Should restrictive economic provisions stay? (2)

The outright removal of restrictive economic provisions in the 1987 Constitution will send a strong signal to investors that they are welcome to do business in the Philippines. It also gives Congress the flexibility to subsequently impose restrictions, conditions for ownership, and safety nets by ordinary legislation.

When it comes to discussions on constitutional amendments and foreign ownership, land is by far the most sensitive issue, spurred by the nagging fear that allowing foreigners to own land would jack up real estate prices and crowd out Filipinos, particularly the poor.

Unlike the Philippines, which retains protectionist policies in its Constitution, other Southeast Asian (Asean) countries merely regulate foreign ownership and use of land through ordinary laws.

Thailand allows foreign ownership of land subject to restrictions on the land’s purpose, size, and amount that the foreign owner is infusing. Singapore allows foreign ownership of vacant residential lots or landed property, subject to prior approval of the Minister of Law.

In Malaysia, foreign ownership of land is allowed subject to the state authority’s approval, equity and paid-up capital conditions, and the location of the land to be acquired. In Vietnam, land is considered collective property and is administered by the state on the people’s behalf. However, foreigners can lease the land for 50 years, which can be extended up to 99 years.

Indonesia grants foreigners the right to build on and cultivate land, and use land titles for business purposes. Foreigners have the right to build for 30 years that can be extended up to 80 years. For the right to cultivate agricultural land and plantations, the initial term is 35 years, extendable to 95 years.

Our more developed Asean neighbors show that liberalizing foreign ownership of land encourages investors to make long-term investments that will, in turn, create jobs, increase income, and accelerate economic development.

As shown by other countries, lifting restrictive economic provisions didn’t stop them from passing laws to govern land ownership. Legislators can also pass safety nets based on what they consider appropriate to sustain economic development.

In crafting such laws, the Foundation for Economic Freedom suggests that Congress should be guided by policy considerations that include mode of acquisition and limitations on foreign entities, as well as the location and purpose of acquisition.

For instance, Congress can allow absolute ownership but only for a limited time, after which foreign entities should divest; absolute ownership may be allowed, but only upon approval by an appropriate government agency, and under certain terms and conditions set by that agency.

In addition, a limit should be set on the size of land a foreign entity can own, depending on the use of the land, amount of investments to be poured in, and prospective economic benefits like job generation.

The law could also limit the locations of land that foreigners can acquire, banning their entry in developed areas like Mega Manila and Metro Cebu. Priority should be given to idle lands in least developed areas where unemployment is high and income levels are low.

The specific purpose of the land acquisition should already be determined, and the buyers should commit to this. The law should prescribe specific actions and penalties for violations of this provision.

Liberalizing foreign ownership of land will also spur the entry of foreign capital that could give the country’s agriculture sector a much-needed boost to transform it into a dynamic, highly diversified, and competitive industry through the following:

Transfer and adoption of modern technologies, the upskilling of farmers and workers, increased investments in irrigation systems, and infrastructure support;

Increased access to sources of key production inputs and markets for local production that can lead to a rise in exports, and;

Improvement in the overall agriculture value chain.

An increase in agricultural activity will open livelihood opportunities for rural folk and increase their income. For the government, this means additional revenues from land taxes, the investing companies, and from increased local economic activity.

Agricultural development is just one of the many pluses of liberalizing the economic provisions in the 1987 Constitution. There are so much more to be gained from the endeavor—from education and media, to infrastructure and public finance. Further delaying amendments will also delay the Philippines’ opportunity for more inclusive growth and development.

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Gary B. Teves served as finance secretary under the Arroyo administration.