Finance Secretary Carlos Dominguez III has assured Japanese businesspersons that the move to relax foreign ownership restrictions in certain industries via amendments to the Constitution might commence next year in fulfillment of President Duterte’s commitment to open up the economy to more long-term, job-generating foreign direct investments (FDIs).
In a forum on the Philippine economy held recently in Tokyo, Dominguez also informed these potential investors that the Philippine government is also currently reviewing its Foreign Investment Negative List (FINL) with the goal of lifting foreign ownership limits in the areas of construction, among other sectors.
“President Duterte has committed to open up our economy. There are two ways we open up our economy to more foreign investments,” Dominguez said at the business forum held in Conrad Hotel Tokyo, Japan.
He said the first step, which is the review of the FINL, began in May this year.
“A window opened for us to review that list. We are currently reviewing it with the idea of removing areas such as construction and other areas to foreign investments,” he said.
Dominguez said the second step, which requires the cooperation of the Congress, “is through the amendment of the Constitution, and the President has called for a revision of our constitution, which we believe will start probably next year or in about 12 months.”
“We are moving towards opening up the economy to more foreign investments,” Dominguez said.
Dominguez has said in earlier forums that he favors lifting the foreign ownership limits for certain sectors to generate more foreign investments, except for land.
Data from the 2016 Asean Investment Report show that the Philippines continues to lag behind most of its fellow members in the Association of Southeast Nations in terms of foreign direct investment inflows.
The Report showed the Philippines with a net FDI inflow of $5.724 billion in 2015, representing only 4.7 percent of the total net FDI inflow of $120.818 billion in the region. Singapore accounted for half of the net FDI inflows for that year with $$61.284 billion, followed by Indonesia with $16.916 billion or 14 percent of the total net inflow; Vietnam with $11..8 billion or 9.8 percent; Malaysia with $11.289 billion or 9.3 percent, and Thailand with $8.027 or 6.6 percent of the total.
Dominguez said tax reform will play a pivotal role not only in overhauling the Philippines’ inequitable, complex and inefficient tax system but also in attracting more FDIs.
The finance chief said he is “confident” the first package of the Duterte administration’s Comprehensive Tax Reform Program (CTRP)—the Tax Reform for Acceleration and Inclusion Act (TRAIN)—would be approved by the Philippine Congress before December this year
The TRAIN, which aims to slash personal income tax rates while raising additional revenues for the government’s unprecedented spending on infrastructure, human capital and social protection, was approved by the House of Representatives last May.
The Senate ways and means committee recently passed its own TRAIN version and has submitted the bill for plenary deliberations.
“The House version is quite robust. It is close to what the administration wants. The Senate is still debating the pros and cons but we believe it will pass a bill that will yield the revenues we are expecting,” Dominguez said.
As for concerns about the Philippine peso, Dominguez reiterated that the unique characteristics of the economy, which is fueled by remittances from its overseas-based workers and a strong business process outsourcing (BPO) industry and exports sector, make a “slightly depreciated” local currency beneficial for the country.
“The peso exchange rate is a tool; if it helps the economy, it performs. Now, when the peso is slightly weak, it certainly helps our economy,” Dominguez said.
A “slightly depreciated peso,” Dominguez said, makes the country’s exports more competitive, pulls down costs for the BPO sector, and benefits the families of overseas Filipino workers.
Dominguez also said that the economic managers do not “manage” the peso-dollar exchange rate, which they want to be market-driven.
“We manage inflation rather than [focus on] managing the currency,” he told Japanese businesspersons at the forum.
He said the economic managers “are not alarmed at the value [of the peso vis-à-vis the dollar], We will be alarmed at the rate of change. If in a period of a week if it drops 10 percent then we will be alarmed. If the rate of change is slight overtime, then it’s okay.”
In an interview, Dominguez said that, “If we look at historical value, we are where we should be. We favor a slightly weaker peso because it helps the majority of our people.”
“We earn $30 billion a year from foreign workers,” he said. “When they remit it back to their families, they get a lot–the demand domestically is very good. We have also a large BPO industry (that generates) $25 billion a year. Weaker peso makes it more competitive.”
