One Charter under siege: Would amending Constitution enhance PHL economic development?

In Photo: Aerial view of the reclamation area of Manila Bay in Pasay City.

Part Two

A few years before Sen. Benigno Aquino Jr. was assassinated, the Philippine banking system has been slogging through adverse financial shocks. Insolvencies in financial investment houses and finance companies were rampant in 1981, leading to a massive shift of funds from these institutions to large commercial banks.

According to an Asian Development Bank (ADB) paper, the Aquino assassination in August 1983 precipitated an even bigger crisis leading to a plummet in local and international investor-confidence levels on the entire financial system.

“Years of protracted crisis took their toll on other aspects of the financial system. Uncertainty and risks in lending stifled the long-term loan market,” according to the  paper authored by Ma. Socorro Gochoco-Bautista. “The number of bank offices declined in absolute terms—as several banks collapsed—and so did the total assets of the banking system.”

The government was also forced to devalue the peso in response to massive capital flight and current- account deficits, as well as impose a moratorium on external debt payments, ration foreign exchange and raise interest rates, Gochoco-Bautista wrote.

It was the 1987 Constitution, which strengthened the then Central Bank of the Philippines as an “independent” central monetary authority, and signaled to foreign markets the country is seriously putting its financial house in order.

Stronger CB

THE ratification of a new Constitution in 1987 affirmed the Central Bank’s focus on rehabilitation of weaker banks, particularly the Development Bank of the Philippines (DBP) and the Land Bank of the Philippines, now both owned by the government.

The Central Bank implemented the order of then-President Corazon Aquino to clean DBP’s books, undertake staff reorganization and infuse an initial operating budget.

More than three decades later, the DBP vows to grow its loan portfolio to a third of a trillion pesos.

Three decades after the ratification of the 1987 Constitution, it seems these actions have paid off.

The Bankers’ Association of the Philippines (BAP) told the BusinessMirror that the Philippine banking industry, in general, is stronger now compared to the early years of a new Constitution.

“The banks have learned from the challenges in the past and have become more proactive in responding to risks. The banks have various system checks in place to verify thousands of transactions per day,” the BAP said when sought for a comment on the readiness of the banking sector to handle political crises, such as those that led to deposing then-President Ferdinand E. Marcos.

The 1987 Constitution provided for the establishment of the New Central Bank Act—only enacted seven years after its promulgation—thus, reorganizing the
then-Central Bank of the Philippines to the current Bangko Sentral ng Pilipinas (BSP).

“[N]ew reforms were introduced to improve the standing of the financial sector, such as relaxing rules of FCDUs [foreign currency deposit units] and ATMs [automated teller machines], opened the Philippine banking system to foreign banks, and improving the environment for banks to compete,” the BAP said in response to BusinessMirror’s questions.

“These new policies from the lessons we learned from the past, …led us to what the Philippine banking industry is today: stronger and more equipped to face the challenges of the next century,” the BAP said. The BAP also said banks were able to survive the fall out in the early-1980s due to the policies implemented to strengthen the banking industry.

“The Central Bank introduced new reporting requirements for commercial banks and guidelines for asset valuation and loan-loss provisions. Mergers were encouraged by the Central Bank to meet minimum capital requirements for banks to operate while restricting entry into the banking sector,” BAP said.

Liberalizing the Charter

HOWEVER, there is still a strong push for changing the Charter.

An impetus comes from former Speaker Feliciano R. Belmote Jr. who believes the 1987 Constitution contains “restrictive provisions.”

“In order to realize the full benefit of inclusive growth, the restrictive economic provisions in the Philippine Constitution, which hamper the flow of foreign capital investments, must be lifted,” Belmonte said.

Belmonte explained tweaking the Charter comes as “there is growing global interest in Asia [that] provides an opportunity for the Philippines to compete for more investments.” According to Belmonte, poverty incidence remained constant for the past years, despite economic growth. He believes amending the Charter is a way to urgently address the issue.

Rep. Luis Raymund F. Villafuerte Jr. of the Second District of Cama-rines Sur, the vice chairman of the House Committee on Appropriations, cited two provisions as culprits.

“It’s the constitutional provisions [that, one puts] a 40-percent cap on foreign ownership and [two, bars] foreign participation in certain sectors, such as the media
that have been a deal breaker for prospective foreign investors,” Villafuerte said.

He explained the country’s protectionist economic policy is an anachronism under the new global free economy or borderless world.

“This is why FDI [foreign direct investments] have remained relatively anemic despite Philippines’s newfound investment-grade status as Asia’s new bright star,” Villafuerte said. “True, there has been a 40-percent jump in FDI inflows to $7.9 billion to the Philippines in 2016, based on Association of Southeast Asian Nations’s data.”

He added: “This is peanuts when compared to the $53.9 billion that went to Singapore the same year. Malaysia had $11.3 billion in FDI. Even erstwhile tail ender Vietnam got $12.6 billion in FDI, which is a third higher than what we got despite Philippines’s successive credit ratings upgrade.”

To be continued

Image credits: Nonie Reyes


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