Cha-cha ‘not a cure-all’

RELAXING the country’s foreign ownership limits is critical as competition for investments will be fierce given the global economic downturn, a public advocacy organization said.

Amendments to the 1987 Constitution have been pushed over the last two decades and the urgency has not changed, the Foundation for Economic Freedom (FEF) said in a preliminary policy paper.

“Now, coming from the latest shock that reverberated across the globe, which affected not just developing economies … but even the giants of the global economy, prospects are a little bit tricky,” the FEF said.

Investors, it said, have become risk-averse and are looking to place their wealth in economies that are resilient and can offer high returns.

“Competition for this wealth has tensed up given less supply of foreign investments, and this competition is all the more prominent in developing economies like the Philippines, which stands to gain from foreign capital to capacitate its production sectors,” the FEF said.

The country must seize the opportunity to implement reforms that can take its growth path higher, it urged.

“The Philippines must be able to compete aggressively at this point and stridently banner its readiness to participate in the game; otherwise, it will simply be left out again,” the FEF said.

“Failing to jump on the bandwagon could very well cement the country’s famed status — the sick man of Asia or simply, the ‘laggard’.”

It said the Philippines already had the lowest FDI-to-gross domestic product ratio in the region, averaging 1.34% from 2000 to 2010 and beating only Indonesia (1.23%). Singapore was the highest at 14.07%, followed by Vietnam (6.01%) and Cambodia (5.6%).

Moreover, the Philippines has the most stringent foreign ownership limits in the Association of Southeast Asian Nations and the Trans-Pacific Partnership, which includes the likes of the United States, Canada, Mexico, Peru and Chile.

In the FEF’s comparison of 12 countries, the Philippines allowed the lowest amount of foreign capital at only 40% for mining, oil and gas; agriculture and forestry; and transportation. Other countries allowed anywhere between 49% to 100% foreign ownership.

The country also ranked the lowest for the ownership of media (0% foreign capital), second lowest for the ownership of telecommunications (40%) and light manufacturing (75%) and the third lowest for the ownership of banks (60%).

The foreign ownership cap not only impedes the free flow of production, it also adds costs for compliance and complicates rules for investors, the FEF pointed out. That these limits are “set in stone” in the 1987 Constitution makes it worse, it added.

“Constitutional reform is not a cure-all for the country’s underdevelopment but it nevertheless can make a difference — all the more so if taken as a component of a larger reform package that reorients the Philippine economy towards a more open and globally competitive economic regime,” the FEF said.

The issue of Charter change was revived last month as it was identified as part of the agenda for the third and final session of the 15th Congress. President Benigno S.C. Aquino III, who has previously rejected calls to amend the Charter created during the presidency of his late mother, Corazon C. Aquino, has now tasked the Cabinet’s economic cluster to conduct a review.

Finance Secretary Cesar V. Purisima identified Articles 12, 14 and 16 as the focal points of the study. These set foreign ownership limits for natural resources, land, public utilities, educational institutions and the media.

The FEF called on the “reformist” Aquino administration to push for Charter change, especially as it enjoys significant public trust.

The foreign ownership limits, it claimed, have allowed assets to be concentrated in the hands of the local elite.

The cap also encourages corruption as “good” investors are turned away and “bad” investors, who break the rules anyway, stay and try to get exemptions or work their way around existing regulations.

The FEF cited the controversy surrounding the construction of the Ninoy Aquino International Airport Terminal 3, with German firm Fraport “needing a dummy” in Philippine International Air Terminals Co. to circumvent ownership rules.

While Charter change has failed over the last two decades given fears that it may be exploited by public officials who wish to extend their terms of office, the FEF said this issue must be addressed by public vigilance.

“We need not ‘throw out the baby with the bathwater,’ so to speak. If one is convinced of the importance of constitutional reforms, then the possibility of political exploitation is really a secondary issue. We must proceed to address the problem of restrictive economic provisions while all the while doing our best to safeguard the process,” it said. –DIANE CLAIRE J. JIAO, Senior Reporter, Businessmirror