Wednesday, October 12, 2011

Charter Change is not the answer


The impetus to amend the economic provisions of the 1987 Philippine Constitution comes from the basic argument that such revisions are necessary to ease up restrictions on foreign investment. Proponents of Charter Change say that the nationalistic economic provisions of the Constitution are hampering the flow of foreign direct investment. They claim that these provisions are driving foreign investors away.
Makati City business centre awaits more foreign investors to the Philippines.
On paper, meaning by simply reading the 1987 Constitution alone, foreign equity has been limited to 40 per cent in the operation and management of public utilities, exploitation of natural resources, ownership of private lands and educational institutions, and to 30 per cent in the operation of advertising agencies.

In reality, however, these provisions have been watered down, diluted or even circumvented by legislation passed by one administration after another right after the 1987 Constitution was enacted during the term of President Corazon Aquino. Through one amendment after another, laws have been passed by Congress to ease regulations and provide incentives to foreign investors.

1991: Corazon Aquino Administration exempts foreign investors

The Corazon Aquino administration passed the Omnibus Investment Code which exempted foreign investors and corporation from the 60 per cent rule in operating local enterprises that are considered pioneer projects and priority areas of investment. In 1991, investment laws for foreign capitalists were further liberalized by the Foreign Investments Act.

The subsequent administrations of Fidel Ramos, Joseph Estrada and Gloria Macapagal-Arroyo also enacted laws favouring foreign investors. In 1995, the Special Economic Zone Act was passed. It was followed by related laws creating special economic zones in Cagayan, Zamboanga City and in the Calamba-Batangas-Quezon (Calabarzon) area where foreign corporations were allowed full freedom to operate.

1994: Congress enacts all-out liberalization of trade

In 1994, the General Agreement on Tariffs and Trade (GATT) was also ratified, thus enhancing an all-out liberalization of trade. Further laws were passed by Congress that liberalized foreign investments such as the Bank Liberalization Law of 1994, the Build-Operate Transfer Law of 1994, the Mining Act of 1995, the Oil Deregulation Law of 1997, and the Investment House Liberalization of 1997.

To make the environment more attractive to foreign investors, Congress also passed legislation that weakened labour unions and pulled down the cost of Filipino labour. In 1989, for example, the Wage Regionalization Act was enacted to offset demands for wage increases and abolish national minimum wage standards. The Labour Code was also amended to allow contractualization of labour and impose additional restrictions on the right to strike. As a consequence, the number of unions and unionized workers in the Philippines has dropped by more than 80 per cent since.

Attracting foreign investments has always been the key element in the economic development programs of the previous administrations from Cory Aquino to Gloria Arroyo. Foreign capital was invested in privatized and deregulated industries such as power generation, water and electricity distribution utilities, road infrastructure, transportation, and in business process outsourcing to take advantage of the deregulated regime and generate big profits for foreign corporations.
A computer programmer at a busy call centre work station in Manila. Photo courtesy
 of Jay Directa-AFP File. Click link
 to view "Global investors confident of more foreign investment flows for Philippines."
 Notice no mention of economc restrictions on foreign investments.
So, all this talk about the restrictive provisions of the 1987 Constitution is nothing but hot air. The patrimony provisions in the Constitution are merely aspirational, without teeth and reduced to ideal norms that have been crushed by legislation and sycophantic administrations to foreign investors.

Yet PH still lags in attracting foreign direct investments

Compared to China, a communist country without the fundamental freedoms that Filipinos enjoy and with a very restrictive economy, the Philippines received only more than $9 billion foreign direct investment in 2009 as against $60 billion for China. In 2010, foreign direct investment in China was estimated to have reached $115 billion.

Yet, the Philippines is a constitutional democracy, where people speak English like a first language and have freedom of speech, religion, an established judicial and legal system, and among other things, are familiar with the Western way of life.

On the other hand, while China is the largest economy in the region, it is also the most restrictive. Foreign corporations are investing more in China in spite of its record of human rights violations, use of child labour, tainted products and probably the world’s biggest violator of intellectual property rights.

Why do our leaders in government and those in business continue to blame the Constitution for the country’s inability to attract foreign capital? Despite limits imposed by the Constitution, previous administrations and Congress have run around them by liberalizing laws and regulations in favour of foreign corporations. Yet, foreign investors remain cool on the Philippines.

One keen Filipino observer noted that “the economic provisions of our Constitution are not the reasons why foreign investors are shying away from our country. Corruption, uneven playing field, ineffective governance and leadership, changing rules, no sense of urgency for reforms and a negative country image, among others, are the reasons why. Certainly, Charter change is not the solution.”

Dr. Bernardo M. Villegas, Senior Vice President of the University of Asia and the Pacific and a columnist in the Manila Bulletin, continues to insist that “a major explanation for the unattractiveness of the Philippines to the outsiders is the restrictiveness of our Constitution and other laws that are anti-foreign investors.” Villegas is convinced that amending the Constitution will result in attracting much-needed foreign equity capital in the form of foreign direct investments.

In fact, PH is lowest in business competitiveness

The IMD-World Competitiveness Yearbook 2011 results released recently by the Asian Institute of Management showed that the Philippines has slipped in business competitiveness as compared to its neighbours in the Asia-Pacific region. The Philippines is still the laggard in Southeast Asia compared to its competing neighbours Singapore, Thailand, Malaysia and Indonesia which again emerged with higher rankings.

According to the competitiveness report, the Philippines ranks poorly in infrastructure, one of the four major categories used in measuring the countries’ competitiveness. The other factors are economic performance, government efficiency, and business efficiency.

Notice that restrictive economic provisions, such as those found in the 1987 Constitution, are not cited as impediments to competitiveness. China, for example, which is a very restrictive economy, ranks very high in the competitiveness survey and is in a league of its own.

With dependence on foreign loans and foreign investment as the centrepiece of economic development plans, the influx of foreign capital into the Philippine economy has not resulted in dramatic improvements. Instead, the local economy continues to slump in a constant state of crisis.

Considered as the engine of economic growth, manufacturing, for example, has continued its decline in spite of foreign investments.

The number of manufacturing firms has fallen from 7,500 in 1999 to 4,600 in 2008, resulting in a drop in employment from 1.1 million to 860,000 or a decline of 4 per cent in its share in total employment. Manufacturing contributes only around 23 per cent of the total gross domestic product—the same level it was more than 50 years ago.

Using the Constitution as cover-up for laggard economy

Proponents of lifting the constitutional restrictions on foreign investment are not being honest to the Filipino people, or continue to be in a state of denial. Restrictions on foreign equity exist only on paper.

Despite legislation designed to liberalize infusion of foreign capital, the economy remains stagnant and our leaders in government and those in business are ignoring the real causes and looking for an easy scapegoat.

Instead of identifying corruption in government, indecisive leadership, excessive bureaucratic red tape, and poor infrastructure, they’re all blaming the Constitution as the major impediment to economic growth because it limits foreign ownership and control of local businesses.

No comments:

Post a Comment