As we reach the last year of the Duterte administration, important economic legislation to take us toward a brighter economic future still awaits passage.
Economic reforms need to continue. In the last few years, the government has succeeded in putting in place significant economic and fiscal reforms.
But the pandemic hit and the economy went into a different direction. This required a re-engineering of the public assistance program to help the economy deal with those affected by COVID-19, and to push through measures required to deal with the pandemic. Still, some economic measures needed in normal times must continue or we will face worse times if they fail to advance.
If we are to attain the future we desire, economic reforms should continue. Already, major fiscal reforms in economic resource mobilization have been legislated.
The first of these – TRAIN –reduced personal income taxes, but strengthened the revenue system with meaningful sales and excise taxation. The latest reform – CREATE – reduced the corporate tax rate and improved the fiscal incentive system to attract new private investments.
These measures will definitely help, but we need to address remaining impediments to allow economic sectors to attract more foreign investments to come into sectors where their larger presence is found wanting.
Now more urgent in a time of crisis. As the political season heats up toward the next presidential election, the government must push the legislative branch to pass remaining reforms in support of economic recovery and enduring progress.
Precious time should not be lost in a time of crisis and great need!
First, to lift the restrictive economic provisions in the Constitution is imperative. The House and the Senate, two bodies of Congress, need to act in concert to make this happen. The swell in the Lower House needs embrace from the Upper.
But for immediate and strategic impact in speeding up investment reforms, there are measures already passed in the House and awaiting approval in the Senate. These are amendments to the Foreign Investments Act, the Retail Trade Liberalization Act and the Public Services Act.
The amendments will benefit the economy immensely. They will expand more investments in the economy, create more good jobs for workers, and improve the reduction of basic costs within the economy, thereby improving the nation’s productivity and economic efficiency.
Strengthening the weak aspects of the Phl economy. These enumerated reforms will unlock many aspects that are missing in the Philippine development experience.
They will provide us with the tools to catch up economically with our neighbors. The amendments will strengthen the weak sectors of the domestic industrial economy and pave the way for more good employment opportunities for Filipino workers.
Through the years –decades, in fact – the domestic industrial sector had weakened from lack of highly competitive firms. In the days when high investments were attracted to industry, the policy of high protection encouraged inefficiency and limited market expansion.
The gradual opening of the economy and the downward drift of tariffs following the reforms of the 1990s with our entry into the WTO (World Trade Organization) and, further, the expansion of ASEAN into a free trade community exposed the Philippines and other economies to world trade and broader competition.
After these global reforms, industrial firms in our country that could not handle more open competition were forced to close. They left whatever demand for materials and goods that they produced to be displaced by imports. The hollowing of Philippine industry that served the domestic market is the result of the wasteful protectionist policies that carried the country to a dead-end.
Thus, countries with better policies toward foreign direct investments do better than those that do not. This is the story that defines the difference between our immediate neighbors in ASEAN and us. The ones that have better policies have run away from us in economic performance, and the distance between us is widening as time goes by!
Our failure in this race, so far, has been due in large part to the many impediments that are in our economic policies. To catch up, we must address our shortcomings with measures that directly confronts the problem.
Why countries in our neighborhood have done better than us is told by a simple story. The big foreign investments that were attracted to their economies brought along with them some of their most reliable suppliers –many of them being small and medium scale industries – thus multiplying the number of investors entering the country.
The agglomeration of these investments and their raw material supplier companies assured that their costs were brought down further by entering a low cost investment site. On first instance, new industries create jobs at home. Moreover, sustained inflow of investments acts like a magnet, making good things to happen further. There is a halo effect that countries attracting substantial foreign investments must be doing things right. Therefore, investment flows continue to be sustained and the generation of good jobs further expands.
Thus, these countries multiplied the good jobs that their workers want at home. They lift them out of poverty much sooner through a self-sustaining process.
Moreover, because investments were designed not only to sell to the domestic markets but also to export markets, the scale of the investments that were attracted to these countries tended to be of larger market scale. Eventually, they brought in the export earnings of the countries where they located.
These countries also had more liberal policies with respect to equity investments especially in large scale, basic industries. Such industries expand the domestic integration of the economy, thereby paving the way for more internal growth.
I have just described the growth of Thailand and Malaysia in the 1980s, of Indonesia in the 1990s, and Vietnam in the 2000s. It is a story of missed opportunities in our case.
But missed opportunities can be reversed. If Congress amends the restrictive economic provisions of the Philippine Constitution and adopts the special investment reforms cited here, the catch-up in economic performance will start in earnest.