Time to pull the plug on Pogos while risks still manageable, says think tank

Now is the best time to pull the plug on volatile online gaming as the Philippines is better off rebuilding its economy in a postpandemic world without relying on an industry fraught with social, governance and financial risks, says New York-based think tank Global Source.

These controversial Philippine offshore gaming operators (Pogos), which were allowed to flourish during the term of President Rodrigo Duterte, mostly cater to online gamblers from mainland China, where gambling is illegal, and they mostly employ Chinese workers.

In an Oct. 3 research note, Global Source economist Romeo Bernardo said, “…while it is true that Pogos could help cushion the economy against current strong external headwinds, we would rather argue that allowing these to continue and climb back up to its prepandemic size would only increase the economy’s vulnerability to a sudden and massive pullout.”

Global Source said the pullout may be triggered by China in line with its social policy against gambling, a crackdown on money laundering and the state of Philippine-China relations. Such concerns had already been raised by China during Duterte’s time.

Blacklisting

But even Philippine authorities may act aggressively “if online gambling becomes a reason for the country’s blacklisting by the FATF (Financial Action Task Force), which could damage remittances and investment flows immensely,” the report said.

Paris-based FATF is an international money laundering watchdog backed by the G7, or the informal bloc of industrialized democracies.

“The current upheaval in global financial markets, with China and other emerging market central banks looking for alternative ways to manage money outflows to help ease exchange rate pressures, could even make the case for banning Pogos stronger,” Global Source said.

Global Source noted that the Pogo industry had shrunk by 50 percent to 70 percent since the pandemic, citing independent assessments.

“Given this, we think that now may be the best time to pull the plug on Pogos. We think the risk of a system-wide property sector collapse and/or banking sector stress is manageable since most firms and banks have deliberately limited exposures to the sector and the decline in real estate prices would help the country be more competitive in attracting a bigger slice of the expanding global BPO (business process outsourcing) market,” the think tank said.

“While a complete ban would come with some amount of economic pain especially for certain property firms that have outsized exposures to the industry as well as the knock-on effects on housing, food, retail and other services catering to the foreign workers, we are more concerned with the incalculable costs of allowing Pogos to operate in the country,” it explained.

Total ban

Pogo proponents have warned that a total ban would cost the economy anywhere from 0.6 percent to 1 percent of gross domestic product. At its peak, the sector accounted for as much as 10-15 percent of major office landlords’ prepandemic portfolio. They also rented residences and contributed to consumer spending sprees.

Global Source, however, is more concerned about the “reputational risk” cited by Finance Secretary Benjamin Diokno, referring to the negative perception associated with the country’s inclusion since June 2021 in FATF list of jurisdictions under increased monitoring or the so-called gray list.

“Money laundering through casinos, actual or virtual, has been a major worry for authorities especially after the Bangladesh Bank cyber heist scandal in 2016,” it said.

Upon consulting security experts, Global Source said it had found out that Pogo-related kidnappings are “systemic” and “recurring” in the industry.

The think tank also agreed with the concerns raised by a prominent sociologist, who had warned about Pogo operators’ agility in exploiting “the corruptibility of our public institutions,” as well as the longer term harm to the economy of government’s dependence on Pogo at the expense of finding “more enduring and less [socially] costly sources of revenue.”

Global Source lamented the “weak” regulatory oversight on Pogos, resulting in monitoring and taxation issues. It opined that the Philippine Amusement and Gaming Corp., which is in charge of licensing Pogos, has conflicting mandates as regulator and casino operator. INQ