Ongoing scientific research has shown that the principles of personal freedom, free enterprise, property rights, limited government, and sound money advance peace, prosperity, and human progress.
Former Finance secretary and The Banker magazine’s 2009 best finance minister, Gary Teves, shares my belief in those principles that have lifted billions of people out of poverty.
Last Sept. 11, Teves spoke to the members of the Management Association of the Philippines during their general membership meeting. In his speech, “Amending the Economic Provisions: A Headstart in the Shift to Federalism,” he states five important points.
First, the Philippines’s macroeconomic fundamentals are facing some challenges, including: a weaker peso (P54 to $1 as of Sept. 14), a higher inflation rate, (6.4 percent as of August), a larger trade deficit ($3.55 billion in July), and a higher balance of payments deficit ($2 billion in the second quarter).
Second, the resulting higher prices of goods and services are hurting businesses and consumers. The Duterte administration should seriously consider removing the restrictive economic provisions if it wants to bring relief to Filipinos. It will yield many benefits:
It will allow the Philippines to attract more foreign direct investments (FDIs). More FDIs equals more jobs, income, and more inclusive growth.
It will accelerate agricultural development with new capital and technology. Allowing foreign ownership of land will raise agricultural productivity, as observed in countries where there are no such restrictions.
It will fast-track infrastructure projects with the entry of more players in sectors like power, telecoms, and transport. This will free up government resources, which can fund other priorities like health and education.
The recent Supreme Court ruling declaring local government units’ just share of revenues should include all national taxes, not just internal revenue taxes. This means less funds for the national government and provides another compelling reason to aim for a higher level of FDIs.
Third, federalism is being proposed as a solution to poverty and inequality, but it has several challenges. There are varying estimates by NEDA, the Philippine Institute for Developmental Studies, the consultative committee, and DILG of the cost of shifting to federalism. More time is required to conduct further studies and consultations. There are some areas of concern in the proposed federal constitution:
The provisions on the revenue sharing and expenditure assignments are ambiguous. Finance should follow function.
The equal-sharing scheme of national taxes should be reconsidered. Poorer regions need more support to move up to a similar level as the developed regions.
The source and mechanics of the equalization fund is better left to Congress. More flexibility is needed than fixing it at three percent of the General Appropriations Act.
The addition of word “actually” in Article II, Section 21 enhances the restrictive provisions.
Fourth, if the federal government is the head of the family and the federated regions are the children, the father must be prudent with the resources to ensure the children have a comfortable life with a secure future ahead. The actual transfer of resources will take time as the father would want some assurance that the children can efficiently utilize their resources. The children should be motivated to harness their potential and convince the head of the family that they are ready to handle bigger powers and resources.
We don’t need to have 18 federated regions right away, as proposed by the Con-Com. Let’s start with fewer regions, then, later, the new federated regions can emerge once they reach a certain level of maturity or have met certain preconditions:
The capabilities of LGUs and their officials should be expanded. The devolution of powers should be accelerated, provide the corresponding resources, and implement rigorous capacity-building to prepare regions for self-governance.
The bureaucracy should be strong and efficient. Governance should be institutionalized and reformed to ensure efficiency even with a change of leaders.
There should be leaders with proven managerial capabilities, leadership qualities, and a heart for local government. Ordinary citizens should also elect people with a dedication to strong local governance.
And fifth, attaining these preconditions will take time. In contrast, lifting the restrictive economic provisions can be done immediately. If approved by year-end or early 2019, there will still be enough time to have the public vote on it by May 2019.
It can also stand on its own regardless of whatever form of government the constitutional assembly will decide on and later ratified by the people.
It sends a dramatic signal to foreign investors that they are welcome to invest in the country, create jobs, and level the playing field that will lead to more competition to the benefit of Filipinos.
In summary, federalism is important but it may not be very urgent at the moment. On the other hand, lifting the restrictive economic provisions is both important and urgent. It will help address the gut issues, accelerate the attainment of socioeconomic agenda, and yield many other benefits for us today and generations to come.