AS we enter the new decade, liberalizing the Philippine economy by removing constitutional restrictions that have been inhibiting economic growth seems to be the way to go for the House of Representatives.
This, after the lower chamber decided to continue discussions on the proposals amending the economic provisions of the 33-year-old Philippine Constitution.
The House leadership expects the plenary deliberations to begin next week, February 22, House Committee on Constitutional Amendments Chairman Alfredo Garbin Jr. said on Tuesday.
“This time around in the plenary, where we are exercising our constituent power to propose amendments to the Constitution, everyone will be given time for their questions to really scrutinize this proposal,” Garbin added. He was referring to his controversial stance—disputed by several senators—that his committee’s exercise by itself was tantamount to initiating the process of a constituent assembly, one of the means for amending the Charter.
As the Philippine economy is among the most impacted by the pandemic, lawmakers have claimed amendments to the Constitution are needed now more than ever to open up market opportunities, attract investments and boost economic activity for the country’s recovery.
Speaker Lord Allan Q. Velasco has underscored the need to relax the country’s investment regulations in order to attract more foreign direct investments (FDIs), especially in agriculture and manufacturing sectors.
Velasco said more foreign investments would also mean more local jobs for Filipinos for the next several years.
The Speaker emphasized that agriculture and manufacturing should be major sources of employment, especially for overseas Filipino workers (OFWs), hundreds of thousands of whom were forced to return home amid the uncertainties brought by the Covid-19 pandemic.
To lure more foreign investors, Velasco said the country would need to relax its business regulations to make them friendlier to foreign investments.
National patrimony
IF RBH (Resolution of Both Houses) 2 is passed in 2021, House Committee on Ways and Means Rep. Joey Sarte Salceda projects that by 2022 there would be an increase in FDI of P211.21 billion, a 0.55-percent increase in the country’s gross domestic product (GDP) and the potential generation of 422,470 jobs.
Over a decade, from 2021 to 2031, Salceda expects an annual average increase of P330.45 billion in FDI, 1.86-percent increase in GDP increase, and 660,897 new jobs.
Velasco-authored RBH 2 seeks to liberalize the “restrictive” economic provisions in the Constitution that prevent the Philippines from becoming fully competitive with its Asian neighbors. The proposal amends Sections 2, 3, 7, 10 and 11 of Article XII (National Patrimony and Economy), Section 4 of Article XIV (Education, Science and Technology, Arts, Culture and Sports) and Section 11 of Article XVI (General Provisions) to add the phrase “unless otherwise provided by law.” The addition of this phrase will allow Congress to enact laws to free up the economy to foreign investors, or maintain the status quo, its proponents say.
Velasco said Congress is eyeing to present to the public for ratification the amendments to the Constitution’s economic provisions alongside the national elections in 2022.
Organizational backing
SEVERAL local business groups and foreign business associations have strongly backed these economic amendments to the charter.
In a position paper submitted to the committee, John Forbes, senior adviser of the American Chamber of Commerce Philippines Inc. (AmCham) and Joint Foreign Chambers of the Philippines (JFC), expressed agreement with changing the economic provisions of the 1987 Constitution.
Forbes said albeit the Philippines has experienced an increase in foreign investments in recent years, it still pales in comparison with its more affluent neighbors in this regard.
He is also amenable to removing the restrictions without conditions, for investment climate policy reform. This is to permit more capital to flow into the Philippines to increase the rate of GDP growth and employment. Forbes also agrees with 100-percent foreign ownership of land.
Also in a position paper, the Makati Business Club (MBC) agreed with the lifting of restrictions and/or putting lower barriers to trade and investment. The MBC stated that, in a competitive global economy, “any barrier should be subject to modification; and specific restrictions should be left to the legislature.”
Nonetheless, the MBC recommended that these amendments be done by the next leaders, who will be elected in 2022.
The National Economic and Development Authority (Neda) has also recognized the intention of the House to amend and future-proof the outdated economic provisions of the 1987 Constitution to make them more responsive to the current and emerging economic conditions.
The Neda has also no objections to departing from constitutional provisions on foreign equity restrictions and leaving such to Congress, supposedly because such will enable the country to quickly step up in order to meet the requisites of modern economies—with continuing globalization and industrial revolution and subject to public welfare and national security considerations.
2 views
HOWEVER, Atty. Antonio G. M. La Viña, professor in the University of the Philippines College of Law, cautioned the committee on the dangers of liberalizing the economy now because of the prevailing state of affairs where countries lean towards protectionism.
La Viña thinks it’s better to wait for the world economy to stabilize.
