It’s the final stretch of the 19th Congress. The Senate and the House of Representatives have 10 months left to pass measures before the 2025 midterm elections.
Will the lawmakers still push for economic Charter change (Cha-cha)? Critics are expecting a “last push” from the proponents. Cha-cha promotional materials also continue to circulate on social media.
The House approved in March a joint resolution to ease constitutional limits on foreign ownership of public utilities, educational institutions and advertising industry.
The move came a month after President Ferdinand Marcos Jr. broached the idea of holding a plebiscite on the economic Cha-cha simultaneously with the midterms in May 2025. “That will be a huge deal, that will save us so much, so that’s why we’re studying it,’’ Marcos said.
The Senate has yet to pass its counterpart measure in the committee.
Cha-cha’s fate remains uncertain. But what is clear, based on government data, is that easing foreign ownership restrictions will not prompt the rush of investors into the country.
The lawmakers will be surprised when they look at the data — if they haven’t already. They will learn that overhauling the 1987 Constitution is hardly a factor in attracting foreign direct investments (FDIs).
University of the Philippines economics professor JC Punongbayan presented two key studies during a Kapihan sa SWS lecture, where he showed that the “statistics and econometrics” of Cha-cha do not support the objectives set out by its proponents in Congress.
Cha-cha is not the main factor that will draw foreign investments into the country, he said. He cited a 2023 study by the Congressional Policy and Budget Research Department (CPBRD) and a similar study by the Bangko Sentral ng Pilipinas (BSP) in 2021.
Data from Congress think tank, BSP
According to the CPBRD study, the biggest factors are actually improvements in human capital and a “stronger perception of government corruption control.”
The study showed that a 10-percent improvement of human capital can boost FDIs by 108.5 percent.
Human capital indicates a country’s ability to invest in the education and health of its people. It is measured through adult literacy rate, enrollment ratio in all levels of education, and the expected and average schooling years.
Meanwhile, a 10-percent increase in the perception of government control on corruption can attract FDIs by 60.5 percent. The study used the Corruption Perception Index (CPI) developed by Transparency International, where a higher score suggests a less corrupt government.
Reducing corporate tax rates by 10-percent boosts investments by 18.6 percent.
A shorter distance between the investor and the recipient also results in higher FDIs.
Meanwhile, countries “with a common colonizer” experience significantly higher inward FDI, and lower inflation rates encourage foreign corporations to invest in a country.
While easing restrictions on foreign ownership has a positive effect on FDI outflow from source country to host country, it has minimal impact compared to other factors.
Meanwhile in its 2021 study, BSP explored 10 separate scenarios that looked at different groups of factors affecting FDIs in the ASEAN-5 region, which comprises Indonesia, Malaysia, the Philippines, Singapore and Thailand.
The study also considered the inclusion of additional factors such as ease of doing business, infrastructure, rule of law and minimum wage.
Human capital, ease of doing business
The BSP study explored the impact of several scenarios that combine adjustments in significant economic factors.
In one scenario that considered corporate taxes, minimum wage, human capital, and foreign equity restrictions, the BSP study showed that improving human capital by 10 percent can bring a 40-percent increase in FDIs.
Easing foreign equity restrictions by the same ratio only boosts investments by 5 percent.
Improved human capital topped other factors in most instances. But in at least four scenarios, the BSP study showed that including ease of doing business in the mix could be the biggest factor in pulling in FDIs.
A high rate in ease of doing business means that regulatory policies in a country are business-friendly. Faster time in securing permits and paying taxes is an example. The Philippines still needs improvement, ranking only 95th among 190 countries in the World Bank’s ease of doing business index.
The Philippines lags behind other countries in both aspects.
The country only scored 0.52 in the World Bank’s 2020 Human Capital Index, which is lower than the 0.59 global average. In the 2023 Corruption Perception Index of Transparency International, the Philippines scored 34 out of 100, below the global average of 43. It remains “on the lower end of the spectrum” compared to other ASEAN countries.
Punongbayan noted that congressional hearings cited the BSP’s findings, but he said the lawmakers appeared to have “cherry picked” the information.
“They only highlighted potential effects of equity restrictions on FDI… you can make an argument that improving human capital or fixing corruption perceptions could do a greater job of attracting FDIs,” Punongbayan said.
Public opinion, business community
The ball is in the senators’ court. Newly installed Senate President Francis Escudero has been opposed to Cha-cha, but he said he will allow deliberations on the issue.
What does the business community think?
Interviewed by the BusinessWorld, Philippine Chamber of Commerce and Industry (PCCI) Chairman George Barcelon expressed concern about the country’s slow progress in fighting corruption and the ongoing political squabble between Marcos and former President Duterte.
Barcelon also complained about the rising energy and shipping costs. “These issues should be addressed first before Charter change (‘Cha-cha’),” he said.
The business community has always been wary of the political instability that accompanied Cha-cha debates in the past three decades.
During the 18th Congress, PCCI sounded the alarm about revising the Charter so close to the 2022 national elections. It said this could “raise fears that other constitutional changes, some of which may be highly controversial, may be introduced and passed.”
“While it may be the fastest option, inserting the provision ‘unless otherwise provided by law’ in sections of the Constitution that limit foreign equity to 40 percent in business ventures that are considered of critical interest to the Filipino people, could potentially weaken the country’s highest law by making it easier for ordinary legislation to amend the Constitution,” the PCCI said in 2021.
A Pulse Asia survey in March 2024 showed that eight out of 10 Filipinos opposed Cha-cha.
Filipinos were against proposals allowing foreigners to own universities, have foreign equity in mass media and advertising, own residential and industrial lands, and exploit the country’s natural resources.
A new Pulse Asia survey released this month also showed that Filipinos do not consider amending or revising the Charter an urgent matter.
Only 5 percent of Filipinos would like the President to talk about Cha-cha in his State of the Nation Address. — PCIJ.org