Liberalizing Indonesia turns up heat on PHL foreign restrictions

Categories: AnnouncementsBusiness UpdatesPolicy News and Updates

Date Posted: 17 Feb 2016

The Philippines should act faster to further ease business restrictions to attract more foreign investments as other countries in the region are becoming more decisive in their bid to become competitive, members of foreign chambers said during the weekend.

They were reacting to a move by Indonesia last week to open a long list of sectors to foreigners in a turnaround from previous actions that drew criticism for the country’s slide back to economic protectionism.

“It’s time that the Philippine government is becoming more responsive to what other countries are doing,” said Henry Schumacher, external affairs vice-president, European Chamber of Commerce of the Philippines (ECCP), via e-mail.

He said the country had to realize that competing countries for foreign direct investment (FDI) were “making decisive steps” to open their economy to investors by creating a level playing field.

Bernardo M. Villegas, professor at the University of Asia and the Pacific, said the Philippines “will definitely be less competitive than Indonesia in attracting FDIs.”

The economist, who is also research director of the Center for Research and Communication, had been in the past critical of Indonesia for re-introducing protectionist measures, calling “the step backward” as the “wrong king of nationalism.”

With Indonesia’s latest announcement, he said the regional neighbor would enable it to attract even more FDIs than the Philippines.

“They can aspire to have annual flows of $20 billion of FDIs compared to our measly $5 billion,” he said via e-mail.

Ryan Evangelista, executive director of the Australian-New Zealand Chamber of Commerce of the Philippines, the move by Indonesia would put it in an “excellent position to attract more FDIs.”

“With this move, I can see that it will help the Philippine government further examine how the Indonesian model for economic reforms will inspire changes we need to rally our efforts in attracting more FDIs,” he said.

But he said Indonesia’s new investment tack “sends a positive signal to investors (in general) when looking into the benefits of investing” in the Association of Southeast Asian Nations (ASEAN).

“Noting that we have started to integrate as one economy and given that Indonesia is in fact the largest economy in ASEAN, I see a spill-over effect in as far as enabling a stronger regional production network in which the Philippines is a part,” he said.

ECCP President Guenter Taus said that Indonesia’s move may not affect investment decisions to the Philippines in the short term.

But moving forward, he said “a more open investment environment for foreign investors paired with a market that is approximately 2.5 times that of the Philippines could likely turn investors, especially those in consumer driven sectors, towards Indonesia as their first entry point into the ASEAN market.”

He said the latest development follows a regional trend of opening up to foreign investors.

“Vietnam has also moved fast in the past years, through extensive reforms, to become more attractive to foreign investors,” he said.

“The Philippines needs to take decisive action in the same direction by liberalizing key economic activities and creating a more business friendly environment in order to remain competitive and benefit from the influx of foreign investment to ASEAN in an increasingly competitive region,” he added.

But for Mr. Villegas, the country should take a bolder stance by amending the Constitution “to enable us to be more flexible in allowing more foreign equity investments in public utilities, telecommunications, media, education and transport and communications. We should also amend the Constitution to allow limited ownership of land by foreigners.”

Amending the Constitution has in recent years gained supporters, among them the business clubs, foreign chambers of commerce and industry associations, which backed a legislative measure that calls for amendments to certain economic provisions of the 1987 Constitution.

The measure, Resolution of Both Houses 1, seeks to insert the phrase “unless otherwise provided by law” to portions of the Constitution that restrict foreign ownership of land, natural resources, public utilities, media, and educational institutions.

If approved by Congress, and subsequently in a plebiscite, the amendments would allow Congress to pass future laws to change the current constitutional restrictions.

Mr. Evangelista’s call is for a “response will be taken in the context of enabling a more robust/long-term vision for economic development — a combination of reforms that will address existing regulatory barriers and binding constraints but at the same time enable us to effectively play a vital role in ASEAN’s production network and ability to pursue other trade goals and reforms.”

Some have said the incoming administration and the 17th Congress will need to be more decisive and intensify efforts to open up the economy to more foreign investment.

“We are also hopeful that the bill amending foreign ownership restrictions in specific laws governing adjustment companies, lending companies, financing companies and investment houses cited in the country’s Foreign Investment Negative list will be enacted before the end of the current Administration and Congress; that will be an important step towards making financial services in the country more competitive,” Mr. Taus said.

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