Inside the $2 billion scandal that paralyzed the Philippines

Senator Francis Pangilinan leaned into his microphone and fired off numbers in pesos: 50 million? 10 million? 100 million? “You withdrew this in cash?”

Across the hearing room sat Sally Santos, the proprietor of Syms Construction Trading and a central figure in the Philippines’ ballooning flood-control scandal. She didn’t flinch. P457 million, she said. That’s $7.8 million.

Mr. Pangilinan jerked back. “The bank manager allowed you to withdraw P457 million in cash!?”

The exchange, broadcast live across the country, shocked the nation. And the spectacle offered a glimpse into something more sinister: suitcases swollen with cash in what investigators say was just one tributary in a vast, multi-year scheme that cost the Philippines about $2 billion in public funds. The money was meant to build dikes and other defenses that should have spared villages from deluge. Instead, some of those defenses collapsed almost instantly; others were never built at all. The failures contributed to flooding, worsening the impact of storms that have left about 400 dead and more than 9.5 million people displaced this year.

“The flood-control plunder is unprecedented,” said Joy Aceron, director of Government Watch, a research organization that seeks transparency and accountability. “There is evidence that there was a total breakdown of accountability.”

Long before the rains arrived in June, people in the Philippines sensed that something was off.

They saw it first online. Daughters of contractors posing with new Hermès and Chanel bags on Instagram and YouTube. A contractor stood before local media, proudly guiding cameras through his collection of luxury vehicles as his wife – who has since been hit with graft charges – prepared to launch her campaign for mayor.

There were signs within the government, too. President Ferdinand R. Marcos Jr. vetoed hundreds of millions of dollars worth of projects for the Department of Public Works and Highways – the agency in charge of the bulk of infrastructure spending – in the 2025 national budget. Yet still, the agency’s portion in the final budget swelled by more than $1.5 billion from a year earlier, with a senator leading the investigations alleging lawmakers added allocations and the public receiving no transparency over who added what, or why.

It wasn’t until Mr. Marcos addressed the nation in July that Filipinos learned flood-defense contractors had been allegedly colluding with politicians to receive kickbacks. By September, it would become clear how much: up to 70% of government funds for flood-control projects were lost to corruption, then-finance chief Ralph G. Recto told the Senate in a hearing.

Authorities have frozen about $220 million in assets belonging to government officials and contractors so far, including more than 4,000 bank accounts, 200 cars and nearly a dozen aircraft. Mr. Marcos, the son of the late dictator Ferdinand and Imelda (infamous for their alleged pilfering from state coffers and her shoe collection), has promised that those involved in the corruption will be jailed before Christmas.

Nine people have been arrested as of Dec. 9, and seven are still at large, according to the public works department. Among those in hiding is former congressman Zaldy Co, who was on a government panel involved in the state budget process while at the same time owning a construction company that worked on several flood-control projects, local media reported. Officials say more arrests are coming.

Mr. Co has denied receiving kickbacks from flood mitigation projects. Lawyers for Mr. Co and Ms. Santos didn’t immediately respond to requests for comment.

ANGER
The promise of accountability has done little to quell anger in a country where, as the new finance secretary, Frederick Go, put it, graft has persisted “since time immemorial.” The revelations triggered large street protests that continued into last month.

For now, people in flood-prone areas mostly blame contractors and individual politicians for exploiting what they describe as a long-broken system. But beneath that is a deeper resentment toward a country where political power and private wealth blur inside a small circle of families, the Marcoses among them. President Marcos’ approval ratings have begun to slide, and if the half-built projects remain broken when the rains return, or if the investigations stall at minor arrests or reforms never move beyond promises, the blame may rise.

“Emotions are running very high,” says Rafael Ongpin, executive director of the Makati Business Club, which represents some of the Philippines’ largest companies. “The public, they want to see some heads roll, but if you want to build a strong case against these people, it’s going to take time.”

