Crossroads (Toward Philippine economic and social progress)
Philippine Star, 18 May 2016
It might appear premature to give suggestions on how economic issues should be approached by the incoming administration of Rodrigo Duterte.
Among major points emphasized by the incoming president’s close team is the need for constitutional change to be undertaken by a constitutional convention. This will tackle the suggestion for a federal system of government and the amendment of the economic restrictions on foreign capital in the current constitution.
Amending the restrictive economic provisions on foreign capital. I am emboldened to suggest it is possible to separate the two constitutional issues to take advantage of speed where there is already greater agreement within the legislature.
This helps to accelerate the achievement of further buttressing the sources of sustained economic progress. The measure will send the strongest signal that the government intends to welcome more foreign capital to help push the growth of the Philippine economy.
By separating the amendment of the provisions on foreign investments from more fundamental political changes in the Constitution, the country saves precious time that could be wasted in waiting for overall consensus on other difficult national issues.
A constitutional convention designed to amend the current government into a federal system is likely to take more time for study and debate more complicated political issues and could cause delays of the economic reforms. The debate on the economic issues could be mired in national matters concerning fiscal powers and local autonomy, the politics of local governments, and the very difficult and sensitive problem of the Muslim Bangsamoro autonomous region.
In the case of amending the restrictive economic provisions, much is already known and debated. Moreover, the relatively poor comparative performance in attracting foreign capital with our neighbors in East Asia makes us a relative laggard. As a result, the need to open the economy to more foreign capital is relatively settled.
The work of the past Congress on the restrictive economic provisions. The last Congress nearly passed the measure to amend the restrictive provisions of the Constitution under the leadership of Speaker Feliciano Belmonte.
The only reason why the measure failed to become law in the past Congress was President Aquino’s aversion to the measure. It seemed P-Noy did not relish the idea of amending the Constitution that his mother as president adopted, which put him on the wrong side of history for not pushing the measure.
With the encouragement and strong political mandate of president Rody, this measure could easily pass in the new Congress.
Of course, the new Congress would still have to be reconstituted. There is no certainty the leadership of Congress would remain the same. The new Speaker of the House could take over the cudgels and pass the bill.
While in politics, he who sponsors gets the credit for a worthy measure, in nation-building, what matters most is that the right and proper laws are passed by the legislature.
The sitting president, therefore, can direct the Congress to pass the measure during the first 100 days of the new administration. This will send strong signals to the world that more foreign investments are welcome in the clearest terms possible.
To pass a law, the Senate will have to be involved. The persuasive powers of the new president with a strong political mandate from the people will also be able to sway the Senate in the early days of euphoria and administration.
In fact, there are many members of the Senate who would agree to the measure. Senate President Franklin Drilon was known to favor the relaxation of the restrictive provisions. His predecessor in office, former Senate President Juan Ponce Enrile himself personally argued in favor of the amendments.
Process of passing laws on investment regulations still required. Even if the amendments pass within the first hundred days of the new administration, there would still be work to be done: the specific laws and regulations concerning foreign direct investments, especially those relating to equity ownership.
Actually, the Philippine economy is fairly open to foreign direct investments, allowing even 100 percent equity ownership of enterprises. The legislation covering investment promotion, especially for enterprises locating in the Philippine Export Zone Authority (PEZA), welcomes enterprises that are fully-owned by foreign investors.
PEZA foreign investors are, however, export-oriented. It is in the area of local market investments which is fairly much more restrictive. This policy was heavily influenced by the constitutional restrictions even as the actual provisions only were imposed on investments in public utilities, in land, and in the exploitation of natural resources.
In these industries, the strict limitation of minimum 60 percent Filipino equity is required. This is the so-called “60-40” equity rule in favor of Filipino majority ownership.
In the domestic market, firms given fiscal and investment benefits under the Board of Investment (BOI) are mostly those covered by the 60-40 joint venture arrangements.
Under the BOI law, “pioneer” investments that sell to the local market (which could be wholly-owned foreign firms) are allowed and have received incentives, but these are a rare.
Of course, the BOI law itself could be amended. When the constitutional provisions are amended, such special laws would be even easier to change too.
Raising competition in the domestic market and in the integrated ASEAN market. Many firms designed mainly to serve the domestic market need to strengthen further to withstand competition from the larger ASEAN integrated market.
The old rationale of the domestic market being only for Filipino enterprise is no longer relevant. For Philippine industry to thrive well in the ASEAN market, the infusion of foreign capital is needed, both to help strengthen domestic companies in need of partners and to deepen the country’s industrial base.
Now, investors that are attracted to the Philippine market to produce in the country can also access the ASEAN market. These foreign firms can now use us, through their access to the Philippine domestic market, to compete within the ASEAN market.
In addition to strengthening Philippine benefits from our membership in the ASEAN, the country is also well-positioned to become a stronger partner in the expansion of trade opportunities across the various trading groups.
In this context, it makes the country stronger economically. It will also equip the country to gain from membership in other trading groups, for instance the Trans-Pacific Partnership.
