THE GOVERNMENT of President Ferdinand R. Marcos, Jr. should push easing foreign ownership restrictions in the 1987 Constitution while cutting bureaucratic red tape to attract foreign direct investments (FDI), according to economists.
“Removing the specific restrictive provisions in the 1987 Constitution is a necessary but not a sufficient condition to encourage more foreign direct investments,” Former Finance Secretary Margarito B. Teves told a forum on Wednesday.
“Just kindly try to remove all those restrictive economic provisions which we can specify and put us on par with our colleagues in ASEAN (Association of Southeast Asian Nations),” he added.
Mr. Teves said the Philippines has one of the most restrictive economies in Southeast Asia, and it doesn’t help that these limits are in the country’s basic law.
“We’re the only country whose restrictive economic provisions are embodied in the Constitution,” he said. “No other country in Asia… has included these provisions in the Constitution.”
FDI net inflows rose by 27.8% to $1.04 billion in November from a year earlier, the central bank said on Monday.
The FDI Regulatory Restrictiveness Index, which measures statutory restrictions on FDIs in 22 economic sectors across 69 countries, has not taken into account the country’s liberalized public sector, Toby Melissa C. Monsod, an economics professor from the University of the Philippines, told the forum.
She said the government should delay Charter change until it reaps the benefits of potential FDIs in sectors opened up by the amended law that took effect in April. The law allows 100% foreign ownership in telecommunications, airlines and railways.
“The FDI restrictiveness index still does not incorporate gains from the Public Sector Act,” she said. “My question is why don’t we see what happens?”
The Organisation for Economic Co-operation and Development’s FDI index gauges the restrictiveness of a country’s FDI rules by looking at foreign equity restrictions, discriminatory screening or approval mechanisms, restrictions on key foreign personnel and operational restrictions.
“I played with it,” Ms. Monsod said, referring to the index. “If you put that in, the [Philippine] index goes down by about 5%.”
“Relaxing equity restrictions may not be necessary and at best, its impact will only be one-eighth or one-fourteenth of what could be obtained if we worked on controlling corruption or human capital,” she added.
But Rutcher Lacaza, a supervising legislative staff officer at the House of Representatives Congressional Policy and Budget Research Department, said it’s not enough that Philippine FDIs continue to increase.
“Despite growing FDI inflows, the Philippines continues to lag behind our peers in the region,” he said at the forum.
Mr. Teves said the legal challenge to the Public Service Act at the Supreme Court might discourage foreign investors from coming in.
“We want to see a situation where foreign investors would be encouraged really to come in rather than have that element of uncertainty or doubt that the Supreme Court might or might not support Congress for its act,” he told BusinessWorld on the sidelines of the forum.
Raul V. Fabella, a retired professor at the University of the Philippines School of Economics, said any economic gains from existing laws outweigh the Philippines’ tight investment climate.
“Even if the gains of the Public Service Act are there, you will still find some reason because power is still not competitive,” he said. “You [should] improve the investment ecology whenever you can, and whenever you can, and one of them is by lifting Article 12.”
The clause mandates the state to protect Filipino enterprises against unfair foreign competition and trade practices and limits land ownership to Filipino citizens and corporations that are at least 60% Filipino-owned.
Mr. Fabella said the Philippines’ 22% savings rate is behind Asian peers including China (45%), Singapore (43%), Vietnam (33%) and Thailand (27%).
Lack of savings, an important source of economic growth, makes a country highly dependent on foreign investments, which also come with risks.
Senators and congressmen are studying several proposals to amend the Constitution including lifting foreign ownership limits.
The Philippines’ most restrictive sectors are agriculture, forestry and fisheries, telecommunications, media, business services and transport, Mr. Lacaza said.
Jose Enrique A. Africa, executive director at think tank IBON Foundation, said the Philippines should not focus on being “at par” with its regional peers especially if it does not ensure national development.
“There’s no sense in arguing that the objective of policy is to follow what others are doing because the real policy question is what is needed and should be done,” he said in a Viber message.
“That grossly erroneous notion is behind so much of Philippine economic policy making in the last four decades being a ‘race to the bottom’ to liberalize without meaningful development in national productive capacities in agriculture or industry,” he added. — Beatriz Marie D. Cruz