The scandal has also rippled through financial markets: growth has slumped, foreign direct investment has slowed and the stock market is among the worst performers in the world this year. For a country that’s persistently ranked one of the worst for wealth inequality in Southeast Asia, gaining the trust of investors is crucial to pull it out from an underperformance loop.

Yet the government’s political capital to push through promised fiscal reform, transparency and governance modernization “appears diminished for the remainder of Mr. Marcos’ presidential term,” said Ze Yi Ang, a portfolio manager for fixed income in Asia at Allianz Global Investors, one of the largest foreign holders of Philippine government debt.

FLOODS WON’T LEAVE
The Philippines sits in a disaster belt, absorbing about 20 typhoons a year that kill hundreds. This year’s were more destructive and more frequent. Climate change is the prime suspect, scientists say. Locals agree, but many insist the flood-mitigation projects meant to protect them made things worse.
In the villages hardest hit, people are still living with the wreckage.

Frances is a place that has lived with water for generations. The area, on the outskirts of Manila, acts like a basin: rivers cut through flat terrain where farmers grow rice and raise cattle, chicken and geese. The soil is grey, clay-like – an advantage in drought but a hindrance for drainage. Floods would come, but they always left.

Not this year. Not since the mitigation project was built.

Vast pools of stagnant muddy water cover the first floors of houses, slice across schoolyards and cut off roads. In most years, the residents said, the floods would come and go within a week. This time, the water has stayed trapped behind dikes that were meant to protect the villages but now seem to be holding the water in. Farther down the river, another promised project was never built at all. They call it “the ghost.”

The floods have impacted everyone in the area. Roadside vendors can’t operate. Small businesses have seen their takings fall. Houses are uninhabitable. Kids have missed school and parents fret about dengue. Ambulances have struggled to get through in emergencies. One farming family lost their rice harvest; they now have a single cow that can no longer graze freely and needs to be fed by hand.

Village chief Jessie Cayago, a trim man in a blue polo shirt, sits patiently in his office as people drift in with questions he can’t answer. “The people I talk to are angry at the high-level corrupt officials: congressmen, senators.”

A few blocks away, 80-year-old Estelita Pagdanganan, a slight woman with silver hair pulled back in a clip, wades through mud in oversized gumboots. Her husband Ernesto has built makeshift drains and caged their chickens for safety. The fruit trees behind the house are rotten.

“Maybe climate change has something to do with this,” she says from outside her still-wet house. “But the real ones at fault are those contractors. We are clueless about what happened.”

President Marcos came to visit Frances in August. Investigations were promised but that was about it. Cayago doubts there will be new money for flood control next year. He has begun planning for the opposite.

IMPACT BEYOND FLOODS
Back in Manila, Secretary Vince Dizon was appointed in August to clean up the public works department.
In an interview on Dec. 9, he called the network behind the fraud a criminal syndicate, an “old-boys club” operating for decades. The only way to dismantle it is to make it known that those accountable will “spend the rest of their lives in jail,” he said. “Put the fear of God in them.”

The public works budget accounts for nearly a fifth of the national budget; flood mitigation is about 20% of that. Since the corruption scandal came to light, the government paralyzed flood-control spending through 2026. The spending freeze has chilled the broader economy, helping drag growth in the third quarter down to 4% – well below the 5%-plus of previous quarters.

Finance Secretary Go says he’s confident growth will climb above 5% in 2026. Many economists, including those at the Union Bank of the Philippines and Barclays Plc, expect the drag will last into the second half of next year as construction, investment and consumer confidence recover only gradually.

The scandal “scuttled household spending, investment and government outlays” that will likely take much of 2026 to recover, said Bloomberg Economics’ Tamara Mast Henderson, who forecasts expansion of 4.5% next year, down from an estimated 4.8% in 2025 and 5.7% last year.

On paper, the Philippines has plenty going for it: a young population with a high level of English proficiency, proximity to trade routes, success in attracting electronics assembly from China, a booming business-process outsourcing industry, and a vast diaspora sending money home. Mr. Go rattles off new laws enacted in his previous role as special assistant for economic affairs that he says will simplify doing business.

