THE CENTENNIAL Exposition in Clark was completed at the expense of other government projects that had to be sacrificed because public funds were diverted to the construction of the Freedom Ring amphitheater and the surrounding theme park.

Because of the grandiose plans for the exposition which the private sector could not fund and because money could not be found elsewhere, President Fidel V. Ramos mobilized all the resources of government—including those from five government departments, the government-owned National Development Corporation, and four government financial institutions—to raise money for the Expo.

Such diversion of funds was made possible by a budget law that is a legacy from the Marcos era. It meant that money intended for, among others, the development of an industrial estate in Leyte, the construction of roads and bridges elsewhere in the country, and the lending of public funds to socially meritorious projects such as housing and job creation, would be used to build the centennial white elephant in Clark.

“The spending for the centennial is a political judgment call,” said Ramos budget secretary Salvador Enriquez. “(It may have been extravagant to some) but in my sense of value, the centennial is an important event in the life of a nation and I would go along with the President in admonishing everybody to participate.”

Ramos stretched legal limits, in part to prevent an international embarrassment stemming from an unfinished centennial centerpiece. He used Executive Order 292, based on Ferdinand Marcos’s Presidential Decree 1177, which allows the president to transfer funds allocated for one purpose to other uses as long as certain requirements are met.

Because of such fund transfers, the Department of Public Works and Highways (DPWH) – the department that contributed the largest share to the Expo – listed in March 245 projects under its 1998 work program that were suspended due to the non-payment of billings and the absence of cash allocations. Another 115 projects supposed to have been started under the same work program were stalled for the same reasons.

The DPWH funneled P720 million of its 1997 budget into the Expo, funding over a quarter of the Expo’s construction cost of about P3.12 billion, including roadworks. The DPWH could otherwise have used this amount to construct a 72-kilometer, two-lane road or a three-kilometer, two-lane bridge, according to a public works official.

Similarly, the government-controlled National Development Corporation (NDC), which was ordered to invest in the Expo, could have used its money to invest in an industrial complex in Isabel, Leyte – a project that was not only more financially viable but would also have spurred economic activity in one of the most depressed parts of the country.

At the start of the Centennial project, Ramos had already directed the Philippine Charity Sweepstakes Office and the Philippine Amusement and Gaming Corporation to remit their equity contributions of P75 million each to the Philippine Centennial Expo ‘98 Corporation (Expocorp), the government-private sector joint venture in charge of the Clark Expo.

The Social Security System (SSS), Government Service and Insurance System (GSIS), Land Bank, and Development Bank of the Philippines (DBP) were likewise “encouraged to invest” by Ramos in the centennial project in February 1997.

But the project was stalled because of the conflict between National Centennial Commission (NCC) chairman Salvador Laurel and businesswoman Nora A. Bitong, head of Global Clark Assets Corp., the government’s partner in Expocorp. The two officials were caught in a legal tug-of-war over equity contributions to Expocorp. and control of its board.

CHANGING OF THE GUARDS
While the squabbling was going on, Asian Construction & Development Corporation (Asiakonstrukt), the main contractor for the Freedom Ring, gave notice that it was going to suspend work on May 10, 1997.

In a letter to Laurel, Asiakonstrukt officials blamed Expocorp’s failure to deliver the required funds. By this time, Asiakonstrukt vice president Eduardo Bondad said the firm had already spent P410 million on the project and borrowed money for it.

In March of the same year, Bitong’s Global had already indicated its willingness to withdraw from Expocorp on condition that at the minimum, it would be reimbursed the amount it had put in as equity – about P216 million. NCC officials, in turn, had intimated that government “would be able to find a replacement for Global.”

While the NCC was trying to find a new partner to replace Global, the Asian financial crisis was starting to rage. Potential partners either backed out or set conditions that government could not comply with.

Asiakonstrukt, according to Bondad, had “little choice” but to step in as the new partner to save its investment. It thus became both the major contractor of the Freedom Ring project and co-owner of the property.

The new partnership gave birth to the First Centennial Clark Corporation (FCCC), organized as a joint venture on Sept. 8, 1997 with a capital of P1 billion. Like its predecessor, FCCC was initially a private corporation, with Asiakonstrukt owning 60 percent.

By then, Laurel had already found a way to fund the government’s 40-percent share in the joint venture. Three months before, in a June 6, 1997 “urgent and confidential” memorandum to Ramos, Laurel suggested that NDC, a government corporation that has traditionally been used as a milking cow for losing ventures, be mobilized for the Expo.

