Finance Secretary Carlos Dominguez III urged lawmakers to help jumpstart the country’s recovery by acting swiftly on “doable” priority measures such as long-due reforms in the corporate income tax and fiscal incentives system and easing restrictions on foreign ownership in certain sectors of the economy.
These priority measures include the proposed Corporate Recovery andTax Incentives for Enterprises Act (CREATE) and amendments to “anachronistic” laws such as the 84-year old Public Service Act, the Retail Trade Liberalization Act and the Foreign Investments law, Dominguez said at Tuesday's hearing of the House committee on constitutional amendments.
With only 17 months left before President Duterte ends his term of office, Dominguez asked members of the Congress “to act on something that is doable.”
“What is most important is to undertake what is immediately achievable,” said Dominguez during the hearing of this House committee chaired by AKO-BICOL partylist Rep. Alfredo Garbin Jr.
“It is preferable, of course, to achieve the liberalization reforms in one blow. But if there are things that we can do to open up the economy through administrative measures, we must implement them. If there are areas that we can liberalize by amending our existing laws, then let's do that,” added Dominguez, who heads President Duterte’s economic team.
Easing restrictive provisions in the Constitution would be a significant way to rev up the economy, but Dominguez declined to talk about constitutional amendments.
“The means for amending the Constitution, however, is a political question. And I would not dare advise our legislators on the matter,” he said.
Dominguez said his proposed investment liberalization strategies that involve the immediate congressional passage of CREATE and the relaxation of the restrictions on foreign ownership, except land, “should accomplish enough to enable our rapid economic recovery.”
As a result of restrictive provisions in the Constitution, the Philippines has received vastly less foreign direct investments than its neighbors in Southeast Asia, Dominguez said.
Starting the process towards a more liberalized investment climate, he said, would send a strong signal to the international community that the Philippines is open for business.
“Immediately, the Congress can help in restarting our economy by acting on our pending priority economic bills,” Dominguez said.
He said these measures would complement the reforms that the government is now implementing, such as the "Build, Build, Build" infrastructure modernization program and the Ease of Doing Business law, Dominguez said.
He said the ban on foreign ownership of educational institutions has only led to the closure of several private schools during the pandemic.
“High-level skills development in the country should be opened to foreign equity. The Philippines' strategic location and proficiency in English undeniably make it a highly viable site for future offshore campuses of internationally recognized learning institutions,” he said.
Dominguez said those who insist on keeping the economy’s protectionist policies should learn from the liberalization of the rice trade through the implementation of the rice tariffication law.
The RTL has resulted in the country achieving its highest level of palay production at 19.44 million metric tons (MT) last year, a significant reduction in rice prices that benefits mostly low-income Filipinos, a variety of rice choices for everyone, a more competitive rice sector and a steady stream of assistance to assist farmers and modernize Philippine agriculture through the annual P10 billion Rice Competitiveness Enhancement Fund.
Dominguez recalled that when the Philippines affirmed its 1987 Constitution with restrictions to investments “not based on practicality but on some notions of nationalism,” Vietnam fully opened its doors to the world and began treading its path toward a market-oriented economy.
He said: “Vietnam has effectively exported its way out of poverty by embracing trade and foreign investment liberalization complemented with domestic reforms through deregulation and lowering the cost of doing business” and heavy investments in infrastructure.
The Philippines’ “restrictive economic provisions are residues from a period when our people had very little trust in the market," Dominguez said. "Today, with better economic literacy, we should be better able to understand how market disciplines result in efficiency and lower costs.”
The latest FDI Regulatory Restrictiveness Index of the Organization for Economic Cooperation and Development (OECD) has revealed that the Philippines is perceived by the international investment community as the most restrictive among the ASEAN countries.
A comparison of the FDI inflows from 2015 to 2019 among ASEAN countries underscores the small share that the Philippines has received compared to the relatively more liberalized economies of
Singapore, Indonesia, Vietnam and Malaysia with results showing rapid rates of expansion and modernization enjoyed by these neighboring economies over the past three decades, Dominguez said.
In the same hearing, Capiz Rep. Fredenil Castro on Tuesday said deliberations on the economic Charter change be brought straight to the plenary to save time, instead of remaining at the committee level.
But Muntinlupa City Rep. Ruffy Biazon objected to the suggestion, saying a lot of lawmakers still want to ask questions in the committee meeting.
Castro, in response, said it would be more prudent that discussions on Charter change be done exhaustively in plenary session.
In the end, House panel chairman Alfredo Garbin Jr. assured the lawmakers present that all of them would be given the chance to pose questions to the resource persons.
Trade Secretary Ramon Lopez, meanwhile, told the committee that removing the economic barriers will lure more foreign investors into the country. He said the move will help unleash the economic potential of the Philippines, the second fastest growing economy in Southeast Asia.
“Our economy has been recognized as the second fastest growing economy in Southeast Asia until the year 2019, right before the pandemic struck, with average growth of 6 percent for 14 consecutive quarters.
We also know that such growth rates could even be higher if we were able to remove basic restrictions, such as the foreign ownership of businesses in certain sectors stipulated in the Constitution,” Lopez told the House panel.
Lopez said before the pandemic, the department already had 90 investment leads, or serious investors that had already decided to set up shop in the Philippines.
However, he said, this number was only half of the investors the country could have attracted if the economy were not so restrictive.
Garbin said that now was the best time for economic Charter change.
"If not now, when?" Garbin asked as he renewed the House leadership's push to amend the economic provisions of the 1987 Constitution, which many believed have made the Philippines less attractive to foreign investments.
" I think this is the right time to propose these amendments to the Constitution,” Garbin said.
The House resolution seeks to add the phrase “unless otherwise provided by law” to certain economic provisions of the 34-year-old
Charter, which restrict foreign ownership of land, natural resources, public utilities, educational institutions, media and advertising.
Such a move would allow Congress to pass enabling laws that will relax restrictions on foreign ownership to boost foreign investments.
The resolution by Speaker Lord Allan Velasco, provides that by a vote of three-fourths of all its members, the Senate and the House of Representatives voting separately could propose amendments to Articles 12, 14, and 16 of the Constitution.
During the hearing, Garbin also sought to allay doubts over the intention to amend the economic constitutional provisions which, he said, was to “help the economy recover from the effects of the COVID-19 pandemic.”
A number of economists agreed that lifting foreign investment restrictions could improve foreign direct investment or FDI inflows into the Philippines, particularly in areas restricted in the Constitution.
Relaxing the economic Charter provisions, they said, would open the door to establish a platform for promoting stronger investments and more inclusive economic development.