COMMUNITY NOTICE: If you are having trouble in your account access, please do send us a message at [email protected] for assistance.

Crony capital: How Duterte embraced the oligarchs

hellraiser2.hellraiser2. Registered User PEx Rookie ⭐
edited December 5 in Local and Foreign Issues

Crony capital: How Duterte embraced the oligarchs




Three years into his presidency, Philippine leader Rodrigo Duterte's promise of a systemic transformation has come to look more like a personal vendetta. (Nikkei cover photo illustration/Source photos by Reuters, The Metropolitan Museum of Art)


President Rodrigo Duterte promised to destroy the Philippines' elite. Instead, he chose his own

MANILA/DAVAO, Philippines -- The day Rodrigo Duterte became president, Roberto Ongpin was one of the Philippines' richest men. Ongpin had survived -- and prospered -- under six presidential administrations by trading favors and greasing friendships with politicians. He had a full arsenal of luxuries at his disposal, including a billionaire's island dotted with villas, serviced by butlers and accessible by a fleet of private jets, and an exclusive club at the center of the capital's business district, where the whiskey was poured each day at precisely 5 p.m. and far into the night.

During his populist campaign for president in 2015 and 2016, Duterte took aim at the corruption and excesses of wealth-hoarding ruling families like Ongpin's. He called them "a cancer on society," and "illustrious idiots" who flew around in private planes while the Filipino people suffered.

Then, just four days into his term, Duterte unloaded. "The plan is to destroy the oligarchs embedded in the government," he said. "I'll give you an example publicly: Ongpin, Roberto."

Shares of Ongpin's public companies plummeted. By Duterte's second month in office, the tycoon had stepped down as chairman of PhilWeb, his online gambling company. "He knew the game was up," Apa Ongpin, Roberto's nephew and former executive at PhilWeb, recounted in an interview with the Nikkei Asian Review.

The stunning takedown of a man who was a fixture in the murky borderlands between Philippine politics and business sent waves of shock and fear through the country's elite.


The Philippine island of Balesin, a luxury property of the Roberto Ongpin-controlled company Alphaland.   © Getty Images

Three years on, what Duterte framed as a systemic transformation has come to look more like a personal vendetta. One prominent tycoon who spoke on condition of anonymity described the takedown of Roberto Ongpin as ultimately insignificant -- "a grain of sand." Rather than sending a clear message to the country's business oligarchs, the episode left many believing that Duterte has simply opened the door to a new wave of businesspeople and loyalists, who have been given access to political power and lucrative government contracts.

"The cast of characters is not changing," said Lala Rimando, a journalist, who is writing a book on the Philippine business elite. "They're just being added to."

One former high-ranking elected official went a step further. Far from taking down a system of businessmen and politicians working together for personal profit, Duterte is "cultivating his own set of cronies," he said.












Comments

  • hellraiser2.hellraiser2. Registered User PEx Rookie ⭐

    Davao connections

    Few men have had a more spectacular rise than Dennis Uy.

    Uy, a 45-year-old third-generation Chinese-Filipino from Davao del Norte, is the son of provincial traders who dealt in copra, maize and bananas. As he described in an interview with Nikkei in 2017, Uy met Duterte in Davao city, where he was mayor for over two decades. The men became friends. "He is a mentor in life [and] in leadership," Uy said of Duterte.

    Uy built Phoenix Petroleum Philippines, his fuel company, into one of the largest in the country, capable of going head-to-head with Chevron. He also expanded his business into shipping and logistics. By 2016, Uy was one of Duterte's top presidential campaign donors. The next year, Duterte rang the bell at the Philippine Stock Exchange on the 10th anniversary of Phoenix going public. Uy and Duterte patted each other on the shoulders and traded effusive public compliments.

    Filipino businessman Dennis Uy, center, sits between conglomerate Ayala's chairman and chief executive, Jaime Augusto Zobel de Ayala, left, and banking institution ING's Philippine head, Hans Sicat, right, at a Bloomberg event


    Since then, Uy has embarked on a head-spinning acquisition spree: convenience stores, a digital startup, a bakery chain, a Ferrari dealership, water utilities and a casino franchise. On top of all that, he gained rights to develop a 177-hectare multiuse city with office buildings, high-end retail outlets, sport centers and a resort, rising from a former American air base 90 km north of Manila.

