Finance Secretary Carlos Dominguez III has called on lawmakers to help jumpstart the Philippines’ recovery from the global economic slump unleashed by the lingering COVID-19 pandemic by acting swiftly on “doable” priority measures such as long-due reforms in the corporate income tax (CIT) and fiscal incentives system and easing the “inordinate” restrictions on foreign ownership in certain sectors of the economy.
These priority measures include the proposed Corporate Recovery and Tax Incentives for Enterprises Act (CREATE) and amendments to “anachronistic” laws such as the 84-year old Public Service Act, the Retail Trade Liberalization Act and the Foreign Investments law, Dominguez said at Tuesday’s hearing by the House committee on constitutional amendments on the latest initiative on Charter change (Cha-Cha).
With only 17 months left before President Duterte ends his term of office, Dominguez asked members of the Congress “to act on something that is doable.”
“What is most important is to undertake what is immediately achievable,” said Dominguez during the hearing of this House committee chaired by AKO-BICOL partylist Rep. Alfredo Garbin Jr.
“It is preferable, of course, to achieve the liberalization reforms in one blow. But if there are things that we can do to open up the economy through administrative measures, we must implement them. If there are areas that we can liberalize by amending our existing laws, then let’s do that,” added Dominguez, who heads President Duterte’s economic team.
Dominguez declined to provide any advice to members of the committee on the means to amend the restrictive economic portions of the Constitution, and only said that such provisions “would be a significant factor in revving up the Philippine economy and sustaining its recovery.”
“The means for amending the Constitution, however, is a political question. And I would not dare advise our legislators on the matter,” Dominguez said.
Dominguez said his proposed investment liberalization strategies that involve the immediate congressional passage of CREATE and the relaxation of the restrictions on foreign ownership, except land, “should accomplish enough to enable our rapid economic recovery.”
Although the restrictive economic conditions of the Constitution explain why the Philippines, over the past decades, received vastly less foreign direct investments (FDIs) than its fellow Association of Southeast Asian Nations (ASEAN) economies, Dominguez said that starting the process towards a more liberalized investment climate through the passage of these economic priority bills of President Duterte “will be a strong signal to the international investment community that the Philippines is open for business.”
“Immediately, the Congress can help in restarting our economy by acting on our pending priority economic bills,” Dominguez said.
“We call on our legislators to swiftly ratify the CREATE bill. As I have mentioned earlier, we want to push for the passage on the amendments to the Foreign Investment Act and the Public Service Act. We also need to modify the Retail Trade Liberalization Act,” he added.
These measures will complement the reforms that the government is now implementing, such as the “Build, Build, Build” infrastructure modernization program and the Ease of Doing Business law, Dominguez said.
With Indonesia poised to cut red tape and dramatically overhaul its investment policies to make them more open to foreign capital, the Philippines will be left as the only ASEAN country still maintaining “inordinate restrictions on foreign investment participation in economic growth,” Dominguez said.
“This does not bode well for our competitiveness in the coming years,” he said.
According to Dominguez, a draft presidential decree being prepared by the Indonesian government will cut the list of industries where foreign investment participation is limited from more than 300 to only 48. These include the removal of restrictions for sectors, such as communications, information and technology, energy and tourism.
Indonesia also plans to introduce a fiscal incentives regime similar to what the CREATE bill aims to accomplish, Dominguez said, describing the corporate reform measure as “immediately doable” and an “opportunity to jumpstart our economic recovery.”
He thanked the House of Representatives for passing the long-overdue reforms outlined in the CREATE bill that aim to “modernize the Philippines’ tax incentives system, so that we are better able to attract more strategic and high-value investments.”
Dominguez said the economy should not be tied down to a fixed set of policies but should have “an adaptable economic regime” to effectively compete in “a world that is constantly innovating.”
“A very good analogy to explain this is by using the concept of anchors and sails. We must adhere to our anchor, which is our core set of principles. This will keep us grounded. But we should also be flexible enough to adjust our sails when the winds change direction,” he said.
“The Philippines should have the flexibility to be able to adjust and maximize economic opportunities as, and whenever, necessary. State policies that should be in the Constitution should be limited to fundamental policies universally accepted and unalterable in character,” he added.
“Regulations on foreign investments must be left to ordinary legislation of Congress to ensure that the restrictions can be debated openly and policies are attuned to changing conditions,” Dominguez said.
He said, “Restricting economic activity is an outdated nationalistic concept, overtaken by technological developments. Maintaining preferential treatment for Filipino citizens in certain areas of concern no longer serves any imperative purpose.”
Dominguez noted, for instance, the following:
* the restriction of foreign investments in public utilities that has led to inefficiency, higher costs for Filipinos and limited growth of small businesses;
* the foreign investment ban on exploiting natural resources that has made the country forego countless opportunities for their responsible and sustainable development;
* the prohibition on the practice of foreign professionals, which has deprived Filipinos of new knowledge, skills, standards, cutting edge technologies and better service, and broader opportunities abroad for Filipino professionals;
* the limitations on the ownership of educational institutions that has become obsolete in this age of remote learning and digital technologies; and
* the ban on foreign ownership of mass media and advertising that has only prevented Philippine media and advertising companies from building international networks that will enhance their viability.
He said the ban on foreign ownership of educational institutions has only led to the closure of several private schools during the pandemic.
“High-level skills development in the country should be opened to foreign equity. The Philippines’ strategic location and proficiency in English undeniably make it a highly viable site for future offshore campuses of internationally recognized learning institutions,” he noted.
Dominguez said those who insist on keeping the economy’s protectionist policies should learn from the liberalization of the rice trade through the implementation of the rice tariffication law (RTL).
The RTL has resulted in the country achieving its highest level of palay production at 19.44 million metric tons (MT) last year, a significant reduction in rice prices that benefits mostly low-income Filipinos, a variety of rice choices for everyone, a more competitive rice sector and a steady stream of assistance to assist farmers and modernize Philippine agriculture through the annual P10-billion Rice Competitiveness Enhancement Fund (RCEF).
Dominguez recalled that when the Philippines affirmed its 1987 Constitution with restrictions to investments “not based on practicality but on some notions of nationalism,” Vietnam fully opened its doors to the world and began treading its path toward a market-oriented economy.
He said “Vietnam has effectively exported its way out of poverty by embracing trade and foreign investment liberalization complemented with domestic reforms through deregulation and lowering the cost of doing business” and heavy investments on infrastructure.
The country’s “restrictive economic provisions are residues from a period when our people had very little trust in the market,” Dominguez said. “Today, with better economic literacy, we should be better able to understand how market disciplines result in efficiency and lower costs.”
The latest FDI Regulatory Restrictiveness Index of the Organization for Economic Cooperation and Development (OECD) has revealed that the Philippines is perceived by the international investment community as the most restrictive among the ASEAN countries.
A comparison of the FDI inflows from 2015 to 2019 among ASEAN countries underscores the small share that the Philippines has received compared to the relatively more liberalized economies of Singapore, Indonesia, Vietnam and Malaysia with results showing rapid rates of expansion and modernization enjoyed by these neighbor-economies over the past three decades, Dominguez said.
“Over the longer term, opening up our economy is indispensable to achieving a truly inclusive investments-led economic growth that will open more employment opportunities for our people. It will produce a modern, efficient, and robust economy that will guarantee prosperity for all Filipinos,” he said.
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