IN THE HEADY days of the 1980s that ushered in the age of titanic takeovers, Wall Street’s finest devised a defence strategy to ward off unwanted advances from voracious bidders. The Pac Man Defence took its name from the video arcade game that featured an insatiable pizza-shaped blob that roamed the screen devouring all in its path. Often used as a last-ditch effort to save a company from a raider, the Pac Man Defence entailed the victim turning on the assailant to acquire it instead.
An insatiable acquirer Eduardo Cojuangco Jr (pictured left), known throughout the Philippines as Danding Cojuangco, also boasts another soubriquet – Pac Man. He got it because of his insatiable appetite for acquiring smaller businesses to add to his ever-expanding empire, headed by the huge brewing and consumer goods company San Miguel Corporation (SMC). Cojuangco, a scion of one of the country’s wealthy and politically powerful dynasties, recently suffered a serious setback at the hands of the local graft court, the Sandiganbayan, which ultimately might even trigger the unravelling of his empire.
A legal battle that has raged for 17 years between the government and Cojuangco emanates, as do many problems facing this archipelago nation, from the dictatorship of Ferdinand Marcos with whom Cojuangco had close links. Cojuangco even fled the country on the same flight as the dictator in 1986 when people power swept president Corazon Aquino into office.
Between 1973 and 1982, under a presidential decree now ruled unconstitutional by the Sandiganbayan, Marcos levied a tax on Filipino coconut farmers, ostensibly to finance the development of the coconut industry. He appointed Cojuangco as the administrator of these funds.
According to the Presidential Commission on Good Governance (PCGG), established to recover the billions of dollars allegedly stolen during the Marcos regime, Cojuangco used the money, an estimated P100 billion ($2 billion), to establish effective control over a 72.18% interest in a bank now known as United Coconut Planters Bank (UCPB).
The defence maintains that Cojuangco’s only direct interest in UCPB is a 7.2% stake acquired as a commission for facilitating the acquisition on behalf of the Philippine Coconut Authority (PCA) and that the remaining 64.98% stake is held for the benefit of about a million coconut farmers.
In July, the Sandiganbayan ruled that since the tax funds raised from the coconut farmers by presidential decree under Marcos were public in character, the 64.98% of UCPB shares acquired allegedly for the benefit of the coconut farmers in fact belong to the state. The Sandiganbayan also ruled that since Cojuangco invested no money in acquiring the 7.2% stake in UCPB, but earned it as commission, he was not entitled to make any profit on the transaction and these shares also belong to the state.
By nullifying his holding in UCPB the Sandiganbayan appears to have raised the prospect of Cojuangco losing control of SMC itself because UCPB administers a 27% stake in the corporation. This stake was also sequestered by the courts in 1986 pending the outcome of this ruling, on the same grounds – that the funds used to acquire the stake were public in nature.
If the Sandiganbayan ruling is upheld, the state will definitively control 27% of SMC (the government already appoints directors to the SMC board by virtue of the 27% interest). A further 20% stake in SMC owned by Cojuangco is also under investigation on different grounds – that it was acquired with ill-gotten wealth under the Marcos regime. This case is still pending. Cojuangco claims that he borrowed funds from UCPB to acquire the stake in a commercial transaction; the government argues that since the coconut tax funds were deposited in UCPB, the money used by Cojuangco to acquire the 20% SMC interest was in fact money from the coconut funds.
If the government wins this case, Cojuangco will lose control of SMC, which is a key part of his business empire.
Although the legal case is complex, at its heart is whether Cojuangco and his associates used government funds to acquire assets for their personal benefit. A Supreme Court ruling in 2001 said that the funds raised from taxing coconut farmers were “public in character” and left it to the anti-graft court to make a final ruling.
The case is clear for Ruben Carranza, commissioner for the PCGG and the man responsible for pursuing the cases against Cojuangco: “They [the Cojuangco camp] continue to insist that Cojuangco only acquired 7.2 % [of UCPB] as a commission for acting as a middleman. But by his own admission, all of the money went through him.”
But Estelito Mendoza, attorney for Cojuangco, a director of SMC and solicitor general under the Marcos regime, says: “There is absolutely no basis that [Cojuangco] has used [government] funds in these transactions. It was the PCA, not he, who used [the] funds to purchase the shares.”
About the 7.2 per cent stake also deemed government-owned, Mendoza is equally adamant: “Whether or not the funds which were used to buy the shares are public funds or not,” he says, “as a matter of law and equity, he is entitled to make a profit.”
Dolores Español, who spent three years at PCGG investigating Marcos’s cronies, including Cojuangco, is now chairperson at the Philippines chapter of Transparency International, a worldwide NGO seeking to stamp out corruption. She says: “The government collected the taxes. How these funds were given to Cojuangco, no-one can say. The proof is not available.” Español, a former judge, believes that politics has now overshadowed legal proceedings.
The Cojuangco camp has already appealed against the Sandiganbayan ruling that overturned his ownership of the stake in UCPB. And though the present government is pursuing him hard, he may have an even bolder Pac Man move up his sleeve. Cojuangco may turn around and run for president of the Philippines himself.
Cojuangco has intimated that he might run for president in the election in May next year, but is hedging his bets, perhaps waiting to see if the incumbent will run. Even though earlier this year Gloria Macapagal Arroyo ruled herself out for re-election, many believe she will stand.
“She walks and talks like a candidate,” says Alex Pomento, head of research in Manila for stockbroker, CLSA. “She will run.”
Nutty advice Michael Hamlin, managing director of Manila-based communications consultancy, TeamAsia, who has lived for 20 years in the Philippines, agrees. “I think she’s going to run,” he says, “but it’s a fluid situation. I think her advisers were nuts to advise her to say she won’t run. Now she’ll have to do an about-face and appear scheming.