Jose Enrique A. Africa, executive director of nongovernment think-tank Ibon Foundation Inc., also disagreed with any economic provision changes. Africa argues that despite the rise in FDIs, foreign capital has not benefited the people at large.
He argued that the country’s economy only remains afloat because of the cheap labor export and the corresponding remittances received in return.
Africa’s colleague, Ibon Foundation Trustee Rosario B. Guzman said economic charter change will have “zero efficacy for recovery, while having huge adverse side effects.”
“Economic cha-cha is no vaccine for recovery and development,” Guzman said at the hearing on RBH 2.
According to her, the economy’s development lies in using the aegis of the Constitution to gain from foreign investment, and not in taking away the protections and giving “self-interested” foreign investment free rein over the domestic economy.
Guzman, nonetheless, admitted that foreign capital can contribute to development. But “we are of the view that responsible government intervention and regulation is [more] needed to create meaningful linkages and long-term benefits for the economy.”
She said Ibon’s position is to retain the economic provisions as they stand and not to open up the 1987 Constitution for any revisions or amendments.
Costs, opportunities
FOR House Economic Recovery Cluster co-chairman and Marikina Rep. Stella Luz A. Quimbo, it has become “imperative” for Congress to revisit and revise the economic provisions in the 1987 Constitution that are seen as not having worked to improve the lives of Filipinos.
“The Covid-19 pandemic has caused substantial economic damage, requiring huge infusions in foreign capital in order to return to the country’s pre-pandemic growth trajectory,” she said. “Unless restrictive economic provisions are lifted, the country will miss out on these foreign capital flows.”
According to Quimbo, “amending the highly-restrictive economic provisions in our Constitution will be instrumental for our recovery and development.”
“These provisions have led to substantial economic costs such as foregone foreign direct investment opportunities, which means foregone income and job creation that we should have otherwise been enjoying had it not been for our rigid constitutional prohibitions,” she said.
“I support the general approach of making these prohibitions subject to regular amendments by Congress through legislation, rather than limiting any revisions to constitutional amendments, which are tedious and politically charged. I believe a more open legislative process helps “future-proof” these provisions by providing the flexibility to adjust to economic conditions that we cannot yet foresee, incorporating national security safeguards, and making economic provisions subject to regular debate and scrutiny,” Quimbo, an economist, added.
Citing the OECD’s FDI Regulatory Restrictiveness Index, Quimbo said the Philippines has the most restrictive regime for foreign investments in the Association of Southeast Asian Nations (Asean).
“This has hampered our potential to compete with our neighbors,” she said.
Citing the International Monetary Fund, Quimbo said that Vietnam is already expected to overtake the Philippines in terms of GDP per capita this year.
“Apart from their swift Covid response, they have sustained high economic growth over the years, partly driven by foreign direct investments,” she noted.
Data show that Vietnam’s FDI inflows ($16 billion) more than doubled the country’s $7.7 billion in 2019, according to Quimbo.
High time
FOR UP School of Economics Professor Emeritus Gerardo P. Sicat, the restrictive economic provisions on foreign capital “have long been blamed for impeding the country’s attractiveness to foreign direct investments.”
“This is the time to do it because when will we do it; when we have a crisis that needs enormous effort by the government to organize itself?” Sicat mused.
“We have to lay the foundation for making the Constitution more progressive in attacking new reforms that will help the country move forward even better,” he said. “If we do this, I think we can undertake more economic reforms.”
UP School of Economics Professor Emeritus and National Scientist Raul V. Fabella agreed that the lifting of constitutional limitations will make the Philippines more foreign investment-friendly.
“Who can make the land flourish best should own it,” Fabella said. “The land should be able to produce as much as it can and citizenship is not a condition.”
Still, he said, these amendments alone would not result in a “tsunami of foreign investments.”
“We must also look at high cost of power, difficulties of doing business, flawed judicial system, unsettled peace and order, which affect both local and foreign investors,” Fabella explained.
Asian region
FOLLOWING a forum on Cha-cha, Bernardo M. Villegas, an economist and one of the framers of the 1987 Constitution, said the country is poised for dynamic growth in the next decade. Villegas added that the amendments to the restrictive economic provisions will boost the Philippines’ profile to foreign direct investors.
“The Asia Pacific region has not fallen into the extreme positions of protectionism like Brexit and America First. Within our region, because of the comprehensive regional economic partnership that was just signed, we are still open to trading and investing with one another,” Villegas was quoted in the statement of the Lower Chamber.
He cited the country’s low agricultural output as a prime example of where FDIs could propel the agricultural sector through much-needed capital and technological inflow.
