‘Reforms, not Cha-cha, made latest investments possible’
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THE Philippines’ recent victories in securing more foreign investments were not due to Charter Change but the correction and refinement of rules that paved the way for “opening the doors” to investment inflows for certain sectors.
This was according to a rejoinder (See: https://econ.upd.edu.ph/dp/index.php/dp/article/view/1553/1038) written by professors from the University of the Philippines School of Economics (UPSE), who asserted that the points raised by the Foundation for Economic Freedom (FEF) against their earlier paper actually bolster anti-Charter Change arguments.
In a rejoinder, the UPSE economists said this was particularly observed in the position taken by FEF regarding renewable energy and the “entry of Starlink into the Philippine market.”
“It is our view that the key to gaining investor confidence is rather mundane: palpable improvements in sector coordination, fair regulation, and lower perceived corruption, as well as amendments to long-standing administrative rules and ordinary statutes that impede market entry and distort the playing field,” the UPSE economists said.
“The goal after all is not a governance utopia, and historical experience has already demonstrated how the required improvements in corruption perception are well within reach,” they added.
The UPSE economists said allowing the entry of foreign firms in renewables was done by “correcting and refining” a 2009 promulgation of the Department of Energy (DOE) while Starlink’s investment highlights the success of initiative to amend the decades-old Public Service Act (PSA).
In the case of renewables, the correction and refinement was done in Section 19 of the Implementing Rules and Regulations to the Renewable Energy Law (RA 9513), the UPSE economists said.
The Diliman economists said the DOE “conflated” kinetic energy and forces of potential energy, leading to a 40- percent limit in foreign equity for renewable energy. Kinetic energy, they explained, includes water, wind, solar and marine current, among others, while potential energy is a natural resource.
“The current DOE leadership proactively corrected this misinterpretation and promulgated amendments to the IRR in November 2022, removing the foreign ownership limitations imposed by a previous DOE [order],” the rejoinder stated.
In the case of Starlink, it was also approved by the National Telecommunications Commission as a value-added service (VAS) in May 2022 even before the IRR of the PSA.
In terms of telecom investments, in general, UPSE economists said “historical facts” would also show that Dito Telecommunications entered the bidding for the telecom market in 2018 before the Public Services Act was passed in 2022.
This means, the economists said, the 60-40 rule, contained in the 1987 Constitution, still applied in the business venture of Dennis Uy and China Telecom.
“Hence this particular anecdote ‘proves’ nothing about the restrictiveness of existing constitutional provisions nor anything about congressional flexibility, since Dito’s entry required no congressional action or amendment to the constitution,” UPSE’s economists pointed out.
Earlier, the FEF economists said it is high time for the Philippines to “try solving the problem” after the country has already spent “100 years of solitude” from Foreign Direct Investments (FDIs).
FEF disputed the arguments in the paper released by economists from the University of the Philippines School of Economics (UPSE) that said an economic cha-cha was not necessary to attract FDIs. (See: https://businessmirror.com.ph/2024/04/12/cha-cha-not-a-necessary-1st-step-to-lure-investments/)
Members of the FEF insisted that removing restrictions on foreign investments is a necessary first step in attracting FDIs in the Philippines. The UPSE economists said improving institutions and processes must be prioritized, but FEF said without “opening the door” to foreign business, they will not benefit from these institutional reforms.
The members said the recent government decision liberalizing the renewable energy (RE) sector is expected to yield results as several billion dollars worth of investments have already been committed.
Once the country opened up the RE sector, FEF said Bloomberg identified the country as the 4th best destination for these investments. This transformed the country into the “new darling of the RE global industry.”
Potential investments in manufacturing of machinery needed for RE projects such as wind turbines and solar panels, FEF also said, can make the country a manufacturing hub for these machines in the region.
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