357. Telegram From the Department of State to the Embassy in the Philippines0

133. Department is gravely concerned with graft and corruption in Garcia Administration and particularly as to possible consequences [Page 779]with respect to future of democratic government. Until there is some improvement, there would appear to be little hope that Phils could assume role of leadership and influence in Asia. While we do not believe Communists are presently strong enough to seize power, nor that the military likely to do so, this rotting of the moral fiber of Phil public life constitutes a potential threat to best interest U.S. and free world in Asia. In attempt to meet this situation, Department has considered following possible measures:1

1.
Placement of IMF consultants in strategic ministries and agencies of GOP, such as Central Bank, Ministry of Finance, Internal Revenue, Customs, etc. Consultants would serve as watchdogs and try to develop techniques for preventing corruption. We believe this might best be achieved through influence of private citizen rather than by U.S. Govt representative. Ambassador Myron Cowen and Jose Yulo have already discussed this with Garcia and we may ask Cowen pursue further.2
2.
Elimination of some regulations and regulatory agencies which offer opportunities for graft by acceleration of economic decontrol. This would include devaluation of peso and revision of export and import regulations.3
3.
Implementation of the Barrio Act to give local government units power to retain and spend some tax revenues, thus decentralizing government and freeing local authorities from manipulation by Manila politicians.4
4.
Make funds available to the Community Development Program but only in conjunction with funds raised by local taxes. Explore possibility using Peace Corps in Community Development Program.5
5.
Encourage U.S. and other foreign press cover Philippines campaign and election.6
6.
Enlist civic organizations in effort to form civic group for sole purpose of assuring honest elections. Possibly through USIA find specialists for such a campaign.7

Embassy comments requested.

Ball
  1. Source: Department of State, Central Files, 796.00/8–561. Secret; Limit Distribution. Drafted by Bell; cleared by McConaughy and Joseph W. Scott, INR’s Deputy Director for Coordination; and approved by Johnson.
  2. In telegram 178 from Manila, August 11, the Embassy noted that it shared the Department’s concern but believed that any endeavors to combat corruption would have to await inauguration of a new administration in January 1962. (Ibid., 796.00/8–1161) The Embassy’s specific comments to the Department’s suggestions are contained in footnotes 2–7 below.
  3. The Embassy agreed that IMF consultants could help provided they had the public support of the highest levels in the Philippine Government and the power to evaluate performance.
  4. The Embassy noted that the government was planning to retain some economic regulation probably through the Central Bank. The Embassy thought the IMF could help on this issue, but the United States could do little except as a quid pro quo for enlarged aid programs.
  5. The Embassy reported that retention of tax revenues was already being practiced, but full implementation seemed unlikely.
  6. The Embassy planned to use the Peace Corps to the fullest in rural development.
  7. The Embassy agreed but noted that this would best be handled from Washington to avoid implication of U.S. interference.
  8. The Embassy commented that while civic organizations abounded, none had the potential to provide a nucleus for ensuring honest elections and none could be created in the 3 months before the elections.