Understanding the Charter change issue

Filipinos living abroad—either as permanent residents in their respective host countries or OFWs—are still perplexed about previous efforts to amend the Philippine Constitution of 1987. What many of them recall was the strong objection of some political groups who were afraid that the Charter change (Chacha) was being pushed in order to perpetuate in power the incumbent President and other elected officials. Let me explain why we need the Chacha irrespective of the political motivations of those who are in favor or against it.

There is no question in my mind that we have to amend the 1987 Constitution.  There are economic provisions in our Constitution that are serious obstacles to the national economy attaining the growth rates that are a necessary, though not sufficient condition for eradicating Philippine poverty, one of the worst in the entire East Asian region. My premise is that a GDP growth rate of 7 to 10 per annum must be sustained for 10 to 20 years before we can bring down our poverty incidence from its present high of over 30 percent to  below 10 percent, which is still the poverty incidence prevailing in the most powerful economy in the world, the United States of America.

This high GDP growth needed to combat poverty over the long run cannot be attained without a large infusion of foreign direct investments (FDIs), as can be gleaned from the experience of China over the last 20 years. In 2010, for example, China attracted more than US$100 billion in FDIs, contrasted with less than US$2 billion in the Philippines.  Our closest competitors for investments, Indonesia and Vietnam, attracted US$10 billion and US$7 billion, respectively.

The timing in amending the Constitution is, however, an important issue. The world is still recovering from the Great Recession. The Philippine economy has just begun to accelerate its growth from the low averages of 3 to 4 percent attained in the past to 7 percent or more. I think we should allow the present leadership to completely focus on what can be done in the next three years to sustain the 7.3 percent growth in GDP that was attained in 2010.  It would be counterproductive to distract our leaders by what can be a very divisive process of amending the Philippine Constitution.

There are enough doables in the next three years that can improve the investment climate even without removing the constitutional obstacles to foreign investments. The Philippine financial system is still awash with savings that can be used for investments in infrastructure, energy, telecommunications, real estate and housing. Such local funds are good for at least the next three years to sustain an annual growth of 7 percentr or more.

Over a longer time period, however, we will have to supplement local money with substantial amounts of foreign equity, coupled with foreign technology and access to foreign markets, in order to continue and even accelerate our growth rate.  With foreign

funding, we can target annual growth rates of 8 to 10 percent in the last three years of this present administration and beyond. The two largest emerging markets of Asia, China and India, have already accomplished this feat, precisely with help from significant amounts of foreign direct investments. Indonesia and Vietnam, among the largest emerging markets in Southeast Asia, are following the examples of China and India. We can do no less.

To determine which economic provisions need amendment in order to attract higher levels of foreign investments, we can turn to the seven foreign chambers of commerce in the Philippines who did us the service of identifying the most critical changes that can accelerate economic growth in the Philippines. In the very valuable document entitled “Arangkada Philippines 2010: A Business Perspective,” these needed amendments were literally handed to us on a silver platter. On pages 279 to 282 of this document, we read:  “Constitutional restrictions on land ownership and public utilities in place since 1935 are the most formal barriers to foreign participation in the Philippine economy. Relaxing them would ease the entry of foreign capital needed for further modernization and growth and could increase competition in these sectors, benefiting the entire economy. Other constitutional restrictions limit foreign investment in advertising, education, media and natural resources.”

In my own research I concur with the recommendations of the seven foreign chambers that there can be a quantum leap in foreign direct investments if foreigners are allowed to own land for industrial and commercial purposes. Furthermore, limited ownership for residential purposes would simplify current arrangements. Allowing foreign ownership of land will benefit the economy by increasing investments in businesses using land, such as manufacturing, property development, and tourism—three sectors that have very high potentials for growth in the next 10 to 20 years. Even Vietnam, still considered a socialist economy, allows the foreign ownership of land.

Given the need to amend the economic provisions of the Constitution, when would be the opportune time to introduce these amendments?  I suggest that we postpone the process of constitutional amendment till 2013 to give time to the present administration to consolidate the reforms needed for high and sustainable growth with equity. Among the doables that do not need constitutional amendment are combatting corruption, reducing the fiscal deficit, reducing the cost of electricity, eliminating bureaucratic red tape and improving infrastructure in the countryside. In fact, among the bills President Aquino wants the legislature to prioritize, there are those that address very specific issues that have to do with improving the investment climate. Among them are the fiscal responsibility bill mandating legislators to pass counterpart revenue-generating provisions for every loss-causing law; the rationalization of fiscal incentives offered investors; the streamlining of compensation at state-own firms; amendments to the build-operate-transfer law; refinements in the Electric Power Industry Reform Act and in the Anti-Money Laundering Act.

Three years before the end of the term of the present administration, we can ask Congress to constitute itself into a constitutional assembly to amend only the economic provisions that are the obstacles to a significant increase in foreign direct investments. Such other amendments that have to do with the form of government (presidential vs. parliamentary), the tenure of government officials, greater independence of the judiciary, or the liberalization of the process of initiative in amending the constitution could be considered in a constitutional convention the members of which can be elected at the same time as the national elections of 2016. By that time our efforts to accelerate economic growth to a level that will enable us to significantly reduce our poverty level would have borne fruit and the government that will take over on June 30, 2016, would have a more stable economic and political climate in which to meet the challenge of presiding over what could be a contentious process of a thorough-going revamp of the 1987 Constitution.

A constitutional convention could last some two to three years if it is to thoroughly revamp the 1987 Constitution. That would give enough time to the elected members of the convention to do the necessary consultations with the people. The final form of the new Constitution could then be put to a referendum at the same time as the mid-term elections scheduled for 2019. By that time, the present Constitution shall have been in effect for 32 years, just five years short of the time duration of the 1935 Constitution, which was replaced by the 1972 Constitution during the administration of former President Ferdinand Marcos.

For comments, my e-mail address is [email protected].