Liberalize the economy
Socioeconomic Planning Secretary Ernesto Pernia last week promised that large swathes of the country’s economy—nearly all industries except land ownership—are to be opened up to foreign investors as early as 2019, a move that he predicted would “easily double” foreign direct investment, accelerating growth.
The country’s chief economic manager said he expects Congress to finally amend relevant economic provisions in the Constitution, paving the way for large-scale liberalization that could stimulate job creation and therefore promote inclusive growth.
Despite vigorous attempts by all administrations dating back to Fidel Ramos in the 1990s, little has been actually done to change what many economists have concluded as restrictive constitutional provisions that had held back the Philippine economy while its neighbors had made great strides. A protectionist economy, they said, made little sense in the context of a globalized economic order and had been the culprit in the notoriously subpar volume of FDI inflows.
The restricted climate, in turn, had effectively discouraged foreign capital, a lifeline when it comes to creating high-quality jobs for the country’s work force.
The 1987 Constitution, the supreme law of the land, now needs to be reexamined to ensure its responsiveness to the changing world. Enacted at a very different time, the charter presupposes conditions that may not be as relevant today, some three decades on. Attempts to change the Constitution have been hounded as much by the wisdom of the proposed amendments as the mode of amendment or assumed motive behind the push. In either case, the Filipino loses.
In particular, the economic provisions of the 1987 Charter aims to achieve economic sovereignty and prosperity for Filipinos, abiding by a broad nationalist policy foremost of which are strong economic restrictions against foreign investment. It wasn’t long before some realized that it was the same restrictions, one of the most protectionist in the world, that has hampered the country’s growth and potential.
The 40-percent cap in foreign equity, to many, explains why the country’s FDI lags behind parallel economies in the region (highlighted by a miserable 1.5-percent drop between 2014 and 2015). For perspective, Vietnam, which only opened up its economy 10 or so years ago, boasts of double the Philippines’ FDI (and a 28-percent growth in the same period).
Republic Act No 7042—or the Foreign Investment Act of 1991—had sought to allow 100 percent foreign equity except for two overriding exceptions, and the periodic reassessment only liberalized a few areas of the economy: casino, retail trade, lending, and financial companies.
In particular, the Constitution mandates a 40-percent cap for foreign investments in the operation of public utilities, some educational institutions, as well as foreign-led exploration, development and utilization of natural resources. The $200,000 minimum capital requirements for foreign investors—$2.5 million for foreign retailers—is also seen by some as prohibitive, and should be relaxed, if not lifted altogether.
The rationale behind liberalization is thus two-fold. More investments would ideally translate to more jobs, while increased competition would yield to higher quality of goods and services.
Pernia said President Rodrigo Duterte had been asked to certify the proposed amendments as urgent, which also included the method of such change via an appointed constitutional commission. In a Con-Con or a Con-Ass, the proposed revisions must be ratified by a majority of votes cast in a plebiscite conducted not earlier than 60 days or later than 90 days after the approval of the proposed revisions.
It’s certainly a long process, and longer still considering all attempts in the past to make the long-overdue change. As time is of the essence, the formation of a Constitutional Assembly seems to be the most apt; Congress, as composed of elected legislative officials, already satisfy the representation requirement, and the plebiscite would serve as a check and balance, a final arbiter.
Thus, while the fundamental need to lift foreign equity restrictions in the 1987 Charter, the matter of choosing the best method to make this change possible is also necessary, and convening a Constitutional Assembly seems practical.
To quote think tank Stratbase ADR Institute, “Foreign equity restrictions found in the Constitution should be lifted and the most practicable way to amend the Constitution is by way of Constitutional Assembly”.
This drastic move—combined with the Duterte administration’s ambitious infrastructure initiative and young, dynamic workforce—will greatly alter the economic future of the Philippines. For generations we have known that there is untapped potential in the Filipino peoples’ talent and work ethic. To harness the potential of the country’s “demographic sweet spot” our legislators must move fast on systemic, long-overdue reforms.