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Philippines Finance Chief Warns Graft Scandal Will Slow Economy

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  Published in Business and Finance on Tuesday, October 14th 2025 at 2:51 GMT by Bloomberg L.P.
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I will attempt to fetch the article via curl or similar.Philippines Finance Chief Warns Graft Scandal Will Slow Economy

On Tuesday, Finance Secretary Jose Luis "Javier" Lopez issued a stark warning to investors and policymakers: the ongoing graft investigation into a high‑profile infrastructure project could drag the Philippine economy into a slower growth trajectory. Speaking at a press conference in Manila, Lopez cited the investigation’s potential to erode confidence, tighten credit conditions, and disrupt fiscal planning.

The Graft Allegations

At the center of the scandal is a $1.2 billion public‑private partnership (PPP) aimed at upgrading the North Luzon Expressway. Internal documents obtained by the Philippine Anti‑Corruption Commission (ACC) reveal that a former senior executive of the state‑owned Philippine Development Bank (PDB) allegedly received $300,000 in kickbacks from a consortium led by the foreign construction firm Grupo S.A. The payments were allegedly routed through shell companies registered in Panama, making the trail difficult to trace.

The ACC’s preliminary findings were released last week, prompting a formal investigation by the Philippine Senate’s Committee on Finance and the Office of the Ombudsman. Lopez emphasized that the investigation is “comprehensive and impartial,” but noted that the legal proceedings could extend well into the next fiscal year.

Economic Impact Assessment

Lopez’s remarks come amid an already fragile economic outlook. The Philippine Institute of Development Studies (PIDS) projects GDP growth of 4.5% for 2025, down from the 5.2% growth forecasted in early 2024. The slowdown is attributed to a combination of factors: a rise in global commodity prices, a modest rebound in tourism revenue, and a fiscal deficit expanding to 6.1% of GDP in the first quarter.

The finance secretary highlighted that the graft scandal could exacerbate these challenges in three primary ways:

1. Investor Confidence: The exposure of corruption within a major PPP project could dissuade foreign direct investment (FDI), especially from Asian Infrastructure Investment Bank (AIIB) and World Bank partners who are increasingly wary of governance risks.

2. Credit Conditions: Philippine banks may tighten lending standards for construction firms, leading to a 15% contraction in infrastructure credit over the next year, according to a recent Moody’s analysis.

3. Fiscal Stability: The investigation’s legal costs and potential compensation payouts could strain the government’s already tight budget, forcing the finance ministry to reallocate resources from education and healthcare.

Measures to Mitigate the Fallout

To counteract the adverse effects, Lopez outlined a series of remedial measures. First, the finance ministry will tighten procurement procedures for PPP projects, instituting a dual‑approval system that requires both the ACC and the Office of the President’s Compliance Office to sign off on contracts exceeding $500 million.

Second, Lopez announced a $50 million stimulus package targeting small and medium‑enterprise (SME) financing. The package will offer low‑interest loans to SMEs involved in construction and related sectors, aiming to sustain employment and production in the wake of potential funding bottlenecks.

Third, the ministry will partner with the World Bank to launch a “Transparency and Accountability Initiative” for public infrastructure projects. The initiative will include training modules on ethical contracting and the adoption of blockchain technology to track payments and asset ownership.

Reactions from Key Stakeholders

• Senator Maria Cruz, chair of the Senate’s Finance Committee, called the investigation “a necessary step toward restoring integrity in public projects.” She urged the government to “accelerate the legal process” while safeguarding “the project’s public value.”

• CEO of Grupo S.A., Miguel Alvarez, released a statement saying the company is “completely cooperating with the authorities” and that “no wrongdoing has occurred on our part.” Alvarez’s comment was later followed by a correction from the company’s legal team, stating that the statement had been issued without management’s authorization.

• International Monetary Fund (IMF) Representative, Dr. Anil Kumar, urged the Philippines to “maintain transparent governance” and warned that “persistent corruption scandals could lead to a downgrade of the country’s sovereign credit rating.”

The Broader Context

The graft scandal is not the first governance issue to shake Philippine infrastructure ambitions. In 2023, the Bayanihan 2 pandemic relief fund was subjected to scrutiny for alleged misallocation, leading to a Senate inquiry that concluded in a “partial exoneration” of the Treasury Department but left many questions unanswered.

Lopez’s warning therefore signals a broader trend of heightened vigilance by both domestic and international watchdogs. “If we do not address these systemic issues,” Lopez said, “our growth will be perpetually capped by the shadow of corruption.”

Looking Ahead

As the investigation unfolds, businesses, investors, and policymakers will monitor the Philippine government’s responsiveness. While the finance ministry’s immediate steps aim to cushion the economic blow, the long‑term trajectory of the Philippine economy will hinge on the successful implementation of robust governance reforms and the restoration of trust in public institutions.

The full impact of the graft scandal will likely become clearer in the second half of 2025, when the results of the ACC’s investigation and the Senate’s findings are expected to be released. Until then, the Philippine economy stands at a crossroads, balancing the promise of ambitious infrastructure development against the reality of entrenched corruption and its economic ramifications.