Crossroads (Toward Philippine economic and social progress)
Philippine Star, 18 July 2012


The subject of amending the restrictive economic provisions of the Constitution took center stage in the public media recently. These economic provisions have an impact on the country’s policies toward foreign investment.

I will make an effort to summarize the points coming from the main political power centers. Then, I add further thoughts.

“President’s ‘Don’t fix what ain’t broke’ comment.” In reacting to the issue of amending the economic provisions of the Constitution, President Aquino used an American aphorism, “Don’t fix what ain’t broke,” adding further,“… under the present Constitution, I think we are capable of reaching economic heights.”

However, President Aquino left an opening to hear other ideas: “You have to listen to different ideas and come up with what’s best for our people.”

“Senate president Enrile elaborates.” Senate president Enrile’s own take no doubt has been sparked by his long experience in government, in legal practice as well as in business. He deplored the inability of the country to attract foreign investors on the limitations imposed by the constitutional provisions. He also said that some foreign investors have resorted to dummies  to conduct business in the country.

He observed that Charter change proposals in the past have all failed because of a prevalent fear that “somebody might take advantage of the situation for his own personal interest.”

He further added that it is not laziness but fear that sets us back – fear that people would lose their privileges, their wealth, their influence on events, including politicians like himself who might lose control over their land and their businesses.

“Speaker Belmonte speaks.” The Speaker of the House Feliciano Belmonte spoke mainly on strategy and on limiting the effort to revise only the restrictive economic provisions. This was what he meant by Charter change in the current context.

“I refer to nothing more than the economic provisions. I don’t want to deal with any other aspect of [constitutional change]. That’s why for me, it’s not as difficult or complicated,” said Belmonte.

“I think that constitutional changes should not be a part of the agenda of anybody but it should be the agenda of everybody. I don’t look at it as anything partisan or the property of anybody. For me, this is for all of us,” he said.

“I want it done through a constituent assembly, voting separately, because it is faster…. [The House and the Senate] can meet as one but we should vote as two separate entities,” Belmonte said.

Speaker Belmonte was specific on how to undertake the change. It will be undertaken by the introduction of a single phrase on the specific provision of Article 12 on national economy and patrimony of the 1987 Constitution which spells all the specific restrictions, “unless otherwise provided by law,”

Thus, once this process is accomplished with the required two-thirds vote of the House and Senate meeting as one body but voting separately, the political organs of the country will still be in control of the manner in which the policy will evolve.

“A Solomonic solution?” As Speaker Belmonte says, “It will still not be automatic as it will require a law, which means it will have to go through the lawmaking process where the President is the final arbiter. ” After all, any legislation when passed by Congress is approved by the President to become law.

Thus, the amendments to the economic restrictions will be a two-stage process. The first stage is voting on the constitutional amendment. The second stage is the introduction of a law in Congress that will define the new rules. That would be accomplished by subsequent congressional action.

The foregoing represents a vision of compromise on how to deal with the constitutional amendment process. In this way, the first stage which is the critical one, could be speedy and manageable.

“FDI policy is actually broken and needs repair.” Existing policy on foreign investments needs improvement. The reforms in governance and fiscal programs cannot fully compensate for the deficiencies and defects of existing FDI policies in the Constitution.

Malacanang is of the belief that these latter routes are adequate to achieve the economic goals. In fact, most administrations in the past have thought the same.

But the remedies applied have often been in the nature of working around the language of the law, sometimes by redefinition and at other times through regulatory assertion.

All these methods are indirect approaches. They have contributed to the string of abortions and delays of investment plans and projects. Truly, we have had delays and delays and delays and challenges and challenges that have been the bane of implementing private and public investments in our country!

Why not act reassuringly by direct methods?

An amendment of the inflexible provisions of the economic restrictions can immensely improve the government’s investment policies and our image before the world.

When we increase the number of economic participants, when we allow greater entry of potential investors, we increase the degree of competition among those willing to invest in our country. This creates a healthy competitive environment.

Eventually this will bring down costs of projects, in effect, fostering economic efficiency, innovation and sound management, hence, higher productivity.

The economic literature is replete with studies showing the linkage of high FDI inflows and economic growth. (My colleague, Winnie Monsod, thinks otherwise). There is indeed some indication of causality (and not mere correlation) between FDI and growth when the appropriate economic (read: econometric) investigation is applied.

Some of this causality happens in a two-way chain, high FDI leads to higher growth, which leads to even higher FDI. This is the evidence for wide groups of countries. This is also the experience of East Asian countries.

But more importantly, the restrictive provisions of the constitution have simply added transaction costs within the economy.

The 60-40 rule has encouraged corrupt practices, legal dummies and alliances, various methods (including twists in legal language) of circumventions, knotty legal issues such as what has come up in the current Supreme Court case on the definition of public utility capital in PLDT and to the long delayed, on-again, off-again promotion of the mining industry and other critical projects

With the constitutional provisions left unamended, there will always be good excuses for wily lawyers to hamstring the approval processes for new investments and the country will be held hostage to delays and high costs borne by all, especially the poor. Investments that do not take place spell a loss of employment of Filipinos in their homeland.

The restrictions are the root cause of high utility tariffs (e.g., electricity, shipping and cargo handling, and so on), the burden of which falls disproportionately on the costs of production and, ultimately, on the poor.

They discourage genuine competition in various local markets and reinforce monopolistic tendencies, entrenching only those who are ahead of the pack.