The grant was approved under the US Congress-funded Millennium Challenge Account (MCA) program, which seeks to reward countries that govern well.
An MCA statement said that the Philippines is ineligible for participation in broader MCA assistance programs "because of persistent problems with public corruption."
It said the Philippines suffers from "high levels of corruption in tax and customs administration, conflicts of interest in the public sector and weak enforcement of existing anti-corruption laws."
John Danilovich, chief executive officer of the Millennium Challenge Corp. which administers the MCA, formally advised outgoing Ambassador to Washington Albert del Rosario of the board’s unanimous approval of the funding.
"This welcome development underscores the MCC’s recognition of the Philippine government’s resolve in addressing graft and corruption as a major stumbling block to our national development," said Del Rosario, who is due to return home next month.
In Manila, US Ambassador Kristie Kenney welcomed the development. "The MCC program represents an important opportunity for the United States and the Philippines to deepen our partnership by strengthening government institutions focused on anti-corruption and revenue administration efforts. We look forward to working with President Arroyo and the government of the Philippines to promote economic growth that benefits all Filipinos, especially the poor," she said.
The two-year project will develop an effective mechanism for gathering and validating tax collection data and invest in information technology, surveillance tools and a customs tracking system so investigations are more thorough and efficient, an embassy statement said.
One major objective of the US grant is to strengthen the Office of the Ombudsman, which has the authority to investigate and prosecute high-level government officials. "The goal of this activity will be to reduce opportunities for corruption throughout the government by training Ombudsman employees and establishing information management and investigation and surveillance capability," the US Embassy said in a statement.
Another major goal is to strengthen the Department of Finance and its two attached agencies, the Bureau of Internal Revenue and the Bureau of Customs.
Part of the US funding will be used to attract more local investigators by providing them with just compensation under an employment contract with well-defined performance indicators.
"The Philippines is undertaking bold reform programs to tackle corruption and attract more international investment, including possible future MCC Compact assistance that is designed to reduce poverty through economic growth," Danilovich said.
He said it was the Philippines which proposed the anti-corruption project under an MCC program which assists countries that are on the "threshold" of becoming fully eligible for the MCC assistance.
The $5-billion Millennium Challenge Account was set up in January 2004 specifically to promote poverty reduction and growth and encourage countries to adopt good policies that promote poverty reduction and promote growth.
Eligibility is reserved for countries that score above the median on independently measured indices such as political and economic freedom, investment in education, control of corruption, respect for civil liberties, health care spending, fiscal and trade policies and judicial fairness.
The Philippines does not yet qualify as an MCA eligible country because of poor marks in such areas as graft and corruption and fiscal discipline, an MCC official said.
But it has qualified as a threshold candidate, meaning that while it still does not meet all the requirements needed for eligibility, it has "demonstrated a commitment to meeting the eligibility requirements for MCA assistance in future."
The $21-million grant is a feather in the cap of del Rosario as he prepares to return home and counts as one of his many achievements in his five years in Washington, Filipino-American community leaders said.
"In terms of performance, the way Ambassador del Rosario has done his job would be difficult to surpass," Senate Minority Leader Aquilino Pimentel Jr. said. "I understand the Filipino community in the United States speaks highly of him. His resignation is a loss to the country’s diplomatic community."
Various international agencies have expressed concern about massive corruption in the Philippines, which analysts say has discouraged foreign investors.
Independent estimates suggest at least a fifth of the government budget is lost to graft.
One local watchdog group, Procurement Watch Inc., estimated that the Philippines loses P21 billion a year to corruption in the procurement of government goods and services alone.
In 2003, the Arroyo administration launched an anti-corruption campaign that included "lifestyle checks" on government officials.
Corruption is one of the main causes of the government’s chronic budget deficit, which analysts warn could deteriorate into a fiscal crisis and derail Mrs. Arroyo’s anti-poverty agenda.
In 2004, Mrs. Arroyo implemented an austerity program and has asked Congress for additional taxes, among other measures, to bridge the budget gap.
Corruption has been cited by businessmen as a major turn off for investors.
One consultancy firm, Political and Economic Risk Consultancy Ltd. said foreign businessmen ranked the Philippines as the second most corrupt Asian country next to Indonesia.
A joint survey of the World Bank, Japan Bank for International Cooperation and the Asian Development Bank also found that the Philippines is considered one of the least attractive investment sites in the region.
In another poll, only four of 50 companies from the United States, New Zealand and Australia surveyed considered the Philippines good for investments.
Allegations of massive corruption cost the job of Mrs. Arroyo’s predecessor, Joseph Estrada, who is now on trial on charges of plunder.
Estrada was ousted in 2001 by a military-backed popular uprising sparked by allegations of amassing billions of pesos from an illegal gambling protection racket that he ran during his 30-month presidency.
Estrada denies the accusations and maintains his ouster was illegal.
Mrs. Arroyo herself has been fending off allegations of corruption since last year following opposition accusations that she cheated in the 2004 elections. — With Pia Lee-Brago, AP