What’s the motive for Cha-cha?
Innocuous. Nonthreatening. On its face, that’s what a lot of people would think of the current congressional move to amend our Constitution. After all, it consists of only five words, “unless otherwise provided by law,” to be inserted in the provisions limiting foreign ownership of land, natural resources, public utilities, media, and advertising agencies.
Earlier attempts to amend the Constitution, starting from the administrations of Fidel Ramos (Pirma, people’s initiative), Joseph Estrada (Constitutional Correction for Development, or Concord), and Gloria Arroyo (three attempts: Consultative Commission with its Sigaw ng Bayan, and the attempts under two Speakers—Jose de Venecia and Prospero Nograles) were attended by much hullabaloo, as well as moves by the Catholic hierarchy (Cardinal Jaime Sin even marched arm in arm with Estrada during the Ramos attempt). The Supreme Court was brought in during the Ramos and Arroyo attempts; Estrada didn’t wait that long.
These earlier attempts were considered by the great majority of Filipinos as self-serving as far as the advocates were concerned. In the case of Ramos and Arroyo, it was felt that their objective was to extend their terms through the shift to a parliamentary system, which would benefit legislators, because term limits would be removed. The economic objectives were secondary. Estrada’s objective was more simple: He wasn’t interested in staying longer (he said), he was strictly looking at the economic provisions, and it was felt this was payback time to Taiwanese and Chinese investors who had helped him win the presidency.
Now for the latest (fourth or sixth, depending on how you count). It doesn’t appear to have President Aquino’s imprimatur (that doesn’t count for much because in the beginning, Arroyo and Estrada were also against “Cha-cha,” shorthand for Charter change). This is strictly legislature-led. Let’s examine the motives.
The declared motive is to open the country to greater amounts of foreign direct investments (FDI), which would supposedly be forthcoming once we lift the ownership provisions. This would create employment and end poverty. Sounds good?
This argument was brought up also in the previous attempts, and was answered. Let’s start with the empirical findings that historically, FDI played only a minor role in the growth of most high-performing Asian economies. Between 1967 and 1986, Taiwan, Korea, China and Japan’s FDI were less than 2 percent of their Gross Domestic Investment (GDI). Hong Kong, Malaysia and Singapore weren’t much better off: FDI greater than 5 percent. More recently, except for China and Singapore, FDI in East and Southeast Asia comprise less than 10 percent of GDI.
Second, it isn’t just the quantity of investment that is important; the quality of that investment is just as important. Studies have shown that on a micro- or project level, a majority of projects yielded positive effects on national income, but a sizeable minority—one-third in two studies, anywhere from 25 percent to 45 percent in a third—had deleterious effects.
Third, macrolevel data may show an association between FDI and higher levels of income, but do not establish causality. In other words, one cannot tell whether it is an economy’s high growth and income levels that attract FDI, or whether FDI are what cause high growth and income.
What factors affect the amounts of FDI that go into a country? The World Investment Reports and other studies list them as: adequate infrastructure, skill levels (human capital), the quality of the general regulatory framework, clear rules of the game (no uncertainty), and fiscal determination. The Reader should tick off in her mind which of these factors the Philippines has an adequate supply of. Shouldn’t Congress be addressing these first and cooperating with the executive branch in these actions?
But wait. It is a fair question to ask whether the constitutional restrictions hamper FDI.
What about the 40-percent limit? I am told that there are companies that are controlled with less than 40 percent of the common stock; this is not unusual. Also, “super-majority” requirements on key decisions protect foreign shareholders. So that cannot be a binding constraint.
With respect to land ownership, leases on land can go up to 75 years, so surely there can be no uncertainty that foreign investors will just lose the land under their feet. And of course we have condominium laws on housing; their residences are secure. So land ownership cannot be a constraint on FDI either.
That limitations on foreign ownership of local media can affect FDI in the Philippines is laughable, even if we set aside national interests. Filipinos have access to any number of TV stations and newspapers and other media all over the world. What interest would foreign investors have in Philippine media?
Advertising agencies do not represent a large part of the economy, in this country or in other countries, so it cannot possibly be a big deal.
Public utilities—like PLDT and Meralco—have been operating quite successfully, which means that they could, with a little creativity, overcome the difficulties of limitations on foreign ownership. Again, what’s the big deal?
The last is natural resources. That may be the crux of the matter. In other words, that’s where lobbying may be strongest. But then, even Filipinos cannot own the natural resources, so why should foreigners?
There you have it. Legislators have lost their pork barrel. Take your pick on what they have found as an alternative, at least for the medium term.
There is always a motive.
