Further economic liberalization in PH pushed

THE NEXT Philippine president must be able to champion economic liberalization as a way to boost the country’s productivity and global competitiveness, and to attract more foreign direct investments (FDIs), an economist from American banking giant Citigroup said.

In a Feb. 19 research note “Philippines Economics View: Candidates’ Evolving Policy Agenda and Continuity Risk Implications,” Citi Philippines economist Jun Trinidad said the presidential candidates’ recognition of the infrastructure gap and potential links to improving agriculture, and industrial competitiveness was easing continuity risk.

But just like in previous elections, the economist said most presidential candidates held a strong ‘insular’ bias “perhaps due to domestic poverty and other economic issues closest to the heart of the average voter.”

Outside the infrastructure issue, the research noted that most candidates have failed to articulate their stance on amending the foreign ownership limits of the 1987 Constitution.

“We believe liberalizing the foreign investment negative list (FINL) by allowing higher foreign ownership limits, which set a maximum of 40 percent for infrastructure, utilities and most service sectors (except BPO and banks), would offer strong investment opportunities, and fewer constraints on foreign investor participation in the big-ticket PPP (public-private partnership) projects,” Trinidad said.

Trinidad said easing the FINL and amending the economic restrictions in the constitution could entice more local and foreign investments and expose these sectors to global business practices, new technologies and management systems.

“Liberalizing FINL offers a strong positive signal to the investor community while completing the basic legal work the country needs to be fully committed to TPP (Trans-Pacific partnership agreement) and other free trading agreements, which include granting foreign investors/trading partners liberal access to the services industry/markets,” he added.

TPP is an an economic grouping of nations intending to boost trade and investments by dismantling trade barriers. In the Asean, only Singapore and Vietnam have so far signed up but the Philippines has expressed interest to join in the future.

The Citi research noted that most candidates had expressed strong bias to prioritize agriculture among the economic sectors that need strong fiscal support. However, it noted that not many specifics were offered on how to modernize agriculture other than to provide agri-based infrastructure and establish economic zones.

The research also looked at potential ‘blue-sky’ economic effects assuming the infrastructure pledge and constitutional amendments go through during the term of the next administration. It assumed $1 billion in investments going to the electricity, gas and water and key service sectors arising from the liberalization of FINL. Infrastructure spending pledges of the same amount were assumed to directly benefit the construction sector.

Potential output lift was largest for electricity, gas and water (16.6 percent) sector while total output gains exceeding 0.7 percent were registered by the construction sector due to infrastructure lift, transport, storage and communications and other services.

Consistent non-gainers from other sector’s good fortune were government services, perhaps due to non-existent output linkage with other sectors and construction.

Using the same treatment in the other sectors, Citi saw additional GDP growth of more than 0.5 percent in the following sectors: trade and repair, financial intermediation and real estate, renting and other business services. Growth in these sectors also sparked incremental growth for the rest.

The most impressive result is likely on manufacturing, with a GDP gain of nearly 1 percent—the highest growth result in this simulation.