    Uy has racked up directorates and seats on the boards of companies, many of them owned by old-money oligarchs eager to associate with a man so closely linked with Duterte. Before Duterte became president, Uy was on the board of three public companies. By 2019, that number had shot up to 27. This year, he debuted on Forbes' list of the richest Filipinos at number 22. He has, in the past, denied using his personal relationship with Duterte for economic gain. Uy did not respond to multiple requests for an interview for this article.

    Even though Uy projects an image of soft-spoken, provincial humility, one tycoon who has had dealings with him described a man fond of ostentatious displays of wealth and with a penchant for sports cars and other luxuries.

    "He has a Richard Mille watch that you should not be wearing when you've got so much debt to the banks," he said, referencing timepieces that sell for six figures. He wants to be a "big shot," the tycoon said. "He wants to be the next taipan."

    His rush to the top has been fueled partly by borrowing. Uy is estimated by Forbes Asia to have amassed around $2 billion in debt.





  • hellraiser2.hellraiser2. Registered User PEx Rookie ⭐

    Uy's next venture takes him into a sector that has long suffered from the concentration of power in the Philippines' political and business communities: telecommunications. Dominated by two companies headed by the country's richest families -- the Zobel de Ayala family, who are majority stakeholders of Globe Telecom, and the tycoon Manuel V. Pangilinan of Smart Communications -- the industry has long been a cautionary tale of regulatory capture, stifled competition and the power of the oligarchy.

    In 2016, at the start of Duterte's presidency, telecommunications service in the Philippines was a hair-pulling combination of dropped calls, webpages that struggled to load, unstable connections and buffering video broken up by brief spells of pixelated images. The poor service was a drag on businesses dependent on internet services. In Asia, the only country with slower service than the Philippines was Afghanistan, and access costs more than triple the global average.

    Duterte railed against the companies, referring to them as a price-controlling cartel and threatening to break up the duopoly with foreign competition. The telcos responded to the threats and speeds doubled within three years, but the Duterte administration pressed on with the promise of a third telco anyway.

    In the final round of bidding for the third license, a joint venture between Dennis Uy's company, Mislatel -- now known as Dito Telecommunity -- and the Chinese government-backed China Telecom remained as the sole contender. Mislatel won the deal despite Uy having little or no experience in telecommunications. Critics cried foul, alleging that some of Duterte's closest political associates had been spotted riding in Uy's private jets and summering in his luxury mountain villa, and that they had sped up the bidding process.

    "As it is, it's now oozing with preferential treatment and, at worst, cronyism," Antonio Trillanes IV, a former senator and vocal critic of Duterte, said of the selection shortly after the announcement of Mislatel's win.



  • hellraiser2.hellraiser2. Registered User PEx Rookie ⭐

    Ronald Mendoza, dean at the School of Government at the Ateneo de Manila University, said that the bidding process lacked transparency and the ultimate outcome -- that a company "very, very much linked to the Duterte administration" emerged in the final stage as the sole contender -- is "arguably the creation of yet another powerful force of economic concentration."

    The telco episode appeared to have traded on political favoritism and rent-seeking, the same currency used by the existing telco companies, which resulted in the dismal state of Philippine telecommunications.

    The deal is not likely to be seen as a signal that change has come, Mendoza said. "In fact, what that episode signaled is more of the same."

    One businessman with knowledge of the sector had a different interpretation -- that Uy was doing Duterte a favor. "The next five years is not, in any form, going to be a good investment for anyone," he said. "Not for China Telecom, not for decades. But Dennis had to do it, because there's going to be a lot of egg on the president's face if the third telco project didn't happen."

    Payback

    As fellow Davao native Dennis Uy makes his name nationally, government funds are flooding into Duterte's home province. Between 2016 to 2017, the budget for the Department of Public Works and Highways Region XI, which encompasses Duterte's stronghold of Davao city, Davao del Norte, Davao del Sur and Davao Oriental, increased by over 100%. By comparison, other regions have had their DPWH numbers flatline, and the national average increased by 31%.

    Backhoes, bulldozers and dump trucks are parked up on the sides of the roads next to piles of gravel and rolls of geotextile. Men with their faces wrapped in T-shirts to keep off the sun hoist scaffolding and sacks of cement onto their shoulders at dozens of public and private construction sites scattered across Davao city.

    Public infrastructure investment has boosted private businesses. Ayala Land, part of one of the Philippines' most prominent family conglomerates, broke ground on a 20 billion peso ($393 million) mixed-use development in Davao city in 2017. Business delegations from China, Singapore, the United Arab Emirates and Taiwan have visited Davao, scouting for opportunities. According to data from the Davao City Chamber of Commerce and Industry, new business registrations in the first half of 2019 indicate a sharp increase in investments in the city, a development they credit to the increase in attention from the national government.


