BERNARDO M. VILLEGAS March 28, 2008 AMENDING THE PHILIPPINE CONSTITUTION If the House of Representative under a new leadership really wants to contribute to Philippine long-term sustainable development, its members should seriously consider the clamor from the Philippine business community to amend the Philippine Constitution to make it more friendly to foreign investors. Trade and Industry Secretary Peter B. Favila has echoed the request of the members of the Philippine Chamber of Commerce and Industry to remove existing restrictions found in the 1987 Constitution (which I had the honor of co- authoring with 48 other commissioners). In the Constitutional Commission created by then President Corazon Aquino in 1986, I was elected Chairman of the Committee on the National Economy and Patrimony. I saw at very close range the dynamics that led to the overly protectionist provisions enshrined in the Philippine Constitution that was ratified by more than 70 percent of the electorate in 1987. The mood prevailing among the majority of the Commissioners was an almost emotional overreaction to the abuses of the martial law regime under the late President Ferdinand Marcos. Since there was the perception by many of the Commissioners that the Marcos Administration had been too open to foreign investors, there was a widely shared view that foreigners' right to participate in the national economy should be curtailed, starting with the issue of land ownership. This overreaction to the Marcos years was reinforced by some very vocal leftists and nationalists who were always suspicious of foreigners. I still remember a comment of one of the nationalists who wanted to prevent foreigners from owning telecommunications facilities in the Philippines because "the foreigners may listen to our secrets, jeopardizing national security." Even then, I found the reasoning naive since it was already obvious that in the worldwide web of the internet, there are no secrets. 2 I also had the honor of serving in the Philippine Commission on Constitutional Reforms (PCCR), a body with thirty members from various sectors of society created by Executive Order 43 by then President Joseph Estrada in 1999. The PCCR was tasked to "facilitate the study of proposals on economic reforms that can be accomplished through constitutional amendments." We in the PCCR concluded that the restrictive provisions against land ownership and foreign participation in media, telecommunications, and education should be removed from the Constitution to give more flexibility to policy makers to adapt to changing circumstances in the national, regional and global economies. If restrictions have to be put in place for security and other reasons, it is the task of legislators to impose these restrictions by law. Take the present circumstances that are relevant to the issue of foreign ownership of land. The Philippines is terribly handicapped by the still primitive state of our infrastructures compared to such emerging markets as China, Vietnam and Indonesia. The amount of Foreign Direct Investments China attracts every year has already become legendary, $60 billion or more annually. Both Vietnam and Indonesia are receiving $l0 billion each annually at this time. The Philippines just hit the $3 billion mark, thanks to the significant opening up of the mining industry. We can compensate for our handicap by allowing foreigners to own the land on which they build their factories or their residences, even if some of our more successful neighbors still limit foreign ownership of land. We should be flexible enough to create a mix of incentives that may be necessary at a given point of time. Congress can always introduce future restrictions once we are awash with foreign investments. But the fact is today, we are having a hard time to grow at the 8 to 10 percent being attained by our neighbors because we do not have sufficient capital from our domestic savings. What is ironical is that a country like China saves 50 percent of its GDP (compared to our less than 30 percent). Even with their high rate of savings, the Chinese are still able to make use of 3 $60 billion of FDIs annually. That is why they have been growing at double-digit rates for decades. The case of media is especially complex. Although it is not a very capital-intensive sector in itself, media is converging with telecommunications and information technology into one industry. It is hard to tell what is a media enterprise as distinguished from telecom and information technology as can be gleaned from the Murdoch global enterprises, the Microsofts, Googles, Yahoos, Time-Warners, Apples, etc. Our limiting foreign ownership in any one of these industries will leave us light years behind in a converging sector where technological change is happening at a breathtaking pace. Instead of limiting ownership in these sectors, our legislators should frame competition policies so that monopolies and oligopolies do not injure the consumers. What actually happens because of the limit to foreign participation in these industries is that the Filipino-owned enterprises are sometimes able to earn monopoly or oligopoly profits. All public utilities should follow the example of the electricity industry where there is more leeway for foreign ownership of specific enterprises in the value chain. Education is another sector which should be opened up to foreign investment. There are world-class universities from the U.S. and Europe that are seeking a strong presence in the emerging markets where the university-age population is still growing very rapidly. Especially in Europe, because of the very low fertility rate, there is a very pronounced decline in the number of students going to the universities. In fact, many schools have closed for lack of students. Some of these educational institutions are already running campuses in Singapore, Malaysia, Thailand, and China. There is no reason why the Philippines should be closed to such foreign-owned universities that can do much to improve our university education, especially in engineering and the sciences. The answer is not in partnering with local universities. From my conversations with some of these universities in Europe, they 4 would want to have complete control of the educational policies. Their experience with partnering with local investors has not been positive. Maintaining the high quality of education is a very demanding task. Being forced to have local partners can straightjacket the foreign groups that want to invest in education. Again, what our legislators should do is to pass laws that will ensure that these foreign-owned universities will truly contribute to the education of our youth as productive citizens of the nation. Let us challenge the Philippine Congress to focus on these few changes in the economic provisions contained in the Philippine Constitution. They can make the amendments without the need for a Constitutional Convention. They can just constitute themselves into an Assembly that can propose the changes limited to the economic provisions. These changes can then be ratified by the electorate in the general elections in 2010. I hope Speaker Nograles and the House he leads are listening to the voices of the business leaders. It is inspiring that the Filipino business community is shedding the ultra-nationalistic and protectionist spirit that has prevailed in the Philippines for almost half a century. It is clear that our business leaders are not afraid of foreign competition. They can compete in a truly globalized environment. For comments, my email address is email@example.com.