Ex-Finance chief eyes economic cha-cha

A former ranking Finance official believes that by removing some economic restrictions in the Constitution the country will see a boost in foreign direct investment (FDI).

In a letter to senators dated 29 April, 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 said that easing equity rules through Charter change (cha-cha) may have only a minimal effect on FDIs.

But Teves, who was Finance secretary under President Gloria Macapagal- Arroyo, argued that constitutional amendments were crucial to the overall economic reform agenda.

“We agree with UP Econ that amending the Constitution is not the 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 cha-cha must be coupled with addressing long-standing concerns on widespread corruption, lingering challenges to 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 noted that the Foundation for Economic Freedom (FEF) had pointed out that these issues and the initiatives to address them were “not mutually exclusive and can be addressed simultaneously.”

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

“Currently, the amendments to the Public Service Act are 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,” he noted.

“Another example is the case of the liberalization of renewable energy (RE). If the restrictions in the Constitution on 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 have 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 said.

Teves stressed that economic Charter change is necessary to make the Philippines’ foreign-investments legal framework at par with its neighbors in the Association of Southeast Asian Nations (ASEAN).

“The Philippines is the only country in the ASEAN region where restrictions on foreign ownership are embodied in its Constitution. Other ASEAN countries manage their FDI through legislation,” he said.

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 urged the Senate to also 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 business ventures that 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,” Teves said.

“Removing restrictions on natural resources will prevent the recently passed circular opening renewable energy from judicial challenges,” he 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 Constitution, in particular revising Article II, Section 19 to say: “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, for an economy that works for the interests and needs of all Filipinos,” he said.