There is no doubt in my mind that in his SONA, PBBM will announce the demise of the Pogos*.  His administration should have outlawed them two years ago, when the DOF, NEDA, and the government think tank Philippine Institute for Development Studies  (PIDS) already gave the Pogos an evidence-based thumbs-down.

In the words attributed to then Finance Secretary Ben Diokno, the Pogos were more trouble than they were worth: The cost-benefit analysis (CBA) showed that the costs to the Filipino people associated with Pogo operations, far outweighed the benefits to them.  DOF had actual figures for 2022:

Benefits P134B –P145B;

Costs – P148 B.

Net Loss? P3B-P14B.

So why didn’t the Philippines kick out the Pogos then?  One can only surmise that it was because the cessation of Pogo operations would mean the end of enormous monetary benefits to certain individuals in government.  

The national interest took second place to private interests.

So, if in the  upcoming SONA, PBBM waffles about the issue, as in if he says the Pogos can stay, but they should be strictly regulated (by whom?) you will know that once again, the country’s welfare has been prioritized last.

About this time, you are asking, Reader

1) Exactly what were the costs and benefits that entered into the calculations?; and

2) Isn’t a net loss of P14B small potatoes, anyway?

The Calculated Costs and Benefits:

I will use the DOF estimates because they are the most detailed and most transparent (including assumptions, studies used, and methodology – prepared by then Undersecretary Cielo Magno).

Direct Benefits

In her determination of direct benefits**, she included 

• Corporate Income Taxes from Pogos,
• Personal consumption of Pogo employees,
• Personal income taxes from Pogo employees,
• income from office  and housing space rentals and their Value-added taxes,
• other taxes,
• revenues from Pagcor,
• transportation,
• insurance.

Direct Costs

The direct costs*** include

• additional cost for law enforcement and immigration,
• estimated decreases in foreign direct investment (FDI) due to crime,
• estimated decrease in inbound tourism revenues due to crime,
• estimated decrease in FDI due to corruption perception. 

Note, Reader,  as Magno herself points out, that the costs listed are not exhaustive.  

For example, they do not include indirect costs such as

• the negative effect of crowding Filipinos out of rental housing due to the Pogo-induced rise in rental rates;  
• the decrease in FDI due to higher costs of renting houses and  office space rentals;
• the direct (higher transactions cost) and indirect (inconvenience) costs because Pogo activities related to money laundering, i.e., it has put Philippines, since 2021, on the FATF Grey List (FATF, the global anti-money laundering watchdog needs more intensive monitoring of the Philippines)

What this all leads up to is that the costs are underestimated.

The real value of a 14B net loss?

Now for the second question:  With net losses estimated to be at most P14 billion to the economy isn’t this all a case of much ado about nothing? We know that the direct and indirect costs are underestimated. But more importantly, the DOF CBA does not include Social Costs.

Social Costs

DOF lists the social costs attributed to Pogos:  

• direct loss of life;
• direct physical and psychological harm to victims,
• legal (one supposes the costs of incarceration,
• the justice system);
• indirect social fear and anxiety;
• transfer of economic power from the market, government and citizens to criminals; and
• negative effects of the erosion of institutional integrity.  

However, the DOF attaches no peso value  to them. Not because they have zero value, but because they are very difficult, if not impossible to quantify.  But  not quantifiable does not mean unimportant.  Let us focus on the negative effects of the erosion of institutional integrity.

Erosion of Institutional Integrity

What does that mean?  It means the costs arising out of the Pogos taking advantage of the corruptibility of our public and even private institutions.  Which leads to the further weakening of the fabric of our governance, making it easier for other parties to  further erode institutional integrity, in a vicious downward cycle. Which spells disaster for us, because good governance at all levels is essential to economic growth, political stability, security, and development.

Long story short, the negative effects of the erosion of institutional integrity is a fundamental concern for a developing country such as ours.  Absent good governance,  we can kiss our developmental goals goodbye.

Concrete Examples

Sounds esoteric? Let me give three down-to-earth examples of institutional integrity erosion, attributed to Pogos , where their targets were not our usual suspects, e.g., PNP, BIR, Immigration, Congress.  They wanted other institutions to weaken.

Alice Guo

One is the Alice Guo case, where the target was to get political control of the area in which the Pogos operate. They succeeded, by buying out everyone involved – the Comelec, local politicians incumbent and aspiring, the voters  — perhaps the whole town. Getting what they want by paying double the going price, and cash at that, a strategy they used in the real estate and housing markets may have been used in Bamban. How many other LGUS have succumbed?

Birth-Certificate Scam

The second case is the birth-certificate scam, which has placed an agency known for its competence and integrity, the Philippine Statistics Authority, if not under keen scrutiny, at least under the scrutiny of the public’s lifted eyebrows. Reputations can be so easily damaged, after that , everything goes downhill. The Pogos did that.

Banking System

The third case has to do with the Pogos undermining a private institution as well – the banking system.  Money talks in the private sector as well as in government.

Two-line summary:  

The cost associated with Pogos is way more than originally estimated by the DOF.  And that does not even include the very real financial, military  and political dangers associated with their China connection.

No more excuses. They’ve got to go.