Laurel said the NDC could either provide a loan or a loan guarantee for the centennial project or else it could come in as a major investor. He cited the NDC charter, which empowers it “to engage or invest in or extend loans and guarantees to, or enter into joint ventures with Filipino and foreign investors.” His recommendation was approved by Ramos.

With the backing of the Office of the President, NDC was practically pressured to be part of the FCCC even if financial returns were uncertain. Worse, it was clear that the heavily indebted NDC was not in a position to invest in the joint venture.

In an April 3, 1997 letter to the Department of Finance (DoF), Mariano Salazar, appointed NDC general manager in March 1997, said that NDC had accumulated “negative retained earnings of P4.84 billion” as of end-1996 because of high interest rates on government advances and on loans it obtained to rehabilitate the National Steel Corporation.

OVERCOMING RESISTANCE
Salazar asked the DoF to ease NDC’s debt burden and enhance its earnings potential by converting its advances from the government into equity. NDC could use the savings on interest, he argued, to fund projects that are “environment-friendly and vital to economic growth.”

Later, however, NDC would seek the conversion into equity of P1.9 billion in advances and interest payments it owed the DoF. Documents show that Ramos eventually approved such conversion to allow NDC to invest P400 million in FCCC.

Thus, with Asiakonstrukt’s P600 million and NDC’s P400 million, FCCC was capitalized at P1 billion. But it needed P1.4 billion more. By this time, it was estimated that the Freedom Ring would cost P1.2 billion, while another P1.2 billion was needed to build the surrounding theme park.

On the heels of Laurel’s June 6 memorandum, another memorandum prepared by SSS administrator Renato Valencia on June 10, 1997 proposed the creation of a new company to take over the centennial project. He also proposed the creation of a “financial consortium” consisting of the SSS, GSIS, DBP and Land Bank from which the P1.4 billion could be sourced.

In his memo Valencia also said, “I suggest that the loan be secured by RP guarantee or NDC guarantee,” with the option to convert the principal and interest into equivalent leasehold rights on the same 200 hectares – inclusive of the 60-hectare Expo site – that were offered to the Bitong group.

The proposal led to negotiations that culminated with an approval by Ramos on Nov. 17, 1997 of a decision to ask the four government financial institutions (GFIs) to lend P1.4 billion to NDC which it would then put in as equity in FCCC. Of the P1.4 billion, P900 million was to be relent to FCCC and the P500 million invested as preferred shares and additional equity for NDC.

With three months to go before the Expo’s “soft opening” in February 1998, wearing down resistance on the part of the NDC became imperative. With the NDC contributions, FCCC was transformed on Feb. 24, 1998 into a government corporation that was now entitled to a government loan guarantee.

The final guarantee was issued only on Feb. 10, 1998 and signed by then acting finance secretary Enriquez. Roberto de Ocampo, the previous finance secretary, had stalled although he eventually issued an initial guarantee letter in January 1998. Not long after, he quit his office to run for president.

“De Ocampo was also reluctant for NDC to enter into the venture especially since he had to issue the guarantee. It was clear that this is something that will be investigated,” an NDC official familiar with the corporation’s participation said.

Documents obtained from the office of Sen. Nikki Coseteng showed that de Ocampo doubted the “financial viability of the project as confirmed by the GFIs’ reluctance to extend a loan for this project without a national government guarantee.”

The document, quoting excerpts of an undated memorandum by Ocampo addressed to then executive secretary Ruben Torres, said: “We do not want to repeat history that the national government ends up servicing government-owned and controlled corporations’ obligations as in Philphos. This corporation has substantially eroded the national government’s fiscal position due to huge advances for debt servicing amounting to P35 billion as of 30 April 1997.”

The NDC official said, “The Expo is the first in a long, long time that NDC entered into a project not on the basis of the merits of the venture.” It also went against NDC’s practice of investing in projects that demand little or no cash outlay.

The NDC official said the Expo continues to be a “problem” for them because of the no-win situation. “If we stop operations, all the more that the public will criticize NDC. But if we continue, we will be subsidizing it.”

Indeed, a May 1998 study by the accountancy firm Sycip, Gorres & Velayo had suggested that NDC withdraw from the venture as soon as possible because the returns are very low. “But we can’t just do that because the loan requires that FCCC has to be government owned – NDC has to pay the loan first,” the NDC official said.

