Bernardo M. Villegas
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Stulta Haec Lex Sed Lex

    Thanks to my friend and professional colleague, Dr. Raul Fabella of the U.P.School of Economics, I have found the perfect phrase to refer to the economic provisions in the Philippine Constitution that unreasonably restrict Foreign Direct Investments into the Philippines.  I am referring to the provision prohibiting foreigners from owning land in the Philippines.  I am referring to all the equity restrictions in public utilities, the exploitation of natural resources, education and mass media.  I am referring to the restriction imposed on foreign professionals such as medical doctors, lawyers, engineers, and other knowledge workers.  All these provisions, which resulted from an overpowering presence of leftist and ultranationalist ideologues in the rainbow coalition that composed the Constitutional Commission during the presidency of the late Corazon Aquino, are now seriously constraining economic growth and job generation in the Philippines.  Using a phrase  from a recent column of Dr. Fabella in the Business World entitled "SC decision on foreign ownership",  those provisions in the fundamental law of our land should be labeled "Stulta lex sed lex" (Stupid law but law).

        Because of the presence of these provisions in the 1987 Constitution, the Philippine Supreme Court recently had a heyday discombobulating the Philippine investment climate by a majority decision to interpret the constitutional foreign ownership limit as applying to 40% of common shares of a company and not to total shares (preferred and common).  Although it appears that it is only meant to apply to the Philippine Long Distance Company (PLDT), it is clear that it will have repercussions in all the industries in which there are limits to foreign equity ownership, such as mining, water, electricity distribution, toll roads and other public utilities.  These are exactly the most important areas where we have to attract foreign direct investments because domestic funding, no matter how abundant it may appear now, is very short-term.  Only some forms of foreign direct investments can have terms as long as twenty five or more years, usually the period it takes to recover investments in infrastructures and public utilities.

      In a recent roundtable discussion held by the Center for Research and Communication on constitutional amendments, I pointed out that the Philippines is the least attractive country for foreign direct investments in East Asia, which is right now the most attractive region for foreign capital coming from all the world. I cited data from a publication of the World Bank entitled Doing Business Report, 2011, that showed the Philippines at the bottom of the list in "Ease of doing business, 2011."  Singapore is no. 1; Hong Kong no. 2; South Korea  no. 16; Thailand no. 19; Vietnam  no. 78; China  no. 79; Indonesia , 121; India, 134 and the Philippines an abysmally low 148. Examining the other indicators, I have come to the conclusion that our very low ranking is not due corruption (there is corruption in all East Asian countries except probably in Singapore).  Neither is it due to bureaucracy (Vietnam, India and Indonesia can be very bureaucratic).  From reading especially the Arankada Philippines report of the seven foreign business chambers, the main factor for the low level of foreign direct investments is the institutionalization of anti-FDI provisions not only in our very own Constitution but also in other laws, rules and regulations based on a protectionist, Filipino-First and ultranationalist mindset developed among our government agencies and officials during the first thirty years of our industrialization efforts.  As pointed out by some of the discussants, there are restrictions against foreign participation even in industries not explicitly mentioned in the Constitution, such as in construction and shipping. These arbitrary restrictions are actually illegal.

    The proof of the pudding is in the eating.  We need not look far in demonstrating the harmful effects of these anti-FDI provisions. In 2010, China got US $105 billion of FDIs; India, $37 billion; Indonesia, $13 billion; Vietnam, $7 billion and the Philippines $1.8 billion.  This has been going on for at least the last five years when annually, the Philippines always got the smallest amount of FDIs among our East Asian peers. By serendipity, I was flying from Jakarta to Manila via Singapore last June 29, 2011 and read a column by Senior Writer Bruce Gale in The Straits Times of Singapore.  The title of the column was "To draw foreign investors, Manila must up its game."

      Like Mr. Gale, it is not my intention here to belittle the great achievement of our excellent team of economic managers led by Secretary Cesar Purisima in receiving from Moody's Investors Service an upgrade in the Philippine credit rating to just two steps below investment grade.  Such an improvement in credit rating will reduce the interest rate we are paying on our foreign loans and may make it easier for us to obtain more foreign borrowing, if we have to resort to it.  But, as Mr. Gale, pointed out, such a positive news had practically no impact on the level of foreign direct investment in the Philippines.  As reason, Mr. Gale cited the Investing Across Borders report of the World Bank which stated that "Among the 87 countries covered by the Investing Across Borders indicators, the Philippines imposes foreign equity ownership restrictions on more sectors than most other countries.  It also noted that it took 17 procedures and 80 days to establish a foreign-owned limited liability company in Manila, much slower than the average for East Asia and the Pacific.  Another problematic area was arbitration, where it took around 135 weeks to enforce an arbitration award."

    President Benigno Aquino IV has to exercise his strong leadership in working with Senate President Enrile and Speaker Belmonte in fast tracking the removal from our Constitution all semblances of "stupid law but law."  Let us allow foreigners to own the land on which they build their residences, factories, and other business establishments.  Let us remove all restrictions on foreign equity in any Philippine business.  If circumstances should warrant our limiting foreign ownership in some strategic industries in the future, let it be through legislation, not a constitutional provision.  Let us allow foreign professionals to practise in the Philippines if their home countries allow Filipino professionals to practise in theirs. Both Senator Enrile and Speaker Belmonte have already started the process.  What they need is a strong indication from the President that he is in favor of amending the economic provisions in the Constitution.  I remember distinctly that this was one of his promises during the election campaign. He can fulfill his promise with the cooperation of the present Congress that will listen to him as they did in the case of the postponement of the ARMM elections.

      It is impossible for the Philippine GDP to grow at 7% or more in the next five years without large amounts of FDIs at least equal to what Vietnam is getting ($5 to $7 billion a year).  It is not only the long-term capital we need.  With FDIs come advanced technology, best practices in management and productivity improvements, access to markets, and greater competition to the oligopolies and cartels that exist in Philippine industries.  President Aquino has the unique opportunity to slay under his watch the protectionist, ultranationalist and paranoid dragon that has kept the Philippines economically backward all these years.  For comments, my email address is