    Ayala Land's Greenbelt Mall in Manila: The company is one of those benefiting from generous public investment into the Davao region.   © Getty Images

    For some, the money is there for the taking. In 2017, Don-don Opreza stumbled onto a group of contractors while strolling the beach behind his house. They were struggling to find an access point to a new coastal road project, causing delays. Opreza paid 30,000 pesos to a neighbor for the access road. The contractors rewarded him with the rights to supply construction materials to the coastal road.

    Trucks started lining up outside his container box office, heaving with boulders, armor rocks and backfill sand. As a middleman, Opreza tripled his earnings from his previous business supplying itinerant harvesters and laborers to the region's banana plantations. In comparison, counting the trucks coming in was easy money.

    "I still can't believe the opportunity," Opreza said, who is settling into his new role as patriarch of his extended family, sending nieces and nephews to college, paying for vacations to the United States and buying up prime lots for his own mango and banana plantations. Even as he praises Duterte for allowing small players like himself to chip off a piece of wealth, he mentions a new supplier for the coastal road, someone close to a local politician, with whom he was recently compelled to split volume, handing over what he estimated to be 40% of the business.

    "It's good, it's normal," Opreza said in defense of his competitor using political influence to gain market share.



  • hellraiser2.hellraiser2. Registered User PEx Rookie ⭐

    Despite all the money flowing in, progress has actually been stop-start, as companies with capital and political connections capture projects they may not have the capacity to finish, leading to delays.

    In 2019, the Commission on Audit found more than 4,000 DPWH projects were delayed nationwide, worth a total 118.4 billion pesos.

    On a recent Wednesday afternoon at the new coastal road, among the largest projects currently underway in Davao, there were few workers to be found. A lone backhoe shifted rocks just by the coastline, and a black dog loped across the empty expanse of the construction site while a toddler in diapers dug into the sand with a plastic shovel. Dean Ortiz, spokesperson for DPWH Region XI, said that in 2019, the agency's goal was to complete 1.1 km of the planned 18 km road.

    John Carlo Tria, vice president of the Davao City Chamber of Commerce and Industry, said the increased budgetary attention from the national government has spurred private investment in Davao, but project delays were in danger of letting the moment slip away.

    "People are seeing the potential, but they are apprehensive at the same time," Tria said.

    While the region desperately needs infrastructure, at the moment only a small number of people are benefiting from the influx of state funding.

    A 2018 investigation by the Philippine Center for Investigative Journalism found that just a handful of large companies have scooped up most of the infrastructure projects in the Davao region, more than they could finish. The report singled out CLTG Builders, a company owned by Desiderio Go, the father of Duterte's longtime special assistant and current senator, Christopher Lawrence T. Go, who bears the same initials as his father's contracting company. According to the PCIJ investigation, the construction company has won over 700 million pesos in contracts from DPWH since Duterte became president in 2016. At the time of the investigation, all of CLTG's projects were delayed.

    President Rodrigo Duterte campaigns as a candidate in Davao in 2016.   © Reuters

    Opposition politicians called for a Senate investigation into what appeared to be preferential treatment given to the family members of Duterte's closest aide, an accusation Go denies. Ortiz said the agency did not conduct an investigation, but confirmed that following the accusation, CLTG did not bid for new contracts with DPWH in 2019.

    One contractor, who requested anonymity to protect his business, said that while his company has grown steadily in recent years, he had not seen a spike in projects as a result of the increase in government investments.

    "Those funds are intended for the construction companies close to the politicians," he said. "It's an open secret.

    Emerging and midsize contracting companies like his cannot afford the bribes, which he said typically ranged from 5% to 10% of the contract value. He said that the large contracting companies should focus on complex projects of national importance and leave simple road projects to smaller companies. "Of course progress is going to be slow," he said. "They're clogging up the system."

    The booming infrastructure industry in Davao could become another cautionary tale on the dangers of an economic system run by rent-seeking oligarchs, with the result of poorer services for average Filipinos, whether in roads, transportation, or telecommunications, critics say.

    "This cycle of groups benefiting from political connections, but not necessarily innovating, nor thriving in a competitive environment, will certainly hit consumers. But I think that the most pernicious effect is in terms of job creation," Mendoza said. "Where rent-seeking is rampant, and corruption is always a threat, that environment is not conducive to sustained growth and job creation."