ADDITIONAL FUNDS
Other departments were encouraged to participate in the Expo as well. Ramos’s executive secretary, Ruben Torres, said during a Senate blue ribbon committee hearing in October 1998 that they “appealed to all government departments to put exhibits to help the Expo become successful as a showcase of our centennial.”

For instance, Agriculture Undersecretary Domingo Panganiban said his department received P77 million in September 1997 through a Special Allotment Release Order (SARO) given by the Office of the President through the budget department. The amount was supposed to be spent for an exhibit in the Expo theme park.

The Department of Trade and Industry (DTI) was given “P49.4 million though it was promised P50 million,” ranking DTI officials told the blue ribbon committee. The amounts were released in April and June 1998 for “trade shows.”

The Department of Environment and Natural Resources contributed P75 million to pay two contractors and other centennial-related activities. The sums were released in September for landscaping and the purchase of trees and plants.

Also in September, the budget department released P237.50 million to the DPWH to build the Expo’s parking space, inner roads and other related structures that had been identified as items that could not be funded by the P2.4 billion budget of the just-organized FCCC.

“This release is made pursuant to the handwritten instruction of the President dated Aug.19, 1997,” the SARO said.

In March 1998, just three months before the centennial, Ramos ordered the DPWH to release another P491 million to fund the second phase of the theme park, which includes landscaping, the entrance plaza, millennium hall, Philippine pavilion, time walk and two bridges within the global city site. The amount was taken from congressional initiative allocations in the 1997 DPWH budget, Enriquez said.

All in all, the departments spent about P929.9 million, 78 percent of which was taken from the DPWH. Most of these releases were made at a time when FCCC had just been incorporated and was still a private entity. Government then was a minority shareholder yet it was already spending big sums.

Enriquez said using the budget to fund the Expo, including the other centennial-related projects, was “legal and did not involve the unlawful transfer of funds,” contrary to the Senate’s assertions.

Ramos and Enriquez, together with five former department secretaries, according to the Senate blue ribbon committee, failed to show or present evidence that the amount that “they funneled or caused to be funneled to the 1998 centennial celebration and its related projects had come from savings of their departments, agencies and/or offices, or had been specifically appropriated for such purpose.”

Enriquez argued that Executive Order 292 allows a realignment of funds on two conditions: there are “savings” from which the transfers will be taken, and the item to which the augmentation is being made must be an “existing item in the budget.” The realignments they made, he insisted, satisfied these two conditions.

Ramos, in a press conference last March, said he had issued Administrative Order 372 in December 1997 instructing departments to “save 25 percent of their budget for reserves” or mandatory savings.

“Upon this issue alone, the entire case against me and my officials dealt with by the Senate blue ribbon committee falls flat on its face,” he argued.

COSTS
Such fund transfers were made at the expense of other projects. The DPWH, for instance, completed only 34 percent of its 1998 infrastructure program, way below the 85 percent goal it was eyeing for the year. To date, it has completed only 59 percent of its 1998 work program.

“It’s a matter of policy decision,” a DPWH ranking official said. “The money could have been spent on something else. It would have come handy especially when our projects slowed down due to the cash crunch, but it was the decision to finish the centennial projects.”

The NDC, meanwhile, had given up the development of the Isabel, Leyte industrial project, which the DoF had recommended to enable the cash-strapped company to raise revenues. The project involves the development of the still unused part of the 400-hectare NDC property where the Philippine Phosphate Fertilizer Corporation and the Philippine Associated Smelting and Refining Corporation are located.

The NDC had planned to initially develop an additional 100 hectares in the Leyte Industrial and Development Estate (LIDE) as a site for medium and heavy-scale industries that would use the by-products of existing investors in the area. The NDC envisioned that such development “will benefit the local population as it will generate added revenue and provide more jobs.”

LIDE is the only industrial estate in the entire Eastern Visayas and contributes significantly to the region’s economy. The project, according to the NDC masterplan, could address some of the region’s concerns such as poverty, slow pace of industrialization and lack of employment.

With the entry of a private sector partner and with NDC contributing the land, the Leyte project would have cost only P760 to P893 million, according to NDC estimates. The project, NDC calculated, would make profits after five years.

Thus, the Senate blue ribbon committee concluded, the sums spent by the Ramos government on the Centennial Expo “constitute a gross misuse and wanton misapplication of scarce government resources during a period of devastating financial crises.”