And yet, investors are increasingly looking elsewhere in Southeast Asia.

“Neighboring economies, particularly in Asean, are making more significant strides in the ease of doing business, in their governance issues,” said John Paolo Rivera, a senior research fellow at the state-funded Philippine Institute for Development Studies.

According to Mr. Ongpin of the Makati Business Club, the country has long struggled to compete with Thailand and Vietnam in heavy manufacturing; electricity and labor costs are higher at home. And crucially, scandals and corruption continue to haunt the nation.

“We are really trying to build governance up to a level where we’re attracting the major institutional guys” like pension funds, state wealth funds and insurers, Mr. Ongpin said. “We’ve failed to attract them because we have too much unquantifiable risk.”

The Philippines ranked 114 on Transparency International’s corruption index of 180 countries and territories – and that was before the flood scandal broke. The country stands alongside Belarus, Panama, Sierra Leone and Laos. Mr. Marcos has formed a panel to investigate corruption and enhanced monitoring of public works projects, but more is yet to be done to tighten oversight and adopt policies to ensure scandals like these don’t happen again.

Some asset managers are reassessing government debt tied to climate and social goals, nervous they may have inadvertently financed projects now under investigation.

Peerampa Janjumratsang, a Singapore-based portfolio manager at M&G Investments, another large holder of Philippine government debt, says bonds have held up reasonably well but wants far more transparency on how funds are disbursed. “That needs to be communicated to investors better,” she says, adding that the firm has not heard directly from Philippine authorities about the scandal.

WE WANT IT FINISHED
The silence also rings loud for the villagers in Tagumpay on the island of Mindoro.

A 90-minute fast-ferry ride from Batangas province, south of Manila, the lush green area is a patchwork of fields and narrow roads. Some farmers say they were unable to harvest rice in July due to floodwater – the first time they recall that happening – and can’t plant now as the season starts again. Farmers often borrow money in planting season; no harvest means their debts compound and they need to borrow more.

Village captain Nestor Asi, tanned and lean, stands on a mound of gravel at the end of a long dike built by firms including Sunwest, the company of ex-congressman Zaldy Co. Bulldozers organized by local officials have been desilting the river from dawn to dusk to stop water from spilling into fields. The dike, completed in 2024, has already seen several sections crumble and hastily patched. An almost two-kilometer gap between two segments remains – a casualty of the corruption scandal, Mr. Asi says.

To residents, that gap has widened into a symbol of impunity. Zaldy Co, who has been charged, is yet to be found and is believed to be hiding in Portugal with a second passport, according to Interior Secretary Jonvic Remulla. So far, arrests have been limited to a handful of public works officials and the surrender of a key contractor. The most prominent figures linked to the scandal remain beyond reach.

For the farmers downstream, the consequences are immediate and measurable. Where once they earned P30,000 to 40,000 ($510 to $680) per hectare after costs, some fields now produce only stringy, unusable plants twisted in ungainly fashion. Many are waiting on government aid they say has been slow to arrive.

Casiana De Villa, a 66-year-old widow, farms with her son Manuel, 49. They haven’t planted this season. “We are worried the floodwater will destroy the crops again,” she says. “Another investment gone, another debt. We will just be buried in debt.”

Villagers say they don’t blame Mr. Marcos directly. Their anger is aimed squarely at the contractors and politicians who allegedly stole the funds.

Still, a recent WR Numero poll puts satisfaction with Marcos at just 21%, the lowest of his presidency. Depending on the pace of the probe and whether promised reforms materialize, the political damage may grow. “The longer the underlying problem of flood mismanagement persists, the greater the risk that blame will begin to travel upward, potentially implicating the presidency itself,” said Vedi Hadiz, a professor of Asian studies at the University of Melbourne.

Tagumpay farmer Danilo Divina, 57, has watched his debts mount. He has taken construction jobs to survive, including fixing the dike whose failures devastated his livelihood. Other farmers have joined him.

Mr.Divina shrugs. “We want it finished.” — Bloomberg