Bernardo M. Villegas
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Rebalancing Strategy
published: Mar 31, 2017

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Friend of the Supreme Court

           Those of us who are advocating for a freer foreign investment regime should celebrate the first victory:  the leaders of both the Senate and the House of Representatives are convinced that the very restrictive economic provisions against foreign investments in the Philippine Constitution should be amended.  There is hope that the legislative process of amendment through Charter Change (Chacha) can happen during the 2013-2016 term of Congress.

          We have two major challenges.  The first is to convince the President that removing those restrictions will address the problems of mass poverty and unemployment; reduce red tape and bureaucracy; limit the leeway for corrupt practices; and impose the flow of foreign funding to very vital infrastructures and public utilities.  The second is to educate the independent judiciary about a correct interpretation of the Constitution so that the courts, especially the Supreme Court, do not unnecessarily limit even further the freedom of foreigners to invest in the Philippines.

          Last June 26, 2012, I had the occasion to help promote the second objective by appearing as an amicus curiae (friend of the court) in the PLDT case in which the Supreme Court had earlier interpreted the 40% foreign equity permissible in public utilities to mean 40% of voting stock, instead of total capital stock.  The following are excerpts from my Memorandum to the Supreme Court.

          Considering present political realities, any amendment of the economic provisions of the Philippine Constitution will have to wait till after the 2013 elections.  Meanwhile, those of us advocating for more liberal policies towards FDIs should do everything possible to prevent any more additional restrictions over and above what is already contained in the Constitution.  This vigilance should apply to additional restrictive interpretations of the actual provisions.  For this reason, I would like to comment on the recent Supreme Court decision to define the 40 percent allowable foreign equity in public utilities (Article XII, Section 11) as applying only to voting shares instead of the total capital stock of the corporation.  This was in the celebrated case of foreign investments in the Philippine Long Distance Company (PLDT).

          As an economist with a background in accounting, I took it upon myself to explain to the best of my ability to the other Commissioners, within and outside the committee meetings , as well as in the plenary sessions that in 1986, the Philippines was facing a most serious shortage of foreign exchange and long-term capital and that we needed to moderate the very strong tendencies among  a large number of the Commissioners to "Filipinize the economy."  Opening the economy to more foreign capital, in my opinion then (and now),  was  the patriotic thing to do if we were to define the good of the nation in terms of  helping the teeming masses who were poor by generating employment and income for them through larger doses of foreign investments.  I have explained this in another paper entitled "Economic Patriotism."  My success in this advocacy was quite limited because a large number of Commissioners were strongly influenced by decades of "Filipino First" and "nationalist industrialization" policies. This can be seen in the numerous restrictions against foreign investments still encrusted in the 1987 Constitution.

          As can be read in the Records of the plenary sessions of the Constitutional Commission on August 14, 22 and 23, 1986,   the Filipinization of public utilities was one of the most hotly debated issues in the drafting of the Constitution.   The committee on the National Economy proposed to the Plenary Session that the ratio should be 2/3 Filipino and 1/3 foreign.  During the Plenary Session, however, there was much debate about raising it further to as high as 100% or 75% Filipino.  I must say that among those who were proposing much higher Filipino participation were some of the more respected and eminent Commissioners.  Partly because of my strong advocacy for more openness to foreign capital and with the help of three or four other Commissioners who were equally knowledgeable about the state of the Philippine economy at that time, even the moral authority of a Commissioner who subsequently became Chief Justice of the Supreme Court--who was proposing the 75 to 25 ratio--did not influence the majority.  His proposed amendment was voted down 25 to 15.  The final ratio was 60 to 40 after a close vote of 21 to 19.  As can be read in the Records of the Plenary Sessions, the discussion on this issue became so emotional that one of the Commissioners, a professor of political science who was among the strongest proponents of the Filipinization of the national economy, publicly congratulated the multinational corporations in the Philippines, in a tone dripping with sarcasm, for having succeeded in influencing the voting on this issue.  Two Commissioners, one a former Minister of Labor and the other a Catholic Bishop, strongly objected to this unwarranted emotional outburst.

          I have gone to some extent describing the process by which the final 60-40 ratio was arrived at to drive home the point that it was a hard earned triumph for those of us who sincerely thought that the common good of the Philippines then required more openness to foreign equity, especially in very capital intensive public utilities.  That is why I find it unfortunate that the present Supreme Court has in a way blunted our victory by giving an erroneous interpretation of the 60 -40 requirement, applying the 40 % to only the voting stock rather than the entire capital stock which includes both common and preferred stocks.  I sincerely hope that this error can still be corrected.  For comments, my email address is