The highest priority for constitutional change: Amendment of restrictive economic provisions

Public discussion on the amendment of the constitution ruled the news during the last week. As far as the policy pertaining the attraction of foreign direct investments is concerned, the Philippines is not at par with other countries.

Unlike most countries, our country is uniquely challenged by the presence of constitutional provisions that micromanage the foreign investment process in specific areas. Other countries do not have constitutional provisions that limit their flexibility in framing foreign investment policy. Thus in this context, the constitutional state of affairs is a unique Philippine problem.

Judging from the stated priorities announced by the Aquino administration, constitutional change is not a priority. The Aquino government does not think that constitutional change is of high importance. This is unfortunate.

In my column of Dec. 15, 2010 in this newspaper, I made a case for the amendment of the economic provisions. My proposal is to lift the provisions that are part of the constitutional text and, through a constituent assembly, transfer them so that future changes could be made subject to ordinary legislation. I asserted that this amendment is worth the expenditure of the president’s enormous political capital because of its high national benefit.

The president’s position in regard to constitutional change (based on public announcements coming from his office) is as follows: “Constitutional change is a distraction…. Our promises are two-fold – we need to reduce poverty and we need to eradicate graft and corruption – both of which do not require amending the Constitution…. The PPP (public-private partnership) is an innovative way of engaging the private sector to provide capital to match government funding and that the scheme will is promising.”

This position is wrong and ill-advised. If nothing is done to remove the existing provisions, the seed of economic under-performance for his presidency is already planted.

Time is of the essence. The window of opportunity during the first year of this new presidency is ticking. The potential for success can ride on the crest of Aquino’s current public trust rating which is high at the moment.

The president could use the substantial Conditional Cash Transfer (CCT) program more forcefully by linking it with the constitutional reform process. The CCTs constitute budgetary outlays that the government substantially increased in order to give more direct subsidies to help alleviate the living conditions of the country’s very poor.

The CCT program can be made directly a part of the economic reform process as an input toward making difficult reforms more easily acceptable. In doing so, the huge expenditure on improving the lives of the poor could be made a significant condition for undertaking constitutional change of the most urgent type.

The NEDA’s economic development plan is near the final drafting stage. If these constitutional restrictions on foreign capital are reformed very quickly during the early years of the plan implementation, then the chances of future economic success of the plan are enhanced.

Most countries do not have economic restrictions provided in their political constitutions. That is why they can deal with their foreign investment laws with great flexibility. The Philippine experience has been – over seven decades of independence – to deal with foreign investment encouragement legislation hampered by these provisions that are part of the constitution.

The presence of these provisions has led the country astray in the past. They helped to reduce the opportunities for growth when they should have expanded them. They led us to experience a long era of inward looking industrial protection in our economic history. They caused us to experience the slow and substandard growth of public infrastructures for the nation for decades.

Two legislative leaders of the country came out in support of the amendments of the economic restrictions in the constitution during the week in question. Senate President Juan Ponce Enrile said that the charter needs to be amended because “it is a source of our problems as a nation and it retards our progress.” The same sentiment was stressed by Speaker Feliciano Belmonte, who emphasized the economic provisions as the most important issue to deal with.

Senator Enrile hit the main argument well on the head. He said that the amendment of the restrictive economic restrictions is favorable mainly to the rich of the country. “We should have an investment policy,” he said of this, “that will protect not only the rich but also the poor. We can control the foreigners, but not the rich Filipinos who control our politics, our judiciary, the Executive branch, and even the police and the military.”

Both leaders also expressed a preference for the constituent assembly approach to the amendment of the constitution. Incidentally, this is the same method that I suggested would be the most expeditious way of dealing with the amendment of these provisions.

The Commission on Constitutional Reform that was chaired by former Prime Minister Cesar Virata in 2001 recommended the amendment of the restrictive economic provisions. Senator Edgardo Angara also said of the restrictive economic provisions: “We are handcuffed literally by the rigidity of the Constitution.”

Among the consequences or benefits to be derived from amending the economic restrictions in the constitution are the following:

• The potential for immediate success in attracting the inflow of foreign direct investments depends on a clear and simple message that the specific restrictions to foreign capital are placed outside the framework of the constitution.

• A major psychological change in the country’s foreign and domestic investment climate will arise with the adoption of amendments to liberalize these restrictive provisions. Many administrative regulations or restrictions that require monitoring of the constitutional restrictions will be dropped so that a major psychological change in investment promotion results.

* The psychological change will transform perception into the reality as greater inflows of foreign direct investments come to the country.

* Long lasting impact of more foreign investments will speed up the conquest of poverty in the country. New investments will spread in the economy arising from incomes as a result of more workers being brought into employment.

* The ultimate beneficiaries of rising foreign investments at home spills into new business opportunities for the nation. A wider set of new businesses will arise from larger economic opportunities at home.

* The success of PPP projects will be enhanced by the inflow of more capital into PPP investment projects. The “rent-seeking” activities of domestic participants who bring in little capital to the process are demonstrated by the PIATCO and the ZTE scandals of the past. Such quick buck operations will be minimized when amounts of capital are made available through the wider participation of foreign capital.

In the next week, the various proposals for other constitutional change are discussed and compared. Then, the various proposals are analyzed in terms of their immediate impact on the country’s development and on the basis of their long term budgetary costs to the nation’s resources. –Gerardo P. Sicat (The Philippine Star)

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