MANILA BULLETIN Business & Society September 5, 2011 Amending Economic Provisions in Constitution I am glad that the House Committee on constitutional amendments has started a public consultation and information campaign, the first of which will be in Cebu City on September 8, 2011 at 1:00 p.m. at the Social Hall of the Provincial Capitol, Osmena Blvd. The entire focus will be on introducing reforms in the restrictive economic provisions of the 1987 Philippine Constitution. Needless to say, as I have written many times in previous columns, I endorse fully the following recommended amendments to the Constitution: 1. The removal of the 60%-40% equity limitations on foreign investors; 2. Removing the control and management exclusively by Filipinos in companies with foreign equities; 3. Expanding the role of foreign investors in the exploration, development and exploration, development and utilization of natural resources; 4. Allowing foreign ownership of industrial (and commercial) lands; 5. Liberalizing media by allowing foreign investments in media; 6. Liberalizing the practice of profession in accordance with the principle of reciprocity; 7. Liberalizing investments in educational institutions by allowing foreign investment in tertiary education; 8. Extending the 25 years + 25 years land lease agreement. 2 I am convinced that these amendments to our Constitution will significantly help in attracting much need foreign equity capital in the form of Foreign Direct Investments (as distinguished from the very volatile portfolio investments in the stock markets). The Philippines, although awash with domestic savings today, direly needs long-term capital for the vast requirements of infrastructures, energy, mining, transport and telecom, and other very capital-intensive investments that are needed for attaining the goal set in the Philippine Development Plan, 2011-2016 of a 7 to 10% growth in GDP over the next five to ten years or even more. Just consider that China has been growing at 10% in GDP for more than 20 years by investing close to 50% of its GDP, compared with the measly 15% rate of investment in the Philippines. The Head of the Board of Investment, the leading government agency that promotes investments in the Philippines, Undersecretary Cristino Panlilio, has estimated that we need at least $5 billion of FDIs annually for our GDP to grow at 7% or more annually. Our present level of FDI is less than $2 billion. As stated in a letter written by the Honorable Loreto Leo S. Ocampos, Chair of the House Committee on Constitutional Amendments, the above-mentioned economic reforms will enable the Philippines to catch up with its ASEAN neighbors in economic growth. He showed in a table accompanying the letter how dismal the Philippine performance in attracting FDIs compared to even our peers Thailand, Malaysia, Indonesia, and Vietnam, without mentioning China that is in a very different league all by its own. The figures for 2003 to 2007 systematically showed FDIs in the Philippines at one-fourth to one-third of the ASEAN countries. Latest figures from the UNCTAD show that from 2008 to 2010, during the so-called Great Recession, the Philippines did even more poorly compared to countries like Indonesia and Vietnam, who are at the same level 3 of development. During those difficult years, we averaged about $1.8 billion of FDI yearly while Indonesia attracted an average of $10 billion and Vietnam about $6 billion. In the World Bank Doing Business Report of 2011, under the category of "Ease of Doing Business," the Philippines ranked the lowest in East Asia with a score of 148 compared to Vietnam of 78 and Indonesia of 121. Even India, that has an impossible bureaucracy and rampant corruption, scored higher than the Philippines at 134. Clearly, a major explanation for the unattractiveness of the Philippines to the outsiders is the restrictiveness of our Constitution and other laws against foreign investors. I fully endorse another major objective of the economic reforms being planned for the Philippine Constitution. In the words of Chair Ocampos, it is the intent of the proposed amendments "to make the economic policies more flexible to meet the ever changing dynamics of domestic and foreign economic environment. The economic provisions should not be carved in stone in the Constitution. Economic policies are better addressed by electorally-accountable bodies of government. Simply put, economic questions can easily be remedied by simple legislations." The volatility of the global economic environment, with which our national economy is intricately intertwined whether we like or not, is more obvious than ever in this year 2011 when all the advanced economies are threatened by a double-dip recession owing to the huge debts that they have accumulated through years of extravagant overspending. This is obviously a time that we have to be wary about over borrowing. To attract foreign capital, we must give preference to foreign equity investments in our capital stock, especially infrastructures, energy and mining. As the leading semi-globalization guru, Dr. Pancaj Ghemawat, has written in his new book World 3.0, "Foreign direct investment (FDI)--foreign companies 4 buying, setting up, or reinvesting in businesses in a country--represents a long-term commitment even if the rate at which such commitments are entered into varies greatly from year to year. FDI helps transfer knowledge and information as well as capital, and functions, like trade, as a channel for product market integration with the prospect of adding value just as broadly." Granting that it might have served an important purpose of safeguarding national sovereignty during the era of the Cold War in the last century, when small countries like the Philippines were being used as pawns by the world powers, the "Filipino First" policy no longer makes sense in a more economically integrated world (the appropriate word according to Dr. Ghemawat is "semi-globlalized"). In order to attract more FDIs, direly needed for faster growth that is a pre-condition for attacking poverty, we must purge the 1987 Constitution of its overly nationalistic tone. The first article that has to be amended is that which appears in the Declaration of Principles in Article 2. Sec. 19, which reads "The State shall develop a self-reliant and independent national economy effectively controlled by Filipinos." The irony is that this provision has only preserved the feudalistic and monopolistic structure of the Philippine economy. The absence of competition from abroad has guaranteed the stranglehold that a few families have over the national economy. That is why it would be better to word this Article as follows, as suggested in the letter of Chair Ocampos: "The State shall develop a self-reliant, productive and competitive economy that will best serve the interest of the Filipino people." As the Philippine Development Plan insists again and again, economic growth must be "inclusive." Not only the economic elite must benefit from "Filipino First." The entry of foreign direct investments can have a large multiplier effect that will uplift the 5 masses from poverty as have been shown in the past in the cases of large mining companies that have built roads, schools, and other infrastructures in the most remote and impoverished territories of the Philippines. "Filipino First" must not refer to the feudal lords but to the vast consuming and working masses who benefit from the entry of foreign direct investments. For comments, my email address is firstname.lastname@example.org.
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