded from the project.

Yet even before that, NEDA’s public standing had already been hit hard. Last August at the Senate, Neri had failed miserably to explain how he and NEDA’s staff exercised due diligence in evaluating the NBN project. This, even as the Arroyo administration continues to attempt to scale down NEDA’s central role and authority to evaluate major government projects, especially those funded by ODA loans or carried out by private investors under build-operate-transfer (BOT) or similar arrangements.

In part, this explains why in some policy advocacy circles, the surge in aid money in the last two years has been met with unease rather than optimism.

From an average of only $741 million between 2003 and 2005, new ODA loan commitments to the Philippine almost doubled to $1.3 billion in 2006. Last year, new loan approvals reached at least $1.26 billion, according to data from the government and the foreign lenders compiled by PCIJ.

ODA loans are long-term money lent by foreign governments or multilateral bodies at easy repayment terms to fund development projects.

The Philippines has so many fresh loan commitments it even backed out of a $70 million loan deal for a water supply project with the Asian Development Bank (ADB) last year. The government instead turned to China, which was offering cheaper money while imposing less stringent environmental and social conditions.

Far from being pleased, a worried Roberto de Ocampo, former finance secretary, recalls a similar flood of cheap credits in the early 1970s that ended in a debt crisis for the country a decade later. He notes: "A lot of the alleged hanky-panky that took place during the Marcos administration with respect to loans to some extent had their roots with the easy money that was floating around from commercial banks that were awash with cash from Arab liquidity. That is a lesson to be learned."

De Ocampo believes that China, like the West before it, will sooner or later adopt strict and formal credit policies as befits an emerging economic power. But he warns that the deal struck with the Chinese telecommunications firm ZTE Corporation for the NBN project underscores a number of trends that could increase credit risks.

"The lending arrangements that you find in the case of ZTE are a reflection of, again, the informality of a system that is taking advantage of liquidity, a rising economy’s desire to expand its sphere of economic and political influence, and the pressing need of Third World countries like the Philippines to have access to them," says De Ocampo. "And finally you sprinkle it with a lower than desired sensitivity to good governance in transacting these relationships."

Japan, the Philippines’ biggest ODA provider, resumed fresh lending to Manila last year after ceasing loan approvals since April 2004 because of the government’s low absorptive capacity.

In 2006, ADB approved a record $650 million worth of loans, a sign of the lender’s growing confidence in the government’s financial position after Arroyo imposed new and higher taxes following a brush with fiscal crisis the previous year.

Doubts linger about whether the Arroyo administration is keen or able to spend the growing amounts of aid money wisely.

"Many economists are worried if the government is still interested in using funds efficiently," says Benjamin Diokno, former budget secretary and professor of public finance at the University of the Philippines School of Economics. "The government is becoming lax in project evaluation because the loans are supply-driven."

Diokno notes an avalanche of Chinese ODA loans going into projects of doubtful social or economic value, citing as example the Cyber Education Project, which assigns more weight to information technology than to the training of teachers. Studies show, he cites, that good teachers account for 60 percent of improvements in student performance.

"It’s like the US subprime crisis in effect because they (lenders) are lending to debtors or projects that are not really qualified," says Diokno, referring to turmoil in global financial markets that stemmed from excessive lending by American banks to home buyers without capacity to pay back the mortgage loans.

At the core of the doubts is NEDA, which used to command a reputation of being fiercely independent and competent, an agency that stood up to top officials and politicians pushing ill-conceived if not corrupt projects. The late journalist Luis Beltran Jr. once even called NEDA as the only agency that could not be bribed.

For sure, its former chief Neri earned praise for his moral courage when he told the Senate last August that Abalos offered him P200 million to approve the NBN project. Neri, however, was also rebuked for approving the project anyway with perfunctory scrutiny.

From Neri’s account, it seemed like the NEDA staff just limited themselves to validating the cost-benefit analysis submitted by the project proponent, the Department of Transportation and Communications, and its supplier, ZTE Corp. Little effort was made to verify the project’s costs. Worse, NEDA did not examine alternative financing methods, such as BOT or other schemes.

Felipe Medalla, former dean of the UP School of Economics who also served as NEDA head, commented later at a forum: "What he (Neri) said about the NEDA process was very disappointing. His statement that NEDA was not looking at the financing side was a total distortion of what it should be doing. Although I admired him for testifying against Abalos, he did present NEDA as a rubber stamp."

Medalla could be in for more disappointment. According to Lozada, the information technology expert who helped Neri evaluate the NBN deal, Neri was aware of, and even abetted demands for, bribery in the project. Lozada says bribes amounting to $130 million accounted for half the project’s original cost of $262 million. The project cost has since risen to $329 million.

"His instruction to me was very clear. Sabi niya, ‘Jun, you moderate their greed,’" Lozada said in a press conference conducted in the wee hours of Thursday last week. "I was naive to accept that order. I do not know what moderating greed means, but I followed Secretary Neri."

From evaluating government projects to "moderating greed," the role of NEDA and the economic planning secretary has evolved in ways that may shock its former officials. Among them is Ruperto Alonzo, a former NEDA deputy director-general, who says that until the 1990s, NEDA staff refused to entertain phone calls from officials of implementing agencies, instructing them instead to communicate in writing. He himself "was hiding every so often from consultants of implementing agencies."

The transformation in NEDA’s role was not sudden. Long before the NBN project, the Arroyo administration had been moving to give implementing agencies more power to approve big state projects, without going through the strict but often time-consuming evaluation process of NEDA and the Investment Coordinating Committee (ICC).

Early last year, Arroyo proposed new BOT law implementing rules that would diminish NEDA-ICC’s powers in approving infrastructure projects funded and implemented by the private sector. Under these rules, which ostensibly aim to hasten the BOT evaluation process, implementing agencies such as government departments, state-owned firms, and local government units would have the authority to approve the projects.

The new BOT rules followed previous moves by Arroyo "to authorize agencies to approve contracts (worth) less than P500 million, except BOT, without going through the NEDA-ICC process, as long as the DBM (Department of Budget and Management) can certify the availability of funds," according to a March 2005 ICC policy directive.

Malacañang has put off issuing the new BOT rules after multilateral lenders and the foreign chambers of commerce objected to clipping the powers of the NEDA-ICC.

But the erosion of NEDA’s powers and independence continues, with the creation of new Cabinet groupings with powers that overstep those of existing NEDA bodies.

In May 2007, Arroyo issued an administrative order creating the so-called NEDA Cabinet Group that makes major economic decisions, including the approval of proposed projects, in between the monthly meetings of the NEDA Board.

She also set up the Pro-Performance System Steering Committee that would monitor and evaluate "all increases in project cost, whether local or foreign funded." Until then, it was the NEDA-ICC that approved cost increases in foreign-assisted projects, without which the Department of Budget and Management could not release additional funding.

(To Be Continue...)