Attracting FDIs for poverty eradication

The best economic news as 2019 was ending was the report from the Philippine Statistical Authority (PSA), a very professional body of the government, that the national poverty incidence dropped from the revised 23.3% in 2015, the year before the present administration was voted into power, to 16.6% in 2018. This very encouraging trend has prompted the director general of the National Economic and Development Authority (NEDA), Secretary Ernesto Pernia, to suggest that a more ambitious target should be set for 2022, the end of the Duterte government. Secretary Pernia thinks we can attain a poverty incidence of 10 to 11% instead of the formerly targeted 14% by 2022. Among the measures that are already being implemented that can help achieve this ambitious target, according to Undersecretary of Finance Gil Beltran, are tax reforms, significant increases in infrastructure spending through the “Build, Build, Build” program, rice tariffication, free college education, and conditional cash transfer to poor households.

Without being a killjoy, let me point out, however, that a 10% poverty incidence by 2022 would still mean that some 12 million Filipinos (10% of an estimated population of 115 million by that year) would still be living in dehumanizing poverty. We should do everything possible to reach at least single-digit levels of poverty incidence by the end of the Duterte administration, similar to those that already prevail in neighboring countries like Thailand and Malaysia. As one of those who drafted the Philippine Constitution during the Cory administration, I have always maintained that a serious error we made was to enshrine in the present Constitution too many restrictions against Foreign Direct Investments (FDIs), provisions which have brought us to the bottom of Southeast Asian countries in FDIs. In fact, 2019 has been especially disastrous as regards FDIs flowing into the Philippines. After peaking at $10 billion in 2017, FDIs in 2019 would hardly exceed $7 billion, a precipitous drop of 30%. In contrast, Vietnam that still has a lower per capita income than the Philippines, ended last year with more than $35 billion in FDIs, attracting most of the manufacturing enterprises that were fleeing from China as a result of the trade war with the US.

President Duterte had the right instinct when from the very beginning of his tenure, he included in his ten-point agenda the amendment of the Constitution to remove legal restrictions against Foreign Direct Investments. That is why he created a task force to propose changes in the Constitution. As reported by Emmanuel Tupas in the Business World (December 12, 2019), a task force member, Mr. Gary Olivar, stated categorically that opening the Philippine economy to foreigners would create jobs and lift more people out of poverty. In the words of Mr. Olivar: “We are the only country that has failed to cut poverty by half in the last 25 years.” For this reason, the task force submitted to the House constitutional amendments committee a proposal to eliminate all references to citizenship restrictions with respect to industries such as mass media and advertising, educational institutions, practice of professions, natural resources, mineral wealth, and public utilities. The task force, however, wants to retain the prohibition on foreigners to own land. These recommendations were made after consultation with at least 256 local chief executives who expressed support for President Duterte’s push to change the 1987 Charter. In addition, the task force also obtained 22,469 signatures from various citizens who support charter change.

The fly in the ointment, however, is that instead of focusing on the economic provisions in the Constitution, the task force presented a second set of proposals that covered political and electoral reforms that were purported to strengthen democracy and improve governance. Among these political reforms was the extension of the term limits of local government officials, congressmen, and senators to five years and three terms, from the current three and maximum of three consecutive terms for local officials and legislators and maximum of two six-year terms for senators. Unlike the liberalization of the economy to FDIs that have clearly helped many of our ASEAN neighbors to reduce poverty and increase employment, the political reforms proposed smack of self-serving measures which in an editorial of The Inquirer were referred to as “sneaky, insidious, self-serving.” It would be best for the senators, once they deliberate on the resolution approved by the House Committee on Constitutional Amendments to amend the Charter, to purge the content of the self-serving political reforms and just focus on the removal of the restrictions on Foreign Direct Investment. I think there are enough senators who can be persuaded that attracting more FDIs (as opposed to portfolio investments which are referred to as hot money because of their volatility) can help bring down the poverty incidence to single-digit levels by

2022. These honorable ladies and gentlemen can be counted on to work for the common good of society without expecting anything in return in the form of an extended term of their office.

For the nth time, I contend that the “Filipino First” policy that has characterized our attitudes towards Foreign Direct Investors for decades, to the extent that it has been enshrined in the fundamental law of the land, has actually been tantamount to “Rich Filipinos First and Damned the Rest of Filipinos.” The privilege granted to Filipino nationals of monopolizing the investment in strategic industries through the limitation of foreign ownership of these industries can only be used by the richest Filipinos who can afford to invest the necessary capital. They were never meant to benefit the Filipino masses, who actually became victims of the monopolies and oligopolies that still predominate in our economy. Filipino “nationalism” has hurt the poor in lost jobs, less access to better technology abroad, lower-quality goods or services, higher prices, and less opportunities for upgrading skills by foreign employers. That is why, almost from day one after the ratification of the Philippine Constitution in 1987, I have been campaigning for the following amendments:

1. Removal of the 60-40% equity limitations on foreign investors in strategic industries.

2. Removal of the control and management exclusively by Filipinos in companies with foreign equities.

3. Expanding the role of foreign investors in the 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 practices of professions in accordance with the principle of reciprocity.

7. Liberalizing investments in educational institutions by allowing foreign investments in tertiary education.

8. Extending the 25 years and 25 years land lease agreement.

It is not too late to heed the advice given by former Secretary of Finance Roberto F. de Ocampo in a paper he delivered entitled “Political Obstacles to Investments” more than seven years ago: “Opening up the economy will confront the oligarchy with international competition. The entry of multinationals and joint ventures, apart from bridging our financial-capital gap, will dilute the oligopoly enjoyed by national corporations. The Joint Foreign Chamber of Commerce estimates that in the next decade, making important reform benefiting these sectors could result in more than US $75 billion in new Foreign Direct Investments, create around ten million jobs, and produce over one trillion pesos in new revenue for the government.”