Ex-DOF chief: Removing economic restrictions in 1987 Constitution to boost Phl FDI

Removing the economic restrictions enshrined in the 1987 Constitution is needed to lift the Philippines from its current dismal position as the region's laggard in foreign direct investments (FDIs), a former Finance secretary said.

In a letter to senators dated 29 April but was only shared with finance reporters on Thursday, former Finance Secretary Margarito Teves said removing the restrictive provisions in the 37-year-old Philippine Constitution "will send a positive signal to investors and help improve the country's investment climate to become more competitive in attracting foreign investments."

A recent University of the Philippines School of Economics discussion paper claimed that easing equity rules through charter change may only have minimal effects on attracting more FDI flows.

However, Teves, who was the Finance secretary under former president Gloria Macapagal Arroyo, argued that constitutional amendments remain crucial in the overall economic reform agenda.

"We agree with UP Econ that amending the 1987 Constitution is not an end-all solution... However, removing these constitutional restrictions is a necessary step toward fostering a more conducive investment climate," Teves said.

Teves said that economic reform-driven Charter change must be coupled with addressing long-standing concerns of widespread corruption, lingering challenges on the ease of doing business, as well as the lack of infrastructure in the country.

"Amending the Constitution to show the Philippines' commitment to investments can be done alongside enacting policies and reforms that aim to improve the rule of law, address corruption, and enhance the ease of doing business," Teves said.

The former finance chief cited that the Foundation for Economic Freedom (FEF) had noted that these issues and the initiatives to address them were supposed to be "not mutually exclusive and can be addressed simultaneously."

Also, Teves believes that removing the foreign investment caps in the Constitution itself will prevent future judicial and regulatory challenges.

"Currently, the Amendments to the Public Service Act is facing two judicial challenges in the Supreme Court. There is a risk that the Supreme Court may declare that Congress has no power to define public utilities and render the reform unconstitutional," Teves noted.

"Another example is the case of the liberalization of renewable energy (RE). If the restrictions in the Constitution for natural resources are not removed, there is a possibility that the reform opening the RE sector to foreign investment can be challenged thereby affecting current and future foreign investment in renewables. Since the reform, three foreign companies recently entered the offshore wind market promising 10,900-megawatt (MW) potential capacity. These judicial risks can give the impression to foreign investors that their investments can one day be at risk, thereby creating an environment of uncertainty," he warned.

Teves added that economic Charter change is necessary to place the Philippines' foreign-investments legal framework at par with its neighbors belonging to the Association of Southeast Asian Nations (ASEAN).

"The Philippines is the only country in the ASEAN region where restrictions in foreign ownership are embodied in its Constitution. Other ASEAN countries manage FDI through legislation."

As such, Teves urged senators to "remove outright the restrictive economic provisions in the Constitution because laws enacted by Congress in the future could be challenged if the restrictions are not removed."

"Outright removal of these restrictive economic provisions will open the sectors immediately. Nevertheless, Congress has the power and flexibility to impose appropriate limitations, restrictions, conditions for ownership or safety nets should circumstances warrant these adjustments without going through the long and difficult process of a constitutional amendment," he noted.

Teves also urged the Senate to lift the Constitutional restrictions on land and natural resources, as well as mass media.

The current Resolution of Both Houses No. 7 or "RBH7" pending in the two chambers of Congress covers only advertising, education, and public utilities.

"Removing restrictions on land ownership will provide an opportunity to use idle lands either for agricultural purposes or for business ventures will enable small landowners to earn from their land while creating livelihood opportunities in many parts of the country resulting in more widespread and balanced development. This is particularly beneficial for idle lands in areas outside Metro Manila. These idle lands can be used for business or commercial purposes and help in regional growth," Teves said.

"Removing restrictions in natural resources will prevent the recently passed circular opening renewable energy from judicial challenges," Teves added.

As for mass media, Teves pointed out that while other ASEAN countries also restrict foreign investors, "these are not enshrined in their constitutions but are embodied in laws or administrative orders, making them more flexible and easier to change in the future."

Teves likewise proposed to tweak the "Filipino First" provisions in the 1987 Constitution; in particular revising Article II, Section 19 into: "The State shall develop a self-reliant and independent national economy for the benefit of all Filipinos."

"Our proposal will help clarify that the overriding objective of control is not in terms of ownership but, more importantly, an economy that works for the interests and needs of all Filipinos," he explained.