Eco Cha-cha and the poison pill

Deliberations have finally begun to amend the economic provisions of the Constitution (Eco Cha-cha). This is a long overdue development which I fully support. Not only will this accelerate our economic recovery, it will yield an avalanche of benefits that will transcend generations.

The intention is to insert the phrase “unless otherwise provided by law” in the Constitution’s economic provisions that restrict foreign participation. This insertion will give us the flexibility to entertain foreign investors particularly in the fields of agriculture, telecommunications, transportation, retail, trade, construction, media and education. The bill may also relax the extent of foreign ownership.

I am not the first to go public with my support of Eco Cha-cha. Many of my fellow economists have done so before me. Gerardo Sicat, former NEDA secretary and founder of the Philippine Institute for Development Studies, said that the current economic provisions of the Constitution is “the original sin that has made it difficult for the country to progress and attract investments.” Ernesto Pernia, another NEDA secretary, said “we really cannot be competitive with our ASEAN neighbors, much less in the global economy, if we do not open the economy. This is why easing or lifting the provisions on foreign participation in the Constitution is critical.” The same sentiments are echoed by Finance Secretary Sonny Dominguez as well as 1,489-member strong League of Municipalities of the Philippines, all of whom recognize the need to attract more foreign investments.

As I have written many times before, the economic provisions of the 1987 Constitution is a poison pill that impeded the development of the country for decades. Borne by a misguided sense of nationalism, the authors of the 1987 Constitution felt that by reserving certain industries exclusively for Filipinos (or Filipino majority), our natural resources would not be plundered by foreigners, nor would our sovereignty be overstepped. How wrong they were.

What these provisions did was deprive us of our fair share of foreign capital coming into the region. With so many industries restricted to foreigners coupled with stiff ownership conditions, investors naturally chose the open economies of Thailand, Singapore and lately, Vietnam rather than the Philippines. The Constitution, in effect, deprived us of valuable forex investments, technology transfer, tax revenues, export earnings and employment opportunities. It is one of the principal reasons why our manufacturing sector has not developed fully.

To illustrate how powerful an open economy can be, Vietnam opened their economy to foreign investors in 1986 and achieved newly industrialized status in just 35 years. From eking a living through subsistence farming, the average Vietnamese is now wealthier than the Filipino. All this was achieved by attracting foreign capital.

The country pays a steep price for our arcane, protectionist constitutional provisions. Let me cite some consequences. Precluding foreign participation in local industries has created monopolies and oligopolies owned by just a handful of families. These families earn scandalous profits even though they are inefficient.

In agriculture, banning foreigners from participating in the farm sector deprived us of new technologies to increase production and improve our logistics chains. So many farmers could have been lifted out of poverty with foreign infusions.

In media, the Philippines lost the opportunity to be Asia’s entertainment and production capital despite our Americanized culture. Since foreign participation in media is prohibited by law, Netflix located its Asian headquarters in Singapore, Disney in Malaysia, MTV in Hong Kong and Paramount Studios in Taiwan. The Philippines lost out.

The biggest consequence, however, is in education. Since foreign learning institutions are not allowed to operate in the Philippines, we deprived ourselves of collaborations and learning transfers that would have uplifted our own educational standards. In contrast, Singapore benefitted immensely from having Yale University, Chicago University and INSEAD on their shores. It helped to advance Singaporean learning standards to a point where Singaporean universities are now counted among the top 50 in the world. The University of the Philippines ranks in the 400-500 range.

There are social consequences too. The lack of foreign participation is the reason why there is a wide gap between the rich and the poor. See, because the Constitution reserves certain industries exclusive for Filipinos, only the super rich have the capital and wherewithal to invest in lucrative but capital intensive business ventures. Our flawed Constitution is the reason why only 40 families control the country. Foreign participation could have democratized business opportunities and wealth.

Speaker Lord Allan Velasco hopes to finish Eco Cha-cha debates before the end of 2021. It will require a three-fourths majority vote. Assuming there is no difference between the House and Senate versions, the final draft of the amendment will be set for ratification through a plebiscite during the 2022 national elections.

The good news is that there is a strong consensus in Congress. Representatives of PDP-Laban, Nationalist People’s Coalition, Nacionalista Party, National Unity Party, Lakas-NUCD, Hugpong ng Pagbabago, Liberal Party and Party-list Coalition Foundation have all signed a manifesto to support the proposed amendments.

Now more than ever, we need to do all we can to restore the country’s competitiveness and accelerate our recovery following the pandemic. Joblessness is now at 8.7 percent while poverty rates are at an alarming 26 percent. It is also estimated that as much as 25 percent of all MSME’s have closed due to bankruptcy. The entry of foreign investments will provide the jobs we need to fill the poverty gap.

Unless we amend the restrictive economic provisions of the Constitution, it is only a matter of time before Cambodia and Myanmar overtake us in development, just as Vietnam did last year. This is why we must support Eco Cha-cha and rally our legislators to expedite the debates so that the amendments can be ratified next year. The sooner we get this done, the sooner our economy can neutralize this poison pill.

*      *      *

Email: [email protected]. Follow him on Twitter @aj_masigan