“The timing is certainly coincidental,” he says of the recent court ruling. “It’s probably a shot across the bows. I’m not sure it’s warranted, though; Danding’s made it clear he won’t run against GMA.”
Cojuangco was unavailable for comment for this article, too busy taking political soundings in the country before he announces his decision.
“He is out of town,” says Roman Santiago, assistant vice-president for external affairs at SMC. “He’s getting the pulse of the nation as to whether he should run or not. He wants to do it. This will help him decide.”
Cojuangco’s attorney, Estelito Mendoza, says: “I believe that if Mr Cojuangco decides to run for president, he will do so independently of whether Arroyo runs again or whoever may be the other candidates.”
Ruben Carranza, the commissioner pursuing Cojuangco, believes that just hinting that he might seek the presidency is part of Cojuangco’s strategy of keeping control of SMC at all costs: “I know he has threatened to run,” he says. “That serves its own purpose. It might elicit an openness to bargain from those who might feel threatened by Cojuangco.”
A political pedigree If Cojuangco does decide to run, it will not be the first time that he has sought the highest office. Chairman emeritus of his own political party, the Nationalist People’s Coalition, he ran for president in 1992 against ultimate victor Fidel Ramos. On his ticket as vice-president was Joseph “Erap” Estrada, winner of the 1998 election.
A day after Estrada’s election, Cojuangco was reappointed as chairman and CEO of SMC. Estrada, increasingly accused of corruption and favouring powerful political and business friends, was overthrown in 2001 by the so-called people’s power II protest that brought in Arroyo on shaky constitutional grounds.
Political uncertainty has increased with July’s botched mutiny by junior soldiers who rigged a hotel and shopping complex in Manila’s business district with explosives, apparently as a protest against corruption in government and the armed forces. Investigations to find out the origins of the attempted coup are continuing.
The political fallout from the failed soldiers’ revolt has shaken the Arroyo administration and that can only help Cojuangco’s cause if he decides to run for president.
The recurring pattern of political manoeuvring with financial backing underscores how inextricably linked business and politics have become in the Philippines, ever since Marcos made a career from economic plunder while president.
“It’s the tail that wags the whole dog,” muses Pomento of stockbroker CLSA, “the economic power that brings political power and prevents true democracy.”
For many, this link has become the root problem behind what everyone, regardless of political persuasion, agrees is the country’s most pressing concern. The 2002 Corruption Perceptions Index produced by Transparency International showed the Philippines in equal 77th place out of 102 countries surveyed, alongside Pakistan, Romania and Zambia. Although comparisons with past surveys are a little tenuous because of the varying numbers of countries surveyed each year, since 1995 the Philippines has crawled out of the bottom quartile just three times. Most informed observers in Manila suggest that the 2003 survey is unlikely to show any improvement.
“Corruption is not only endemic here,” says Español of Transparency International, “it is progressively increasing.”
Vina Vidal Vicente, project coordinator of Transparency and Accountability Network, a non-governmental coalition formed to fight corruption in the Philippines, agrees. “Corruption is institutionalized in the Philippines,” she says. “We have to eradicate the mindset here that if you’re not corrupt, you’re somehow a loser.”
While there is consensus among commentators about the existence of the problem, there are clear differences of opinion about who the real culprits are and what should be done to fix the problem.
“The reason for the GMA government being in power was to fight corruption,” says Español, “that’s why Estrada was brought down. But what changes have people seen since? Nothing.”
Vicente says: “In terms of corruption, I think GMA intends to clean up while she’s in office. She has the best intentions and her administration has been the most cooperative with us.”
Amid all the mudslinging, claims and counter-claims, it is difficult to see how the Philippines is going to tackle a problem that condemns it to consistent economic underperformance relative to its key Asian neighbours. It is difficult also to escape the impression that a well-educated, young, English-speaking workforce with enormous potential is being badly let down by its political and economic elite.
If those guilty of misuse of government funds are finally brought to book, it will represent a major coup for the rule of law in the Philippines. For Carranza, commissioner of the PCGG, pursuit of the corrupt business and political elite seems to have become something of a personal crusade: “It’s never too late to extract justice. Finally the Supreme Court has decided against the Marcoses. But I’m not going to be content with that. I want to see Imelda Marcos and anyone who conspired with her in jail.”
Despite what appears an increasingly dark future, most Filipinos remain irrepressibly optimistic. “If there is one strength the Filipino people can draw on,” says Vicente, “it’s that we have a very strong civil society. In EDSA 1 and 2 [the people power movements that brought down Marcos and Estrada] the political dynasties went along with it. We may be saddled with them, but they’re no good at standing up to the people.”
Others are more pragmatic than optimistic. Pomento shrugs off Cojuangco’s past and does not dismiss him outright as a viable presidential candidate: “You have to put it all into context. If I’m a voter and want to unite the country, to forget the past, he [Cojuangco] is a logical choice. He comes from both sides. One reason this country is not moving forward is because of all of the revenge and hatred over Marcos and Estrada.”
What one man might call revenge, another might deem justice. So enmeshed are politics and wealth in the Philippines that it is almost impossible to tell which side is in the right, or even whether such a side exists at all. Perhaps the best that one can hope for is that next year’s presidential election produces a clear winner with a strong political mandate and an iron will to tackle corporate cronyism.
For commissioner Carranza, however, more than an election will be needed to put matters right. “We need a catharsis in this country,” he says. “We need to show rich and poor, powerful and powerless, that corruption can and will be stopped and the guilty brought to book.”
With that kind of will and perhaps a bit of luck too, it is possible that Filipinos will at long last improve their lot.
