Political discord, a turn off to investors?
OF SUBSTANCE AND SPIRIT
It’s not the first time we heard about that sense of uncertainty that triggers fear among investors, whether domestic or foreign. Socio-economic Planning Secretary Arsi Balisacan was concerned that in the Philippines, the issue of Charter change has compounded the widening gap between President Marcos and former President Duterte, and their political camps. We don’t see unity building in UniTeam, but apparently an eroding alliance.
It's good to be reminded of how the Russian oligarchs evolved from Boris Yeltsin in the 1990s when they became heavily engaged in political governance. They knew too well that being close to the political kitchen could help them determine what was to be cooked. It was not surprising that they themselves started to install their own cook. These business tycoons were informal advisors without accountability. But Vladimir Putin executed another strategy and cracked down on these oligarchs. He broke down their business empires and put some of them to jail. The reports of this political evolution were clear that the oligarchs were not exactly eliminated but were told there was a new tsar who would determine the political menu. A new set of oligarchs emerged, but the infighting continues to this day.
Obviously, we see an ugly discord because the politicians’ future is on the block. We see some action because this is now a question of political survival. It looks like many in the Lower House are prepared to piggyback on Charter change for convenience because revising the form of government could strengthen their hold to power. On the other hand, the Philippine Senate could be abolished if the charter is revised accordingly.
Doing it via a people’s initiative becomes suspect because that would compel Congress to vote as one body rather than separately to be consistent with the 1987 Philippine Constitution. Former Senior Associate Justice of the Supreme Court Tony Carpio pointed out in no uncertain terms that how Congress would effect changes in the charter, or shape a new form of government, is outside the authority of a people’s initiative. It could propose amendments, but not revisions of the Constitution.
Why, there were other vital issues in the past that should have also genuinely moved the ruling political class to action, but unfortunately there is little evidence to it. For one, there was more support to than resistance against the Maharlika Investment Fund when it was passed with undue haste in the Lower House and in the Senate, even as this was originally intended to tap the pensioners’ funds at the GSIS and the SSS, or the capital base of both the Land Bank and the DBP. Perhaps it was because only the working class would be affected, as only their kind depends almost completely on pension funds, while the state banks are more into small business and agrarian reform beneficiaries. There were those who borrowed big to fund infrastructure projects but they were rather few.
For another, red tagging was institutionalized with enormous budget even as it impinges on the right to free expression and dissent, and threatens the lives of Filipino individuals. Many media people found the law supporting it as nothing less than an assault on human rights. Except from the cause-oriented groups and concerned senators who crossed party lines against red tagging of community pantries, there was only the silence of the graveyard.
Secretary Balisacan may have a point that liberalizing the Constitution could make the country more competitive in attracting foreign capital. But he should be the first to know that the so-called restrictive constitutional provisions are not exactly the reason why we are less competitive. We have amended the Public Service Act which further opened wide more sectors of the economy to foreign investments. Before President Duterte stepped down, corporate income tax was also reduced and the minimum capital requirements for foreign retailers lowered. Thus, we have become more liberal than some neighboring countries but they were more successful in attracting higher foreign capital. As various research studies in the recent past show, it is the rule of law, consistent public policy, ease of doing business and infrastructure support that sparks foreign interest.
In addition, ADB this year quoted a 2020 study involving a survey of affiliates of multinational companies in 10 middle-income countries which shows that out of the 15 possible factors influencing foreign direct investments, top three were political stability considered critically important by 49.4 percent of the respondents; macroeconomic stability, 49 percent; and legal and regulatory environment, 42.0 percent. Others included local talent which ranked fourth; low taxes, fifth; physical infrastructure, seventh; and investor protection, 10th.
In our over two decades participating in government investment roadshows in the US, Europe, the Middle East and Asia, as well as in periodic credit rating sessions, the first thing that they would always ask was what we thought about President Estrada winning the 1998 election, the 2001 transition to President Arroyo through a people power movement, the possibility of an FPJ presidency in 2004, how PNoy would govern considering what they called sympathy votes that propelled him to Malacañang in 2010, and how a city mayor in President Duterte would measure up to the demands of the presidency. It’s the head of state, his politics and his economic team that keep foreign investors assured or worried. Once these were clarified, they would then begin to query on risks and challenges to sustainable growth, fiscal and debt sustainability, and medium-term prospect of monetary policy.
In my inaugural Webinar for New York’s GlobalSource Partners last Friday, Jan. 26, one of the first questions asked was what could be expected of the Department of Finance under the leadership of Secretary Ralph Recto. Perhaps they must have gotten wind of Secretary Recto’s announcement that there would be no new taxes this year, that his team is currently reviewing and refining his predecessor’s proposed tax measures. A veteran legislator, his focus is more on tax administration, “to collect what is on the table.”
The other question was about the political risk: “How will the growing divides in the Philippines, the country’s Charter change, and territorial conflict in the West Philippine Sea shape the country’s political outlook?”
There was nothing about the Charter’s economic provisions, but more on how Charter change seems to be dividing the political elite, and perhaps the Filipino people, too.
That would be economically destabilizing. A real turn off to those who plan to invest!