charter change

[ANALYSIS] Understanding the demonization of foreign capital

Dean de la Paz

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[ANALYSIS] Understanding the demonization of foreign capital

Marian Hukom/Rappler

Today we are part of the global economy. We need foreign capital. Welcome to Aldous Huxley’s World State. It’s a brave new world.

On the charter change attempts at the sidelines of a distracting discourse on the necessity of totally opening the capital structure of certain enterprises originally limited to Filipino ownership, there is an even more ludicrous notion that foreign capital is unnecessary. 

Let us call a spade a spade. While it is decidedly tart, and bitter that it has turned quickly acidic, the charter change discussions are propelled by the desire to retain political power over constitutionally mandated limits. Any discussions on amending only the economic provisions are simply part of the smokescreen so that the attempt at political immortality might have some credence.

The lack of any quantifiable impact, or even ballpark numbers, and the obvious ignorance of those who evoke economic amendments, assuring that any change will be limited to these is glaring. While foreign chambers of commerce support opening equity structures to a hundred percent, the self-serving nature of their collective statement cannot be seriously considered objective. Nothing prevents self-serving statements in a free society, but recognizing bias should put these in its proper perspective. 

Unfortunately, the underlying risk aversion to foreign capital on the opposite side of the debate is just as biased if not downright flawed. 

The sidebar discussions, integral to the range of issues from term limits to economics, have allowed those with a socialist anti-capitalist bent an opportunity to throw verbal barbs not only against enterprises incentivized by Adam Smith’s often misinterpreted concept of profit but also against those who have boldly ventured into the previously risky and prohibitive arena of investing in crony capital-ridden volatile economies that teeter on authoritarianism. 

[ANALYSIS] Why charter change is needless right now

[ANALYSIS] Why charter change is needless right now

Save for specific enterprises that involve patrimonial assets, mineral resources, national security and other concerns that involve sovereignty, foreign capital is generally allowed either through a 40:60 equity window or, as has developed as we come to terms and realize that the Philippine economy is part of a much larger globally linked economic system, we have correctly, selectively and judiciously allowed as much as 100% foreign equity in some critical growth areas. Export processing, the amendments to the Public Service Act, small-scale retail trade as well as the liberalization of the generation sector in the energy industry are examples.

The Robin Hood persona and optics that politicians enjoy garnishing their image with – that they are pro-poor and are heroic representatives of the downtrodden – quickly fits the rebellious anti-corporate, anti-big business and anti-evil empire narratives enough to gain votes and win over the popularity contests that Philippine politics is notorious for. 

At the Senate, on both sides of the political aisle, and curiously on both sides of the popularity spectrum from the ruling class to the minority, between the senator with the greatest number of votes, to the least who barely made it to the twelve voted in in 2022, the cinematic optics of a heroic David slaying a powerful Goliath applies. 

On one end, by analyzing the initiative for charter change by the Senate chairperson for Constitutional Amendments and Revision of Codes, while he is cognizant of current allowable foreign equity structures, we see that he remains adamant that the tinkering will be limited to the economic provisions foremost of which is the question of corporate dominance by outsiders.

At the other end of the political divide, the only credible opposition senator has unknowingly provided fodder for constitutional amendments on allowable foreign equity. One had earned his mandate from evident populism, the other, from a cliché theme that demons corporate foreign capital is oppressive and opportunistic.

[In This Economy] Too much hand-waving in the economic charter change debates

[In This Economy] Too much hand-waving in the economic charter change debates

On these we cite three cases in point.

One involves the understandable knee-jerk fears from the so-called intrusion of 100% equity under recent amendments to the Foreign Investments Act where micro and small domestic market enterprises are accessible to foreign equity through the reduction of start-up capital requirements. Imagine here where small family businesses and Mom & Pop stores must now compete with foreign capital and product, marketing, and logistical business technologies.

Republic Act 11647 introduced amendments where foreign equity in excess of the old limit of 40% is allowed depending on the level of advanced technologies, innovative products, processes, and business models introduced, plus an endorsement by government, and where its proposed workforce majority are Filipinos.

While this impacts on small to medium-scale trade and manufacturing in the domestic market economy and its traditional enterprises, there are similar fears in the financial services and banking sector where foreign banks are allowed to own as much as 100% of smaller rural banks. While the application of professionalism and international banking standards, procedures, processes, and global linkages are welcome, there are fears that the poor level of creditworthiness, the absence of adequate and acceptable securities from rural communities typically served by rural banks and the lack of sophistication by the rural market might lead to serious financial exclusion.

The third example is drawn from the side-bar discourses of the charter change initiative and the fears that the privatization of 40% of the operation and maintenance (O&M) function of our electricity transmission – an effective monopoly – is in the hands of foreign powers with hostile hegemonic designs. While the National Grid Corporation of the Philippines is technically a Filipino corporation, politicians are wont to demonize its 40% foreign control due to growing popular Sinophobia.

It is now a quarter of a century since globalization changed the global economy and drastically wrenched apart the previous model of nation states that relied on high trade barriers and quota borders. What were once distinctive competences protected by tariffs and nurtured by state subsidies that shielded vulnerable sectors from global competition, some underlaid by an anti-capitalist Marxist ideology that pandered to the weak and oppressed, all these should now be relegated to dustbins. Collectively they created a degenerative desire for isolationism, especially for economies ill-prepared to confront global competition.

But today we are part of the global economy. We need foreign capital. Welcome to Aldous Huxley’s World State. It’s a brave new world. –

Dean de la Paz is a former investment banker and managing director of a New Jersey-based power company operating in the Philippines. He is the chairman of the board of a renewable energy company and is a retired Business Policy, Finance, and Mathematics professor. He collects Godzilla figures and antique tin robots.


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