  • hellraiser2.hellraiser2. Registered User PEx Rookie ⭐

    Vested interests

    Despite his populist claims, Duterte has shown himself willing to work with the Philippines' old-money families.

    The Del Rosario-Floirendo clan in Davao del Norte has long stood for the provincial consolidation of power in business and politics. For more than three decades, the keys to the governor's mansion and the seats to Congress passed between members of the clan. They ran one of the world's largest banana plantations on land leased from the government. The clan owned the provincial banks, sold the farm inputs at high prices and bought the harvest at below-market rates. After farmers defaulted on their loans, they came to own the farmers' land as well.

    This year, in midterm elections, a new candidate stood against them. Edwin Jubahib, the son of farmers, had to practice putting gel in his hair and walking in hard-soled leather shoes before facing down the incumbent governor and scion of the ruling clan, Rodolfo del Rosario, Jr.

    He tapped into the rising frustration among voters in Davao del Norte and won by a landslide. Jubahib's spectacular takedown of one of the Philippines' most entrenched political dynasties should have been the embodiment of Duterte's public support of populist ideals. Jubahib even partially modeled himself on Duterte, copying his "open door" style of leadership, in which constituents are able to visit his office and petition him directly.

    In the midterms, however, Duterte backed the incumbent. Antonio Floirendo Jr. donated 75 million pesos -- the largest cash donation by far -- to Duterte's presidential campaign.

    Paolo Duterte, son of Rodrigo Duterte and then-vice mayor of Davao, listens to his lawyer during a Senate hearing on drug smuggling in 2017.   © Reuters

    Being close to Duterte is no guarantee of safety. Several of the president's friends and relatives have come into government only to be arrested, compelled to step down, or investigated for corruption.

    Jesus Dureza, a friend of Duterte's since high school, resigned as presidential adviser after two of his officers were fired for corruption. In September 2017, the president's son, Paolo Duterte, vice mayor of their hometown, was hauled before a Senate inquiry into a $125 million shipment of illegal drugs that came into the country through Manila. Four months later, Paolo stepped down after a public fight with his daughter on social media. He has since been elected to Congress.

    Duterte's former foreign secretary, Perfecto Yasay, was arrested on charges of bank fraud. His first secretary of justice, Vitaliano Aguirre, was accused by rival and gaming operator Charlie "Atong" Ang of protecting Kim Wong, a casino magnate who was implicated in a billion-dollar heist from the Bangladeshi central bank, whose perpetrators used bank accounts in the Philippines to launder the money. Aguirre has denied the allegations.

    The remaining old-money families, however, do not appear to be running scared. Duterte's populism has proved hollow, with limited benefits for average Filipinos, and few real implications for the elite. An October 2019 poll by Social Weather Stations, a local agency, found Duterte's approval rating among the rich and middle class to be at its highest since the start of his presidency, even as it slips among the poor.

    "They have no real vision except disruption. They've anchored everything on disruption. Change is coming," said Apa Ongpin, referring to Duterte's campaign slogan. "But what does that change? They don't know."

    An October 2019 survey by political polling agency Social Weather Stations found Duterte's approval rating among the rich and middle class to be at its highest since the start of his presidency, even as it slips among the poor.   © Reuters

    As for Roberto Ongpin, he is still one of the Philippines' richest men. Ongpin sold his shares of PhilWeb at a deep discount to Gregorio Araneta III, the son-in-law of Ferdinand Marcos, the former dictator, who along with his wife Imelda, created the blueprint in the Philippines for cronyism and kleptocracy and whose family remains one of the Philippines' most enduring political dynasties. Far from taking down the oligarchy, Duterte's attack on Ongpin merely transferred some of his wealth to a more powerful family with whom Duterte has maintained a strong alliance.

    In the glittering, softly scented lobby of the Shangri-La Hotel, a luxury franchise his uncle brought to the Philippines 30 years ago, Apa Ongpin thought for a moment about other wealthy families who should fear Duterte's distinctive brand of populism. As he considered the question, waiters in national costume quietly laid pressed-cloth coasters under glasses of sparkling water and picked up dropped napkins.

    "No," Apa said, "I can't think of a case of anyone who should be worried right now."


Leave a Comment

BoldItalicStrikethroughOrdered listUnordered list
Emoji
Image
Align leftAlign centerAlign rightToggle HTML viewToggle full pageToggle lights
Drop image/file