Appearing recently before the economic press for the East Asia and Pacific Region, officials of the World Bank made an assessment of recent economic recovery among countries in the region.
Naturally, the news report in the Philippine Star on July 16 focused attention on our country (World Bank: The Philippines need reforms in FDI).
Economic recovery and the importance of FDIs for the Philippines. The president of the World Bank, David Malpass, spoke on the uneven record of the developing economies in the region, both in their recovery from the pandemic and in their efforts at undertaking vaccinations.
Among the developing countries, he cited the Philippines in the context of problems related with economic recovery. Mr. Malpass, aside from speeding up of vaccination, underscored the need to pass important legislation that facilitate the recovery process. In this connection specifically, he referred to the importance of attracting more foreign investments in the country.
He said in this context: “I think there are things that the Philippines can do now that will make it more attractive to investments and that will help the recovery process.” He was essentially hinting at pending legislation that still need to be undertaken which the Philippine government has been suggesting to the legislature as urgent, but which has not yet passed.
At the moment, three bills have long been pending in the Senate: Amendments to the Foreign Investment Act, the Public Service Act and the Retail Trade Liberalization Act. The House has approved its own versions of the bills.
Though the country has been making progress in improving some of the policies that increase attractiveness to foreign investments, more needs to be done. In recent years some important reforms have already seen passage.
The pending bills would help to ease some existing restrictions on foreign businesses, introduce changes in the definition of public utilities to open more investment areas in sectors where the country lags behind, and allow greater foreign investments in telecommunications and transportation. Many of these industries are critical to the expansion of infrastructure and basic facilities that are essential toward integrating the economy.
Elaborating further on Philippine issues, the regional vice-president for East Asia and the Pacific, Victoria Kwakwa said: “I think there’s still a strong reform agenda that is being implemented … and all of these are important to make some of the structural changes and address impediments to long-term growth.”
Responding to disputed forecasts that the Philippines could become a basket case because of lingering economic woes, she said, “That’s not how we see it all, even as the country has been strongly hit by COVID-19. I think with the vaccination that’s in process and some of the reforms that are ongoing, we see a rebound in 2021.
“But the Philippines will need to continue to address some of the structural constraints to long-term sustainable growth. But we don’t see it as a potential basket case at all,” she said.
I agree fully with this judgment. In the final part of this piece, I will deal with this point.
The Philippines in the East Asia region more recently. Although they were speaking of more recent times, the first quarter assessment of April 2021 essentially stood. In that report, the World Bank reported that only China and Vietnam in the East Asia and Pacific region have recovered from the pre-pandemic levels of GDP, even surpassing them in 2020.
In the other major economies of the region, output remained on average around five percent below their pre-pandemic regions.
The smallest gap from that level was recorded in Indonesia which was 2.2. However, the Philippines had the highest gap at 8.4 percent below pre-pandemic level.
In the Philippines, the imposition of COVID restrictions on people movement in April added to the problems of economic recovery. As a result, the World Bank reduced its output forecast for 2021 from 5.5 percent to 4.7 percent, with output rising higher in subsequent years.
Recent COVID cases, however, are rising in other countries because of the Delta variant of the virus. Those measures adopted in the Philippines in April might have helped to contain the large rise of new COVID infections now being observed in other economies that were spared by early success.
All these stress the need to speed up the vaccination program as already pointed out.
The main structural constraint to FDI policy improvement: Constitutional restrictions.I said I agree fully with the judgment made that the Philippines can do well in economic growth.
The World Bank, the Asian Development Bank, the UN agencies, and bilateral development partners will help us with advice to move the frontiers of our economic and social policies so that we can refine them to help raise our economic performance.
All such measures, needless to say, have to be compatible with existing policies that are compatible with our constitutional policies. Even if our external economic cooperation partners are aware that the best move for us is to deal with our political constitution simply by amending the portions of the constitution that act as barriers to economic progress, they will not cross that line.
They will not tell us how to handle our own political problems. I have said it often that the original sin in our development performance, with respect to foreign direct investments, are in the those restrictive economic provisions.
I will say it in another form. Although for nationalist political rhetoric and protectionism, those provisions sound high and noble, they represent the poison pill that makes it difficult for some foreign investors to put us high in their priorities.
Prospective foreign investors see them as a threat if not discomfort.
This is the reason why amending the existing restrictive economic provisions of the Constitution should be highest in our priority to signal to the world that we want more foreign direct investments.
Perhaps, the forthcoming presidential election will help us move forward in this direction.