MANILA BULLETIN

Business & Society

May 23, 2011

When and How to Change the 1987 Constitution

There is no question in my mind that we have to amend the 1987 Constitution.
There are economic provisions in our Constitution that are serious obstacles to the
national economy attaining the growth rates that are a necessary, though not sufficient
condition for eradicating Philippine poverty, one of the worst in the entire East Asian
region. My premise is that a GDP growth rate of 7 to 10 per annum must be sustained for
ten to twenty years before we can bring down our poverty incidence from its present high
of over 30% to below 10%, which is still the poverty incidence prevailing in the most
powerful economy in the world, the United States of America. This high GDP growth
needed to combat poverty over the long run cannot be attained without a large infusion of
Foreign Direct Investments, as can be gleaned from the experience of China over the last
twenty years.

In 2010, for example, China attracted more than US$ 100 billion in

Foreign Direct Investments, contrasted with less than US$2 billion in the Philippines.
Our closest competitors for investments, Indonesia and Vietnam, attracted US$10 billion
and US $7 billion, respectively.
The timing in amending the constitution is, however, an important issue. The world
is still recovering from the Great Recession. The Philippine economy has just begun to
accelerate its growth from the low averages of 3 to 4% attained in the past to 7% or more.
I think we should allow the present leadership to completely focus on what can be done
in the next three years to sustain the 7.3% growth in GDP that was attained in 2010. It

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would be counterproductive to distract our leaders by what can be a very divisive process
of amending the Philippine Constitution. There are enough doables in the next three years
that can improve the investment climate even without removing the constitutional
obstacles to foreign investments. The Philippine financial system is still awash with
savings that can be used for investments in infrastructures, energy, telecommunications,
real estate and housing. Such local funds are good for at least the next three years to
sustain an annual growth of 7% or more. Over a longer time period, however, we will
have to supplement local money with substantial amounts of foreign equity, coupled with
foreign technology and access to foreign markets, in order to continue and even
accelerate our growth rate. With foreign funding, we can target annual growth rates of 8
to 10% in the last three years of this present Administration and beyond. The two largest
emerging markets of Asia, China and India, have already accomplished this feat,
precisely with help from significant amounts of foreign direct investments. Indonesia
and Vietnam, among the largest emerging markets in Southeast Asia, are following the
examples of China and India. We can do no less.
To determine which economic provisions need amendment in order to attract higher
levels of foreign investments, we can turn to the seven foreign chambers of commerce in
the Philippines who did us the service of identifying the most critical changes that can
accelerate economic growth in the Philippines. In the very valuable document entitled
"Arankada Philippines 2010: A Business Perspective," these needed amendments were
literally handed to us on a silver platter. On pages 279 to 282 of this document, we read:
"Constitutional restrictions on land ownership and public utilities in place since 1935 are
the most formal barriers to foreign participation in the Philippine economy. Relaxing

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them would ease the entry of foreign capital needed for further modernization and growth
and could increase competition in these sectors, benefiting the entire economy. Other
constitutional restrictions limit foreign investment in advertising, education, media and
natural resources." In my own research I concur with the recommendations of the seven
foreign chambers that there can be a quantum leap in foreign direct investments if
foreigners are allowed to own land for industrial and commercial purposes. Furthermore,
limited ownership for residential purposes would simplify current arrangements.
Allowing foreign ownership of land will benefit the economy by increasing investments
in businesses using land, such as manufacturing, property development, and tourism-three sectors that have very high potentials for growth in the next ten to twenty years.
Even Vietnam, still considered a socialist economy, allows the foreign ownership of land.
Given the need to amend the economic provisions of the Constitution, when would
be the opportune time to introduce these amendments? I suggest that we postpone the
process of constitutional amendment till 2013 to give time to the present Administration
to consolidate the reforms needed for high and sustainable growth with equity. Among
the doables that do not need constitutional amendment are combatting corruption,
reducing the fiscal deficit, reducing the cost of electricity, eliminating bureaucratic red
tape and improving the infrastructures in the countryside.

In fact, among the bills

President Aquino wants the Legislature to prioritize, there are those that address very
specific issues that have to do with improving the investment climate. Among them are
the fiscal responsibility bill mandating legislators to pass counterpart revenue-generating
provisions for every loss-causing law; the rationalization of fiscal incentives offered
investors; the streamlining of compensation at state-own firms; amendments to the build-

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operate-transfer law; refinements in the Electric Power Industry Reform Act and in the
anti-money laundering act.
Three years before the end of the term of the present Administration, we can ask
Congress to constitute itself into a constitutional assembly to amend only the economic
provisions which are the obstacles to a significant increase in foreign direct investments.
Such other amendments that have to do with the form of government (presidential vs.
parliamentary), the tenure of government officials, greater independence of the judiciary,
or the liberalization of the process of initiative in amending the constitution could be
considered in a Constitutional Convention the members of which can be elected at the
same time as the national elections of 2016. By that time our efforts to accelerate
economic growth to a level that will enable us to significantly reduce our poverty level
would have borne fruit and the Government that will take over on June 30, 2016 would
have a more stable economic and political climate in which to meet the challenge of
presiding over what could be a contentious process of a thorough-going revamp of the
1987 Constitution. A constitutional convention could last some two to three years if it is
to thoroughly revamp the 1987 Constitution. That would give enough time to the elected
members of the Convention to do the necessary consultations with the people. The final
form of the new Constitution could then be put to a referendum at the same time as the
mid-term elections scheduled for 2019. By that time, the present Constitution shall have
been in effect for 32 years, just five years short of the time duration of the 1935
Constitution which was replaced by the 1972 Constitution during the Administration of
former President Ferdinand Marcos.
bvillegas@uap.edu.ph.

For comments, my email address is