The Gatchalian Resolution: A Trojan Horse?

September 3, 2022

“A Resolution of Both Houses of Congress to Convene the 19th Congress as a Constitutional Assembly And to Propose Amendments to Certain Restrictive Economic Provisions in the 1987 Constitution…” (Gatchalian Resolution)

The Resolution states:

“WHEREAS the Philippines has become one of the fastest growing economies in the region, and continues to show strong potential for further growth amid improvements in governance and the business environment, but its economy is still characterized by constitutional restrictions such as limits to foreign equity in the ownership and operation of public utilities, educational institutions, mass media, and advertising;” (emphasis mine)

There is a glaring inaccuracy here: the phrase says we are “amid improvements in governance”? No such thing. The PSA StatDev cites Transparency International’s Corruption Perception Index(CPI), World Justice Project Rule of Law Index, and other governance indicators and these show that governance in this country, has deteriorated in the last six years. See for yourself.

And for context, the four sectors mentioned comprise roughly one eighth (12.5%) of the economy, in terms of their share of GDP.

The Resolution also states:

“WHEREAS, to sustain the growth of the Philippine economy, these restrictions need to be amended, as they have constrained foreign direct investments (FDIs). Based on the 2020 OECD FDI Restrictiveness Index, Philippines is ranked as the third-most restrictive in terms of FDI among 84 OECD member countries. We have one of the lowest FDI levers over the years in the Association of Southeast Asian Nations”.

According to this Whereas, the restrictions have constrained foreign direct investments which, when they come in, will lead to sustained growth. This is what economist and FDI expert Theodore Morgan would call “uncritical enthusiasm” for FDIs (as opposed to the other end of the spectrum, “critical wariness”. I am in between, and consider myself a critical enthusiast). The vast literature on this subject will tell you that FDIs can, NOT will, lead to growth.

Then, it brings in the 2020 OECD FDI Restrictiveness Index to show that the Philippines is indeed restrictive. Here is where we can see, Reader, that restrictiveness (at least as defined by the OECD) clearly does not necessarily lead to less FDI.

The Restrictiveness Index has data for 1997, 2003, 2006, and then continuously from 2010 to the present. Well, Reader, from the beginning up to and including 2020, which country was the most restrictive? Who was the big No.1 in the Index? You guessed it: China. Yet all that time, China was the largest recipient of FDIs among the non-OECD countries. It took the lion’s share of FDIs in Asia. Does this not suggest, as it ought, that restrictiveness (one of the four factors measuring this in the Index is equity restrictions) just might not be a big deal in determining the entry of FDI into a country? Yet the Gatchalian Resolution cites this Index to show why FDI is not coming in. As did other non-intelligent consumers of economic data, in their effort to push for amending the economic provisions of the Constitution.

Let’s use the Philippines as another example that restrictiveness may be no big deal. According to the Index which includes 84 countries, the Philippines took over from China as the No.1, and again in 2016. Yet, in 2016, and again in 2017, a survey conducted by the UNCTAD, and published In its World Investment Report, show that the Philippines was the ninth, and then the seventh most attractive country as far as investors were concerned. And the FDI inflows to the Philippines show this. Net inflows of FDI jumped from $5.64 billion in 2015 to $8.28 in 2016, peaked at $10.28 in 2017 and began dropping. The 2020 figures showed net inflows of $6.82

Reader, compare the rise and fall of these inflows with the rise and fall of our rankings in the Corruption Perception Index and the Rule of Law Index. They show, with a little lag, a closer relationship to FDI inflows than the Restrictiveness Index.

The statement in the second Whereas clause is a minor, if embarrassing inaccuracy.

All this to point out , Reader, that our legislators are barking up the wrong tree. All they have to look at is the excellent research studies PIDS has done with respect to FDI, and address the impediments listed.

So why, if the economic sectors addressed by this Resolution are a relatively small portion of our economy, and they are barking up the wrong tree to attract FDI, is this resolution still being pushed? Might the reason be that all the legislators want is to convene a Constituent Assembly, which has plenary powers to take up anything once convened, and then go to town to change all the other parts of the Constitution they want? Is the Gatchalian Resolution merely a Trojan horse?

PSA StatDev: “The Statistical Indicators on Philippine Development (StatDev) is an instrument formulated and maintained by the Philippine Statistics Authority (PSA) as a means by which economic progress and social change can be monitored and measured more effectively.” Go to PSA StatDev 2021 here

See the PSA StatDev chapter on “Governance” and search for Corruption Perception Index” or “CPI” here.

See the PSA StatDev chapter on “Justice” here

For the World Bank report showing FDI net inflows by year, click here.