Duterte takes a punt on banning the lottery

Philippine President Rodrigo Duterte has ordered the closure of thousands of gambling outlets, betting houses and lottery ticket dispensaries, a move aimed nominally at fighting corruption but one that could redound negatively on the broad economy.

The order, made in a fiery speech on July 26, will reportedly affect 5,000 Philippine Charity Sweepstake Office (PCSO) lotto outlets, 472 Keno and 2,195 Peryahan ng Bayan (PNB) betting houses, and 13,320 small town lottery (STL) outlets across the sprawling country.

The livelihoods of more than 300,000 workers, including PCSO employees as well as sales agents, supervisors, sales agents, and representatives, were immediately put at stake when police plastered “closed” signs on their outlets and forced them to stop doing business in recent days.

On Tuesday (July 30), authorities said they may remove the signs but it wasn’t immediately clear if the order on PCSOs was temporarily suspended or permanently lifted. In 2018, PCSO’s revenues hit over US$1 billion (63.1 billion pesos), providing badly needed jobs nationwide while generating funds to subsidize many state services, including for the public health sector.

“Part of the lotto revenues fund the medical projects of PCSO for the poor. We can expect these projects to be cut,” Calixto Chikiamco, president and co-founder of the Foundation for Economic Freedom, a business advocacy group, told local media. “But the greater risk is increased investment uncertainty and policy instability which will turn off investors.”

The nationwide closure followed on a Duterte speech in which he alleged “massive corruption” at PCSO’s that he claimed even involved the courts. He did not elaborate on the corruption claim.

Duterte’s economic managers have yet to fully assess the economic impact of the decision, which mirrored the president’s surprise call last year to shut down the Boracay tourist island for several months due to environmental degradation concerns.

Finance Secretary Carlos Dominguez III said that his department is still “evaluating the immediate effects of the ban.” He insisted that the impact on government services funded by the lottery revenues will be “limited.”

The presidential announcement, made verbally in a speech but not put down in writing in an executive or memorandum order, has the potential to backfire both politically and economically, analysts say.

In particular, the seemingly impulsive move threatens to stoke regulatory risk perceptions among investors, as Duterte appears to use his executive power to run roughshod over existing laws and regulations, a leit motif of his three years in power.

Critics have already noted the verbal command left untouched proliferating Chinese-run online gambling sites which operate largely unregulated in the Philippines. Experts quoted in local news reports believe that the move could aggravate the situation by pushing gambling underground while undercutting government services subsidized by regulated betting in the process.

Justice Secretary Menardo Guevarra has stood firm that the order is legal and hinted the move aims to clean up under-reporting of revenues to authorities.

“[T]he president has the authority to order the suspension, even the termination, of PCSO-licensed gaming operations upon prima facie proof that licensees are not faithfully complying with their legal obligation to remit the correct amount of the government’s share in revenues, or that their operations are tainted by fraud, deceit, or corruption.”

“It should be emphasized that a gaming license is not a contractual right, but a mere privilege that may be revoked at any time by the state,” Guevarra added.

Duterte likely sees the move as part of his broader effort to fight the proliferation of illegal drugs, a lethal campaign that has resulted in thousands of extrajudicial killings since being launched in mid-2016.

“[T]he drugs [problem] will not be crushed unless we continue to eliminate corruption that allows this social monster to survive,” he said earlier this month during a state of the nation address. “Corruption continues and emasculates the courage we need to sustain our moral recovery initiatives.”

Significantly, there was no announcement to curb or scrutinize the parallel casino industry, which has boomed under Duterte’s apparently reluctant watch. “I hate gambling. I do not want it. There will be no casinos outside of what are existing. I am not granting anything,” Duterte declared last year.

National gambling revenues are expected to touch $4.1 billion this year, more than quadruple the amount earned when Duterte came to power in 2016. Annual gaming licensing fees have jumped eleven-fold, reaching $140 million last year, over the same period.

Chinese investors and punters are driving the Philippines’ fast-growing casino industry, seen most visibly in the gigantic casino-resorts on Manila Bay, but also known to be proliferating online through Chinese-run gaming sites.

By certain government estimates there are as many as 400,000 Chinese living in the country, an unknown number of whom run highly unregulated gambling sites catering to Chinese punters on the mainland. News reports show police frequently bust the tech-savvy illegal migrants.

The massive influx has confounded Philippine authorities, who have acknowledged they are uncertain about the exact number of Chinese workers in the country and have struggled to issue enough tax identification numbers for collection purposes.

Casinos, experts warn, have previously facilitated illicit activities including money laundering and drug trafficking.

The boom in the online casino industry has also impacted the local real estate market, with unregulated online Chinese businesses believed to be driving up rents in many areas of Manila and elsewhere.

That’s led to a proliferation of “little colonies” of all-Chinese restaurants and subdivision complexes which are increasingly off-limits to local Filipinos and apparently the prying eyes of Duterte’s local lottery-busting authorities.