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



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Misguided Nationalism (Part 2)

           The sustainable development of our natural resources can actually be achieved if we allow more equity participation of responsible foreign investors.  Filipino capitalists are still quite risk-averse so  that even if our financial system is extremely liquid our investment to GDP ratio is still abysmally low at less than 20 percent (our East Asian peers have averages of 25 to 30 percent, China has close to 50 percent).  To make matters worse, our Government is having difficulties contributing to capital formation by constantly underspending on public works.  Just witness the very poor performance of Government capital spending in the first quarter of 2015.  By making it more possible for foreigners to invest in the development of our natural resources and the ownership and operation of public utilities such as in transport and communication, we can significantly increase our investment to GDP ratio, making it possible for the economy to grow at the rate of 8 to 10 percent annually in the next decade or so.  We need these growth rates to address the intractable problem of mass poverty.   Responsible mining companies, for example, from such countries as Australia, Canada, and Chile have enough track record in practicing sustainable mining so that we need not be afraid of environmental disasters.  In fact, the ones who perpetrate irresponsible mining are Filipino small-scale miners with the connivance of corrupt and greedy Filipino politicians.  Our moral leaders should recognize the fact that given proper selection, there are foreigners from all over the world who can be more protective of the Philippine common good than many Filipinos who are benefitting from our age-old and obsolete “Filipino First” policy.  Sad to say, there is enough evidence that many foreign investors who have operated in the Philippines have demonstrated more love for the Philippines and concern for the common good than some greedy and corrupt Filipino business people.  Our moral leaders should be reminded that the practice of virtue knows no race or color. 

          There are those who say that amending the Constitution to remove the restrictive economic provisions that inhibit FDIs is not what foreigner investors would like to see.  It is alleged that foreigners give more importance to more efficient infrastructures such as better airports, lower electricity rates and more efficient means of transport.  Let me point out first that improving infrastructures take time.  Putting up power plants take three to five years.  Building airports and railways can take as long as ten years.  In the meantime, foreigners have to endure inefficient infrastructures, such  as  tolerating  the “worst airports in the world” when they come to Manila.  I have always pointed out that to compensate for these hopefully temporary inconveniences, we must offer “sweeteners” like allowing foreigners  to own the land on which they build their residences, factories or  commercial enterprises so that they can participate in the land appreciation.  Once we have infrastructures as efficient as those that can be found in Singapore, Hong Kong, and China, then we can restrict once again the ownership of land by foreigners.  That is why, the formula suggested by Speaker Belmonte et al (adding a clause stating “unless otherwise provided by law) gives our Congress the flexibility to adapt legislation to changing circumstances.  I still believe as one of the framers of the Philippine Constitution that we made a mistake by enshrining in the fundamental law of the land provisions that should be modified as conditions change.  There is more than enough evidence that conditions today in the Philippines are still unattractive to foreign investors.  In fact, by coincidence, on the very day the papers carried announcements that the CHACHA efforts were being abandoned by Congress, the Business World headlined:  “First quarter bares FDI weaknesses.  Net foreign direct investments (FDI)—a key source of jobs and business financing—fell to their lowest level in over a year last March…FDI commitments in the same comparative periods…fell more than 40%, according to data released separately by the Philippine Statistics Authority (PSA).”

          There is also the view that the many restrictions inhibiting FDIs actually foster a culture of corruption.  As a case in point, if the Germans who built Terminal 3 did not have to partner with a local investor and were allowed 100 percent ownership or at least the majority of the business, we would have had the terminal finished much earlier without all the charges of bribery and corruption that went with it. Because of all the equity and other restrictions, there is the temptation faced by some foreigners to look for loopholes and to hire expensive lawyers to go around the law.  This is very much analogous to protectionist measures such as very high tariff rates imposed on imports in the past that spawned a very lucrative smuggling industry.  Part of the reason why the Philippines rates very low in international rankings concerning “ease of doing business” is the proliferation of “Filipino First” policies not only in our Constitution but even in simple legislation.  More signatures, permits and licenses are added to the already interminable list by the domestic equity requirements imposed on foreigners who want to invest in the Philippines.  Needless to say, these requirements spawn more occasions for bribery and extortion.

            To summarize the views in favor of amending the economic provisions in the Constitution to allow more foreign participation in the development of our natural resources and the provision of  services of public utilities, more foreign capital is needed to generate a higher level employment; lower the costs of services  of public utilities; transfer more advanced technology especially in environmental sustainability; improve governance in both the public and private sectors through the greater vigilance of multinational corporations to prevent corrupt practices under their stricter laws.  And  a parting word:  the experience of the Philippines in the last fifty years is that the Filipino First policy that was motivated by the best of intentions actually resulted, because of the socio-political climate prevailing in the Philippines, into “Rich Filipinos First” and damned the rest, especially the poor.  I hope that there will enough thought leaders in the next Government who will finally listen to Speaker Belmonte and the rest of our lawmakers who are the true patriots as they seek to remove economic provisions in our Constitution that have worked against the common good of society, especially the poor.  Misguided nationalism has inflicted enough damage on the Philippine economy.  For comments, my email address is bernardo.villegas@uap.asia