A fundamental reason with regards to the effect of the corruption in the economy must be the continuing perception among many Filipinos that the relationship between the government and themselves is at best an abstract one. Corpuz many years ago traced the historical roots of graft and corruption to the €negative image€ of government among Filipinos. Especially during the Spanish period, positions were awarded or sold as a matter of course to undeserving and often abusive individuals, leading to a government that was unresponsive to the needs of the inhabitants.

This effect of corruption in the economy and predatory nature of the state and the failure of formal government to become responsive meant that Filipinos had only non-government institutions to turn to, primarily the family or extended kinship ties, the more basic informal rules of behavior that NORTH [1990] acknowledges are the default mode in traditional societies. A long-festering issue that illustrates the continuing conflict between formal rules and informal constraints, for example, was the perception of rights over land. Formal land-ownership rules were often imposed by the central government on pre-existing informal land rights, resulting in conflicts between formal claimants, such as friar corporations and inquilinos, wealthy, educated individuals with access to the legal system and traditional farmers or indigenous groups. In many cases, therefore, from the viewpoint of natives, formal rules were typically disputed and to be obeyed only because of fear. In the matter of corruption, this observation becomes relevant, since the strictures against corruption have always existed merely as formal internal rules within the government, which did not necessarily carry weight in the more private or family spheres whose main criterion is overwhelmingly pragmatic and individual.

In terms of the PA framework used in the first part of this paper, one might say that it was not even clear how the interests of the principal (either the government or the society at large) might be asserted, since the €principals€ themselves at times did not take their interests (qua principals) too seriously. The country's division into groups based on ethnicity, language, geography, religion, social class, and so on, in short its existence as €civil society€ in Marx's original sense of an anarchy of interests, and its refusal to take the business of formal government seriously and something more than an arena for sectional spoils must be seen as an important hindrance to an improvement in the quality of public service. It is in this respect that the emergence of €civil society€ in the positive sense, especially among the upper to middle and politicized segments of the working classes - the same elements responsible for EDSA II -- is a hopeful development for the long run. It has ultimately been these groups that have been responsible for raising the bar for standards of public service in recent years, a nonexistent phenomenon in the pre martial law period.

Another metavariable is the government's chosen economic role. Philippine postwar history has shown how opportunities for corruption have risen during times of heavy government intervention, such as during the period of protection (e.g., smuggling and illegal immigration), as well as during the period of dictatorship when government sought to undertake major economic projects largely funded by borrowing. In the long-run, a more open economic regime oriented towards producing tradables, with a reduced core role for the state (infrastructure, basic social services, environment standards), and benchmarking itself against competing countries under locational competition is likely to provide less room for corruption if only because it is more transparent. From a governance viewpoint, much of these moves also reducing unnecessary discretion on the part of agents and lower monitoring costs.

Finally, the organisation of government itself certainly influences the incidence and significance of corruption. Among the elements that to consider are the current system of electoral politics, particularly campaign finance and the tenured bureaucracy's low status and lack of autonomy. These factors account for a large part of the adverse-selection problem in government, where an undue number of misfits are attracted. Proposals to reduce of discretion on the part of the executive and of central government (and corollarily strengthen local governments) should be seriously considered. Again these follow readily from the PA literature, since devolution reduces discretion and shifts the locus of responsibility to local levels where monitoring is less costly and principals' interests are more homogeneous and clearly defined.

The disproportionate role corruption and effect of corruption in the economy plays in the Philippines must be traced to more ultimate factors in the structure of Philippine politics and economy. These include the system of patronage in politics, at both local and national levels; the lack of information among the majority (originally due to poverty, ignorance and alienation); the manipulation of government by powerful outside vested interests (originally based on landownership and relations of dependency); the entrenchment of a stratum of political opportunists and big money politics; and a political system used as means of wealth accumulation based on manipulations of the electoral process (including media, skillful use of resources and contributions). It is these which ultimately explain the failure of the presumptive controls over the presumed relationship between the public and its would-be servants.

The characteristics of the problem determine the very approach required to address it. The following are broad suggestions:

First, one must, as it were, €take it from the top€ and attack political corruption first, using the levers of accountability for the polity-politician relationship. This follows from the analysis that in the Philippines, closed-form bureaucratic corruption is subordinate

to politicians (and has not reached the point where underworld elements instead dominate politics). In some ways, this also diverges somewhat from the prescription to €go after low hanging fruit€ [World Bank 2000]. Electoral contests must be an effective tool for recruiting honest and accountable politicians of a sufficient number to break the monopoly of adversely selected trapos. For this to occur, however, obviously what is needed is voter education and information; transparency in campaign finance; public transparency, and a prominent role for media and communications. Mechanisms for intra-regime recall and accountability need to be instituted and real advances must be made in creating a stable and credible political party, beginning perhaps with opportunities provided by the party-list system.

Second, the credibility of the justice system must be restored especially in the prosecution of corruption cases. A decisive resolution of the most prominent pending political cases is needed. To forestall any suspicion that the purposes of such moves are political, however, visible progress must be made on a broad front. Hence, for instance, not only plunder cases from the Estrada administration should be pursued, but also those from the Ramos presidency as well. Similarly, not only political cases but those involving bureaucratic corruption, e.g., from the revenue collection agencies, as well as the judiciary, must be pursued and speedily resolved. The corollary of this of course is that the conditions and morale of the judiciary must themselves be raised.

A third general area to minimize the effect of corruption in the economy is the reduction of political discretion from the centre. Part of this may be accomplished through devolution of functions to local governments, which may reduce the scope for discretion through greater accountability at the lower levels without sacrificing the provision of local public g