Monday, February 16, 2009

The Philippines for sale?

The ghosts of Charter change have risen from the grave.

Efforts to change the Philippine Constitution have been revived from the dead when Speaker Prospero Nograles of the Philippine House of Representatives filed a resolution to amend the economic provisions of the Constitution. Those in favour of removing the Constitution’s national patrimony provisions argue that it is important to attract foreign investment into the country. They assert that the wholesale removal of all manner of protection and regulation of key domestic economic sectors will boost foreign direct investment, and thus promote national development. Amending the Constitution will open to foreign capital all strategic enterprises, natural resources, land ownership, public utilities, professions, education, mass media and advertising.

On the other hand, critics of President Gloria Macapagal-Arroyo are quick to see it as a lame argument that actually masks her real intent to stay in power beyond 2010.

Do we really need more foreign direct investment (FDI)?

Throughout much of the twentieth century, the Philippine economy has largely been in the hands of American corporations. This has been ensured by the colonial relationship between the United States and the Philippines, as well as a post-independence agreement protecting the interests of United States’ corporations operating in the country. Citizens of the United States were not bound by Philippine citizenship restrictions with respect to foreign investment until 1974.

In 1948, fifty per cent of assets in manufacturing, commerce and mining were foreign-owned, as were 80 per cent of electricity assets. By 1970, foreign ownership of these assets had declined to around 40 per cent, and very little foreign investment remained in utilities. In the 1980s, foreigners controlled about 30 per cent of the assets of the 1,000 largest corporations in the Philippines.

Although foreign investors were forbidden by the Philippine Constitution to own or lease public agricultural lands, there were 124 transnational agribusiness firms operating in the Philippines in 1985, of which 58 were directly engaged in cultivation of cash crops on the southern island of Mindanao. As early as the 1920s, Del Monte Corporation, an American-owned company, had established a pineapple plantation in Bukidnon in Northern Mindanao. American companies, B.F. Goodrich and Goodyear Tire Corporation came in 1950s, while Castle and Cook entered in the 1960s, setting up a pineapple plantation in South Cotabato.

During the first half of 2006, the Central Bank of the Philippines reported that FDIs to the Philippines reached over US$1.15 billion because of the country’s strong economic structure. Nowhere in its report did the Central Bank indicate giving up the country’s ownership of its key sectors to foreign control was necessary to continue the influx of FDI into the country. In a 2007 report prepared by the United Nations Commission on Trade and Development (UNCTAD), $2.928 billion worth of FDIs flowed into the Philippines, but this was offset by an outflow of $3.442 billion worth of foreign direct investments.

The number one factor investors consider in locating to a host country is market size and growth, and the Philippines certainly has the sheer market size to attract foreign investment. However, foreign investors are scared of the political uncertainty and corruption in the Philippines. Most Filipino economists cite poor governance as a hindrance in attracting investors, which reflects badly on the performance of President Arroyo. And if President Arroyo continues to undermine the Constitution by hinting of her desire to stay in power beyond her term, this will only muddle the prospect of a stable political climate and plunge the country into a constitutional crisis, hence repel foreign investment from coming in, thus negating the purpose of the proponents of Charter change in amending the Constitution.

The arguments of the promoters of Charter change in favour of removing constitutional restrictions on foreign investment lack any merit and fly on its face. We have one of the most liberal investment environments in Southeast Asia, domestic labour that is so cheap, and productivity that is relatively high due to a skilled labour force. As well, we have the available infrastructure such as roads and telecommunications network. In addition to a potential large market, foreign investors can also take advantage of a sycophant government that is more than willing to cave in to every one of their demands. No wonder that foreign investors in the Philippines repatriate more profits to their parent companies than reinvesting their earnings in the country, which may not even be necessary because access to capital through local borrowing has been made easy by the government.

Our country’s experience with FDIs affirms what can go wrong with foreign investment. While foreign investment has played a big role in the economic development of many countries, notably China, South Korea and Malaysia, FDIs into the Philippines have not lived up to expectations such as jobs, poverty reduction and industrialization. Without sound and effective policies to strengthen the local economy, our country’s development will continue to be stunted despite inflows of FDIs. Unrestrained foreign investment, as envisaged by the advocates of Charter change, would only result in more foreign domination of our economy which has been wobbling from decades of globalization. Excessive amounts of foreign capital may in fact retard economic development. We might as well put up a big sign that our country is up for sale.

With our history of FDIs, we can expect more American foreign investment into the country if our Constitution is amended to give investors a free rein on our economy. High concentration levels of American capital would only ensure perpetual control over our country’s economic, political and social dynamics. With our imbalanced trade relationship with the United States, our stature as a “banana republic” is assured, a country with a weak and corrupt government heavily influenced by a foreign power.

Foreign direct investment may be essential to the achievement of sustainable development, but it is not a panacea. A sustainable development strategy would require nurturing the local capacities for production and innovation. Rather than encouraging FDI to flow towards export platforms for the assembly of imported inputs, industry and technology policies should aim to develop local skills, local markets and solid world-class domestic firms. With the right set of local economic policies, FDI could potentially help in that process.

But what’s really behind this sneaky effort to amend the Charter?

With Arroyo’s minions in Congress, there could likely be a prospect of amending the Constitution through Congress as a constituent assembly. This could pave the way for the Arroyo loyalists to inset amendments that will allow her to run in the 2010 elections. Requiring members of Congress not to insert term extensions is useless and not going to work because of their lack of credibility. Mrs. Arroyo seems determined to do whatever is necessary to ensure that she stays in office beyond 2010 and this present effort to change the Charter’s economic provisions to favour foreign direct investment is just another ploy to accomplish her objective.

According to lawyer Neri Javier Colmenares of the National Union of People’s Lawyers, Arroyo is so obsessed at amending the term of presidential office because of her fear of losing her immunity when her term expires in July 1, 2010. With overwhelming evidence against Arroyo, it would be difficult for her to cover up her crimes once she is no longer president.

Should this happen, history would repeat itself as Arroyo becomes the second president convicted for corruption, electoral fraud or human rights violation. Erap Estrada, whom Arroyo ousted from the presidency, must be laughing while cheering from the sidelines.

Time is running out for Arroyo to keep her dream alive of staying beyond 2010. Previous efforts to change the Charter, obviously through her subalterns in Congress, either by calling a constitutional convention or simply convening Congress as a constituent assembly have been rebuffed by the Supreme Court and by public opinion. This present initiative to open up Charter change seems bound to fail again and Arroyo has no other options left but to clean up her act in her last months in power.

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