Pension fund shenanigans

Orly Mercado

Posted on October 7, 2006

Sad stories, sad endings

Two recent new stories about pension fund shenanigans have caught my attention. The first was the announcement by the Chinese Communist Party that Shanghai party boss Chen Liangyu was arrested over allegations that he allowed associates to milk Shanghai’s pension accounts. The second was an announcement by the Philippines’ Department of National Defense that the pension fund system of the members of the Armed Forces of the Philippines is now bankrupt and is going to be taken over by the national pension fund system. Same story, two different endings, I thought to myself.

I have personal knowledge of the soldier’s pension fund woes. When I was appointed Secretary of National Defense in 1998, and started cleaning up the Retirement and Separation Benefit System (RSBS) and the Philippine Veterans Administration Office (PVAO), one of the officers assigned to provide for my security half-jokingly said: “Sir, I don’t think the communists or the separatists will assassinate you. I advise you not to cross the streets here inside Camp Aguinaldo (the military camp where the Department had its offices) at night, as a military truck might just lose its brakes.” I knew I was up against some people who could put science in their madness.

The military organization has to be different. Its ability to defend the state is dependent on discipline and esprit d corps. It is unfortunate that this time-tested value has itself been corrupted and bastardized. Part of military training is the “buddy system.” As a soldier, one’s life is oftentimes in the hands of one’s “buddies.” Esprit d corps helps ensure survival under unimaginable stress during combat. This has been corrupted to mean my “buddy” or “mistah,” right or wrong. “I will cover for you on the battlefield and anywhere else, in anything you do.”

But it is not all grim. One of the lessons I learned as defense secretary was that there were not only “a few good men” in the armed forces. I met a number of men and women who were idealistic and wanted a professional military they could be proud of. Many however, acknowledged that the problem of corruption is far too extensive to be solved by just one man.

At the height of my troubles with some generals, I used to get small scribbled notes from soldiers left in my official car, telling me not to waver in my efforts at safeguarding their pension fund. More than anyone, the ordinary soldier is the biggest victim of corruption in the military, and he knows it. Corruption in the military is like barnacles on a pier. You cannot dislodge it by merely shaking it, but it is a good start. And so immediately after assuming office I started to shake the establishment. I was accused of arrogance and being divisive and anti-military.

The media lapped up the verbal jousting that very much reduced the issue to personal differences. What did not get as much attention from the media was our use of information technology in instituting reforms. I got President Estrada to sign an executive order that allowed us to lay the groundwork for e-procurement. The systems we developed at the DND became the basis of the implementing rules and regulations when the e-commerce law was passed a few years later.

Soldier’s boots have become the symbol of what was wrong in how the AFP procures its supplies. I had to make it the first item to be put on electronic bidding. It was not easy, but it was an important first step.

At the RSBS we put an end to the practice of making the chief of staff the head of the agency. We chose a civilian professional manager instead. We stopped the milking of the cash cow, though the animal was practically dehydrated. Now it is dead.

One day Thomas Friedman of the New York Times came to Manila to promote his book, The Lexus and the Olive Tree. From it I got the idea for RSBS to post all its transactions on a website so that soldiers would know where their pension fund is being invested. I still believe it can ensure transparency and success in the reforms we started. Corruption in the PVAO was as horrendous as it was blatant. Unlike RSBS, there was very little attempt at concealment or giving it a semblance of style, if you will. Our answer was to set up a secure computer system to simply put order in the records. I remember, the civilian head I appointed had a heart attack because of the pressures. What these insiders did was to cut the main cables of the computer room. Fortunately modern computer technology has systems of redundancy. I realized that these people were not scared of me, and they had the ill-gotten resources that they could use to strike back. One cannot throw punches and not expect counter punches.

Unlike the Chinese case, no one in the Philippines has been arrested for milking the soldier’s pension funds dry. There have been criminal charges filed, but considering how the defendants (mostly former top ranking generals) have been able to delay the hearings, few observers are optimistic. The taxpayer is now going to shoulder the burden of footing the bill to pay pensioners. Closing the RSBS may be the last management alternative, but by doing so, it might just marginalize the graft cases and allow this sad story of corruption to die a natural death, like many other cases in the past.

China’s judicial system has often been criticized for being too swift and too harsh. The Philippines is the exact opposite. As long as corrupt officials can delay cases and in the meantime enjoy the fruits of their misdeeds, the fight against corruption in the Philippines is going to be a losing battle.

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