Let’s get the President to make 2013 another back-to-back one by doing the hard yards in amending the constitution to remove all restrictions on foreign investors and take the appropriate measures to counter any further appreciation on the Peso. By doing so, we may help increase more job creation as well as make the country an attractive destination for foreign investment.
From BusinessWorld Philippines
January 06, 2013
BY ALL ACCOUNTS, as one social media commentator stated, President Noynoy Aquino had a “kick-ass” year: he had former Chief Justice Renato Corona impeached and removed from office, jailed former President Gloria Arroyo, passed a trillion peso budget on time, concluded a Framework Agreement for peace with the MILF, and successfully overcame strong opposition to pass the Sin Tax law and the Reproductive Health bill.
And yet, in October, foreign direct investments fell and unemployment went up. What’s going on? Is it true, as his critics allege, that all these achievements are just “sound and fury signifying nothing.”? That investors, except for the hot money ones who fuel the stock market, don’t believe in the hype? That the 7.1% p.a. growth is enriching only a few, and that the paeans to “inclusive growth” remain, well paeans, without real substance?
While President Aquino should be commended for trying to fix the judicial system, making peace in Mindanao, and using his political capital to ensure passage of the contentious Reproductive Health bill and the Sin tax bill into law, the grim statistics about foreign direct investments and the higher unemployment rate show that the structural problems of the economy remain unaddressed.
As the Reuters report last December 18 points out: “While foreign funds have poured into Philippine assets this year, driving the main stock index PSI up around 30 percent to a succession of record highs and lifting the peso currency about 7 percent, foreign direct investment (FDI) remains embarrassingly low.”
“Total FDI is on course to hit around $1.5 billion this year — about half its level in 2007 and less than the average $1.7 billion received every month in remittances from Filipinos overseas.”
“That is only about 3 percent of the total that flowed last year to a group of five peer economies including the Philippines in the 10-member Association of Southeast Asian Nations (ASEAN).”
The Reuters report goes on to quote Guillermo Luz, chairman of the National Competitiveness Council, bemoaning the slippage of the country’s rankings in competitiveness indicators from “ease of doing business” to “paying taxes” to “starting a business.”
Clearly, there’s something amiss, and the Aquino administration can’t dismiss these concerns outright.
After his so-called kick-ass year, what does he have to do next?
He has to 1) have the Constitutional restrictions on foreign ownership lifted, and 2) address the appreciating peso problem.
There are a number of compelling reasons why he has to get the Constitutional restrictions on media, public utilities, land ownership, and educational institutions lifted, or amend the Constitution to transfer those restrictions from the basic law to ordinary legislation, so they can be changed easily as circumstances dictate.
The recent Gamboa decision of the Supreme Court, which relied on the Constitutional prohibitions on foreign ownership, stated that the 60-40 rule should apply only to voting common stock, and the subsequent Carpio obiter about the restrictions applying to all classes of stock, have reversed years of jurisprudence and SEC interpretation and are sending very bad signals that foreign investors aren’t welcome.
The ruling threatens even the protectionist elite, who had used these Constitutional prohibitions to establish domestic monopolies, because it would reduce the marketability of both its non-voting preferred stock and voting common shares,as well as limit its access to capital.
The ground is also politically favorable to a Charter amendment on economic provisions. Both Senate President Juan Ponce Enrile and Speaker Feliciano Belmonte are ready, eager, and willing to cooperate once President Aquino gives the signal on Charter change. Coming on top of his political victories on the reproductive health and sin tax laws, President Aquino can pull off what eluded even former President Estrada: removing the protectionist elements in the Constitution that benefited only the domestic monopolists.
As one analyst pointed out, it also makes geopolitical sense to liberalize the ownership limitations in the economic provisions in the Constitution. It would enable the Philippines to join the Transpacific Partnership (TPP) being promoted by the United States, since removing the Constitutional restrictions on foreign ownership is a prerequisite for membership. Being part of the TPP would strengthen the country’s relationship with the United States, increase the country’s trade access to the US market, and serve as a counterweight to an increasingly difficult and possibly hostile relationship with China.
The other thing that President Aquino has to do is to address the appreciating peso problem.
Yes, the appreciating peso — there are forecasts it will hit 39 to $1 this year — is a problem, and a huge problem at that. It is mainly affecting the incomes of millions of OFW families, and those industries — retail, real estate, education — that depend on OFW money to power their growth. Even the SM group, which counts retail as its core business, is sounding the alarm.
Exporters, particularly the BPO industry, are threatened as well. The BPO sector, which saw rival India devalue the rupee by more than 20% this year, is struggling with diminishing competitiveness due to the appreciating peso.
Not just exporters, but also domestic industry is threatened by the appreciating peso. Competing imported goods come in cheaper with the appreciating peso, undermining the viability of local manufacturing.
One big reason why investors are also reluctant to come in is that the dollar cost of our labor, already high in peso terms because of minimum wage laws and other mandated benefits, keeps going up with the appreciating peso.
The appreciating peso problem is not a Bangko Sentral problem. It’s a national government problem, because only concerted action led by the national government can solve what is clearly a major problem with no easy solutions.
The very least that President Aquino must do is to convene a national summit in order to signal his determination to address the problem and to get a consensus from the various stakeholders on how to solve this problem with both short-term and long-term solutions in mind. He must clearly signal to the markets that the national government will not allow the appreciating peso to go unchecked and threaten the nation’s strategic interests.
The statistics indicate that President Aquino’s accomplishments in the past year haven’t moved the needle in terms of investments and job growth. He has to do more. This “more” is dictated not just by what economics indicates, but also what politics dictate.
Politically, a change in the Constitution is ripe, because with the Gamboa decision and the Carpio obiter creating an adverse climate for investments, even large sections of the protectionist elite are now pushing for it. As for the exchange rate, it’s politically and economically sound to push for a more competitive exchange rate, what with the large OFW sector, the exporters, the BPO industry, and even domestic manufacturers being hurt by a strong peso.
The divorce bill is fine, and I’m for legalizing gay marriage, but President Aquino’s to-do list in 2013 must focus on liberalizing the economic provisions of the Constitution and solving the appreciating peso problem.
Calixto V. Chikiamco is a board member of the Institute for Development and Econometric Analysis.