Constitutional amendments ‘not enough’ to spur economic recovery

By Joseph B.A. Marzan

 

An economics professor said amendments to the Philippine Constitution’s economic provisions introduced by the House of Representatives will not suffice to cushion the effects of the coronavirus disease 2019 (Covid-19).

The House Committee on Constitutional Amendments on Tuesday approved Resolution of Both Houses No. 2 with 68 in favor, 3 against, and 3 abstentions.

All five members of the committee from Western Visayas – Representatives Loren Legarda (Antique), Janette Garin (Iloilo-1st), Lorenz Defensor (Iloilo-3rd), Sharon Garin (AAMBIS-OWA Party-List), and Stephen Paduano (Abang Lingkod Party-List), voted for the amendments.

RBH No. 2, which was filed by now-House Speaker Lord Allan Jay Velasco (Marinduque-Lone), seeks to amend several economic-related provisions of the 1987 Constitution by adding the phrase “unless otherwise provided by law”.

These amendments would effectively allow the Congress to pass laws allowing for increased foreign investments through greater ownership or control in corporations, loosened lease terms on properties, among others.

But the proposal to allow foreign ownership of private land in the Philippines was scrapped.

Defensor, the committee’s vice-chairperson, told Daily Guardian on January 14 that the amendments were aimed at spurring more foreign investments in the country, particularly Foreign Direct Investments (FDI).

According to the Financial Times, FDIs are investments in the form of controlling ownership in a business in one country by an entity based in another country.

Based on the United Nations Conference on Trade and Development (UNCTAD) World Investment Report 2020, FDI flow to the Philippines fell to US$4.996-billion in 2019 compared to US$6.602-billion in 2018 and US$-8.704 billion in 2017.

Data from the Philippine Statistics Authority in the 4th quarter of 2019 indicated that the top sources of FDI to the country were Singapore (45.2%), China (22.7%), South Korea (10.6%), Japan (5.1%), The Netherlands (3.7%), the United States of America (3.0%), and Thailand (2.3%).

The top main sectors which received FDIs in 2019 were information and communication (56.2%), electricity, gas, steam, and air conditioning supply (18.6%), manufacturing (15.9%), administrative and support service activities (4.3%), real estate (2.1%), and transportation and storage (1%).

Dr. Alice Joan Ferrer, dean of the University of the Philippines Visayas’ (UPV) College of Arts and Sciences and an economics professor, describes FDIs in two “categories” – soft and hard.

In “soft” FDIs, foreign entities invest in local companies by injecting money and assets into local entities, subject to conditions, and which they can pull out at any time depending on their terms.

The constitutional amendments cover the “hard” FDIs, which will now involve controlling stakes in businesses and properties in the country.

Ferrer said foreign investments, particularly FDIs, are not new to the Philippines, and have been looked up to by local economists for quite some time now.

She added that the country still is not as strong in terms of “inward-looking” economic policies, which are lenient on domestic economic forces.

Dr. Ferrer recalled that of all Filipino presidents since the country’s independence from the USA in 1946, only former President Carlos P. Garcia embraced the ‘Filipino First’ economic policy.

She also mentioned that foreign companies have been a “staple” in the Philippine economy through partnerships and dummy corporations “circumventing” the laws, as well as the lack of technology transfer in foreign investments.

“We always look up to that [FDI] as a way to save the economy or promote economic growth, and it’s been that way for a long time here. In the language of economics, those are ‘outward-looking policies’, but here in the Philippines, we still don’t have policies which are inward-looking, looking at our strength,” said Ferrer in a phone interview.

 

PERILS

Ferrer also warned that despite the removal of the proposed amendment of land ownership from the final House draft, the remaining sectors are still open to foreign ownership and control and could posing dangers not only to the economy.

These sectors include advertising, agricultural lands, public utilities, mass media, and other natural resources, among others.

“When you look at the words [in the Constitution], you see ‘control’ and ‘lease’, and when you look at the areas, agricultural lands, natural resources, public utilities, mass media, advertising, that is worrisome. I am not convinced. Maybe later we wake up and we’d be taken over,” she said.

Ferrer said that economic recovery from Covid-19 is not a tenable reason for Congress to push for economic amendments at this time.

She added that the impact of FDIs in the country would only be felt within 2 to 3 years from the effectivity of these amendments, and that as of this time, only China would be eager to invest in the country.

“They have many reasons why they need to do that, need to do this, but my personal assessment is that, it shouldn’t be their priority at this time. Of course, they are using [the reasons] of Covid-19 and what’s happening to the economy, to open more foreign investment, but I don’t think that will happen [immediately],” she said.

Ferrer explained further that other factors would still come into play, such as local economic policies and the country’s peace and order situation.

“It doesn’t mean that when you open it up, foreign investments will come in. When you look at the literature, or sometimes it’s common sense, what brings investments into a country? When they see that there’s a good market for their business, especially when the economy is booming, when there’s peace and order, etc. I don’t think just opening up the economy would result to their envisioned inflow of [FDIs],” she explained.

 

THAILAND, MALAYSIA EXAMPLES

Ferrer pointed out that other “restrictive” economies in South East Asia such as Thailand and Malaysia have surpassed the Philippines despite heavy regulations on FDIs.

“When you look at our companions in the top economies with heavy regulations on FDIs, including Thailand and Malaysia, they are very far from us. When you look at very liberal economies, like Cambodia, they are in line with Singapore, and that is not a very good evidence to the argument. Because it doesn’t mean that when you are open, you’d have a good economy. Cambodia is a very good example of that,” she pointed.

Supporters of the amendments also pointed to spurring competition between local and foreign enterprises as another reason for the move.

But Ferrer said the country has yet to succeed in uplifting the Micro, Small and Medium Enterprises (MSMEs) sector of the country.

“They would always say that we are highly protectionist, protecting our own companies, and it’s about time to give them competition and hopefully it will push them to be at par with their competitors, but I don’t think we can. We are not really helping our MSMEs, then until now they haven’t been able to take off. We’ve heard some good stories, but how many of them exactly?” Ferrer said.

With the amendments already passed by the House, Ferrer said the Senate needs to carefully examine the proposed changes.

“The Senate needs to look at this carefully. They need to look at the timing, the motivations on these changes right now, among many others. Our primary thrust is really to protect the people, and I hope that it would be primary to our legislators,” she said.

At this time, the government needs to look at its Covid-19 response policies to boost people’s confidence, which in turn will help drive up the economy during the pandemic.

Ferrer said good ideas that have already been implemented like the Social Amelioration Program (SAP) should be boosted to “pump prime” the economy, suggesting that more money should be given to the people to increase purchasing power.

“The most important thing for the government should do at this time is to give confidence to the people, through good plans like Covid-19 vaccination and economic response, and relay that to the people. Every day, we are bombarded with many negative stories. The confidence of the people towards leadership and the economy should be returned. The tendency of the Filipino people at this time, even with money, is that they won’t put out. At this time, money should be going around, so people should be buying. We should be giving money to the people, so that they have purchasing power to buy goods and services, supply will meet demand, and the economic rise will follow,” she said.