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Eco ‘Cha-cha,’ now!

The funny things about our politicians are that most of them know exactly what’s wrong with the country and the reforms needed to neutralize them. Sadly, however, vested interests get in the way and these reforms never see the light of day. For example, they all know that political dynasties work against national interests since they concentrate power in a narrow elite and make it nearly impossible for outsiders to win an election no matter how capable they are. Yet, the law banning political dynasties has been in legislative limbo for 35 years simply because the very people tasked to pass the law are themselves members of dynasties.

The same is true for the economic provisions of the constitution. We all know that by reserving certain industries exclusively for Filipinos (or Filipino majorities), we deprived the nation of valuable forex investments, technology transfers, tax revenues, export earnings and employment opportunities. Yet, amendments to the economic provisions of the constitution (Eco Cha-cha) have never made it to law simply because certain families stand to lose their stronghold on industries and the lingering doubt that once the constitution is opened for amendment, dubious legislators would push for lifting term limits.

The good news is that Eco Cha-cha is presently being deliberated in the legislature, thanks to the leadership of Speaker Lord Allan Velasco. This is a rare but welcome development which we should all support. Not only will Eco Cha-cha accelerate our economic recovery, it will also increase our competitiveness relative to our regional neighbors.

The restrictive provisions of the constitution have held back the country’s development for more than 30 years. From the 1980s up to the close of the century, countries like Singapore, Malaysia, and Thailand leapfrogged economically on the back of a deluge foreign direct investments (FDIs). During that period, the Philippines share of regional FDIs was a paltry 3% in good years and 2% in normal years. The flawed economic laws of the constitution are largely to blame for this. Lately, Vietnam has taken the lion’s share of FDIs, leaving the Philippines in the dust.

See, embedded in the 1987 constitutions is a list of industries in which foreigners are precluded from participation. These industries include agriculture, public utilities, transportation, retail, construction, media, and education, among others. (For those unaware, these industries are collectively known as “the negative list”). Apart from depriving the country of forex investments, technology transfer and job opportunities, the lack of competition from abroad has created monopolies and oligopolies owned by a handful of families. These families earn scandalous profits even though they are inefficient.

Our flawed economic laws are the reason why our agricultural sector has not industrialized and why food security eludes us. It is why our manufacturing sector has not fully developed. It is why we lost the opportunity to be Asia’s entertainment and production capital despite our Americanized culture (Netflix located its Asian headquarters in Singapore, Disney in Malaysia, MTV in Hong Kong, and Paramount Studios in Taiwan). It is why our education standards have remained embarrassingly behind the rest of the world.

The constitution limits foreigners from owning more than 40% equity share in corporations. In addition, foreigners are barred from owning land. These provisions have caused us to lose-out on big-ticket investments which would have made all the difference in job and revenue generation. Not too long ago, we lost a multi-billion dollar investment from a US auto manufacturing company which instead went to Thailand. We lost a multi-billion smartphone plant by Samsung which went to Vietnam. Limiting equity ownership to a minority stake and prohibiting land ownership is a great disincentive for companies investing in large manufacturing plants with a useful life of more than 50 years. Land is used as equity for business financing and to take this away from the business model is enough reason for investors to take their business elsewhere.

Speaker Lord Velasco hopes to finish Eco Cha-cha debates before the end of 2021. The intention is to insert the phrase “unless otherwise provided by the law” in the constitution’s economic provisions that restrict foreign participation. This insertion will give us the flexibility to accept foreign investors involved in the negative list of industries. The bill may also relax the extent of foreign ownership.

The manner by which Eco Cha-cha will be effected is via a constituent assembly. In other words, it is the congressmen and senators themselves who draft and vote on constitutional changes. A three fourths vote will get the amendments passed. 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.

Although time is tight for deliberations, there is a good chance that Eco Cha-cha will succeed since the political parties in the House have all expressed their support. This should make the deliberations move faster.

Earlier this month, Representatives of PDP-Laban, the Nationalist People’s Coalition, the Nacionalista Party, the National Unity Party, Lakas-NUCD, Hugpong ng Pagbabago, the Liberal Party, and the Party-list Coalition Foundation signed a manifesto to support the proposed amendments.

The impediments I see is if members of the House attempt to tinker with the political provisions of the constitution to extend or lift term limits. The other impediment is if Congress and the Senate get caught up in procedural details like whether to vote on the matter jointly or separately. These hiccups can derail the process.

As for the concern on political amendments, House committee on constitutional amendments chairman, Alfredo Garbin, Jr., gave his assurance that Congress will limit discussions to provisions relating to the economy and will not touch the political sections of the Charter. Senate President Tito Sotto said that charter change will succeed in the Senate only if economic provisions are changed. Even President Duterte himself said that even if they handed him a fresh six-year term on a silver platter, he will reject it.

Still, as we have learned through experience, numerous Congressmen cannot be trusted to keep matters free and clean of political interest. Hence, we must remain vigilant.

There is an urgency to this. US-based banking giant Citigroup said that if nothing changes, the Philippines will be the last to recover from the pandemic in Southeast Asia. The pandemic has already relegated 8.7% of our countrymen to unemployment and 26% of the population to poverty. It is also estimated that as much as 25% of all MSMEs have closed due to bankruptcy. The entry of foreign investments will provide the jobs we need to fill the poverty gap.

Times have changed and so must our basic laws. Our laws must keep up with the ever-shifting global order, new technologies and globalization. Our economic laws must change if we are to keep up with our neighbors and not fall further behind. Even former NEDA (National Economic and Development Authority) Secretaries Ernesto Pernia and Gerardo Sicat agree that Eco Cha-cha is long overdue.

Back to my first example, unlike the Anti-Dynasty Bill which has the same chances of being passed as the eradication of the pork barrel fund, we are fortunate that Eco Cha-cha has a fair shot of being ratified at this time. We have a small window and we must make sure we do not squander the opportunity. If Eco Cha-cha fails this time, it will take years before this important piece of legislation will be revisited again. Meanwhile, the opportunity losses will mount and we will fall further behind the region’s development race. I ask our legislators to treat this with the utmost priority and to please make Eco Cha-cha happen.


Andrew J. Masigan is an economist

Twitter @aj_masigan

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