“China and our Northeast Asian neighbors are struggling with food security,” Villegas said. “They will need as much food as possible for their people; and Thailand and Vietnam are already taking advantage of this situation.”
In the same forum, Anthony Abad, a lawyer who specializes in international trade, said that a Constitution rarely includes specific economic provisions, such as FDI.
In Abad’s view, while a Constitution should provide limits to the powers of government, it should not hinder government’s ability to act for the benefit of the country, especially in times of need like the pandemic.
“There is a need to revise the Constitution. It is not written in stone to the extent that we are compromising our ability to alleviate poverty, to ensure that everyone is well-fed,” Abad said. “The capital has to be there. We cannot do it as a closed system.”
Compared to neighbors
IN 2018, the Philippines had a total FDI Index (OECD FDI Regulatory Restrictiveness Index) of 0.374: the most restrictive of all the countries measured that year.
The country’s Asean neighbors had far more open economies, per the 2018 FDI Index. Singapore was the least restrictive, with a total FDI Index score of 0.048, followed by Cambodia (0.054), Myanmar (0.117), Vietnam (0.130), Brunei Darussalam (0.146), Lao People’s Democratic Republic (0.190), Malaysia (0.252), Thailand (0.268) and Indonesia (0.345).
The OECD FDI Index measures statutory restrictions on foreign direct investment across 22 economic sectors. It gauges the restrictiveness of a country’s FDI rules by looking at the four main types of restrictions on FDI.
These types are: 1) Foreign equity limitations; 2) Discriminatory screening or approval mechanisms; 3) Restrictions on the employment of foreigners as key personnel; and, 4) Other operational restrictions, e.g. restrictions on branching and on capital repatriation or on land ownership by foreign-owend enterprises.
Restrictions are evaluated on a scale of 0 (open) to 1 (closed). The overall restrictiveness index is the average of sectoral scores.
Hold to power?
LAWMAKERS from the Makabayan bloc questioned the timing of the resumption of the Charter change discussion amid the pandemic.
Bayan Muna Rep. Carlo Isagani T. Zarate has expressed concern that the move to change the Charter has a political agenda.
“This will be a divisive issue, especially 18 months before the elections and they are prioritizing this,” he said.
Instead of changing the Constitution, Zarate said the government should address the country’s number one problem: corruption and too much bureaucracy.
Zarate also warned that the proposed Charter change would be very disadvantageous to consumers, national minorities and national patrimony, in general.
According to the solon, areas to be potentially opened to full foreign participation and ownership are in the use of land and natural resources, use of marine wealth, control of public utilities, mass media and advertising, and educational institutions, among others.
“If this amendment gets through we would see our public services turned into super-profit generating, 100-percent foreign-owned enterprises,” the Davao-based solon said. “We would be fully at their mercy.”
“Using the pandemic as an excuse, they are baiting us with the prospect of more jobs, but at the expense of our sovereignty, at the expense of having accessible state-run public services. In the end we would all suffer from the complete sellout of our sovereign rights and resources that this amendment would allow,” Zarate said. “This, plus the smoke-screened political agenda of the administration to extend its influence, anti-people policies and hold to power beyond June 30, 2022 are completely unacceptable and should be opposed.”
Appearance of consensus
FOR his part, Bayan Muna Rep. Ferdinand R. Gaite said the leadership of the chamber “can’t really say that there will be no term extension unless we actually see that there is really nothing of that sort in any of their proposed amendments.”
“Of course, they will dismiss the term extension issue in this push to amend the Constitution, but how could they dispel this concern when they are suddenly rushing this effort as President Duterte’s term is nearing its end, and doing it too in the middle of a pandemic,” he added.
“But in any case, we would still oppose this Cha-Cha if it seeks to remove the pro-Filipino economic aspects of the Constitution.
Salceda, however, gave assurances that the House of Representatives will not touch the political provisions in its revived efforts to amend the 1987 Constitution.
Salceda said the discussion will only focus on the economic provisions, as proposed in RBH 2.
According to the chairman of the House Committee on Ways and Means, any move to amend the political provisions will be “dead on arrival.”
Salceda said there appears to be a consensus in the House to review the economic provisions in the Constitution that prevent foreign ownership of land and businesses in the country, noting that the Philippines is one of the most restrictive economies in the world.
But will this latest exercise at Cha-cha–the sixth such attempt since the time of President Fidel V. Ramos–indeed prove to be a “liberator” of an economy shackled by words, and a people chained to poverty and lack of opportunity as a result?
The jury is still out, and the opposers are, by the looks of it, not about ready to yield the outcome of the debate.
Image credits: BM Graphics: Job Ruzgal