(June 16, 2006) Washington, D.C. -The Board of Directors of the Millennium Challenge Corporation (MCC) today approved financing for an anti-corruption initiative in the Philippines.  The country is presently ineligible for broader MCC Compact assistance because of persistent problems with public corruption, one of 16 factors used to select countries to participate in the Compact program.  Compact eligibility is reserved for countries that score above the median on independently measured indices such as political and economic freedom, investment in education, control of corruption, respect for civil liberties, health care spending, fiscal and trade policies and judicial fairness.

"The Philippines is undertaking bold reform programs to tackle corruption and attract more international investment, including possible future MCC Compact assistance that is designed to reduce poverty through economic growth," said Ambassador John Danilovich, Chief Executive Officer, MCC.

In the Philippines, low performance on the corruption index is largely attributable to high levels of corruption in tax and customs administration, conflicts of interest in the public sector and weak enforcement of existing anti-corruption laws.

The Philippines' nearly $21 million, two-year program seeks to improve revenue administration and anti-corruption efforts and is consistent with the "Medium-Term Philippine Development Plan, 2004-2010," which was developed under the guidance of President Gloria Macapagal-Arroyo and released in October 2004.  With MCC's support for its anti-corruption initiatives, the Philippines is expected to further accelerate and institutionalize efforts to stamp out corruption, improve tax collection, and channel more resources to poverty reduction programs such as in healthcare, education and social services. The program will be administrated by the United States Agency of International Development.

The initiative is part of MCC's Threshold Program which assists countries that are on the "threshold" of eligibility for Millennium Challenge Account Compacts. Threshold Program assistance is used to help countries address the specific policy weaknesses indicated by the country's scores on the 16 policy indicators.

Fact Sheet

Philippines and Millennium Challenge Corporation: 
Combating Corruption by Strengthening Government Institutions

Threshold Program Overview:

The Philippines Threshold Program focuses on addressing improved revenue administration and anti-corruption efforts and is consistent with the "Medium-Term Philippine Development Plan, 2004-2010," which was developed under the guidance of President Gloria Macapagal-Arroyo and released in October 2004.  With support for its anti-corruption initiatives, the Government of the Philippines will further accelerate the pace of sustainable and continuous efforts to stamp out corruption, plug revenue leaks, increase tax collection, and ultimately channel more resources to poverty reduction programs such as in healthcare, education and social services.

The Philippines Threshold Program will reduce corruption by strengthening the Office of the Ombudsman and strengthening enforcement within three areas of the Department of Finance (DOF) -- the Revenue Integrity Protection Service (RIPS), the Bureau of Internal Revenue (BIR), and the Bureau of Customs (BOC).

Program Components

Strengthen the Office of the Ombudsman: The Ombudsman has the authority to investigate and prosecute high level government officials in its own courts.  Funding has increased significantly for the office, resulting in dramatic increases in staff and requirements for additional training and equipment in order to be effective.  The goal of this activity will be to reduce opportunities for corruption throughout the government by training Ombudsman employees and establishing information management and investigation and surveillance capability.  The component also aims to reduce the deficit by reducing the cost of government operations and by obtaining higher revenues as revenue collection officials develop a stronger incentive to be honest.

Strengthen the Department of Finance:  To address corruption, the DOF is simultaneously conducting anti-corruption drives in three separate areas:  the DOF itself through its Revenue Integrity Protection Service (RIPS) unit, the Bureau of Internal Revenue through its Run After Tax Evaders (RATE) unit, and the Bureau of Customs through its Run After The Smugglers! (RATS) unit.  All three units were recently organized and given increased resources to increase the Government of the Philippine’s enforcement ability.  Additional resources are needed to train staff and provide the equipment and systems to increase their effectiveness.  The aim of this component is to improve the ability of the RIPS, RATE, and RATS units to expose violators and increase compliance with the laws by both taxpayers and officials of the revenue collection agencies.

Highlights of Expected Results

1.   Increase the conviction rate in corruption cases from 30% to 40%
2.   Increase the number of cases successfully mediated in the Public Assistance Office from 0 to 300
3.   Increase the number of RIPS cases filed from 13 to 50
4.   Increase the number of officials charged by RIPS who were suspended by the Ombudsman from 6 to 35
5.   Increase the percentage of income tax returns filed by professionals and the self-employed by 10%
6.   Increase the percentage of corporate tax returns filed by 10%
7.   Increase the number of RATE cases filed with the Philippines’ Department of Justice  from 44 to 119
8.   Increase the number of cases files by RATS with the Department of Justice from 9 to 48
9.   Increase the number of favorable Court of Tax Appeals decisions on RATS cases from 2 to 24

The Government of the Philippines will also use additional indicators on corruption in tax administration and customs drawn from MCC's "Control of Corruption" indicator to measure program effectiveness.

Implementing Partners 

The United States Agency for International Development will take the lead in implementation, working closely with MCC.  Other US agencies may also be involved.

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Millennium Challenge Corporation (MCC), a United States Government corporation designed to work with some of the poorest countries in the world, is based on the principle that aid is most effective when it reinforces good governance, economic freedom, and investments in people that promote economic growth and elimination of extreme poverty.