YELLOW PAD

By Filomeno S. Sta Ana III

We just cannot party and dance the Cha-cha (Charter Change) when many are getting sick or dying. The current mood is not celebratory; it’s funereal. Cha-cha is simply dissonant.

Besides, the tremendous energy that Cha-cha entails is better spent to protect our lives from COVID-19. Yet, the congressmen, led by the Speaker himself and some senators, are eager to do the shuffle. They will do the Cha-cha to ease the Philippine Constitution’s economic restrictions.

The resolution introduced by Honorable Lord Allan Jay Q. Velasco (note, “honorable na, lord pa”) states that easing the economic restrictions will “transform the economic growth into inclusive and solidary progress among Filipinos.”

Resisting Cha-cha is not just because the nation is not in a healthy mood, but also because the proposition itself is dubious.

The restrictive economic provisions in the Philippine Constitution are undeniably constraints. That’s the obvious part.

The question policy-makers have to ask, however, is whether these restrictions are really binding constraints. This is a crucial question because deliberate policy-making of such nature — changing the Constitution at that, requires “getting the diagnosis right.” (“Getting the Diagnosis Right” is the title of a paper authored by Ricardo Hausmann, Dani Rodrik, and Andrés Velasco. This was published in the International Monetary Fund’s magazine, Finance and Development, March 2006.)

Getting the diagnosis right is about identifying the binding constraints. This is to say that not all constraints are equal; some are binding and the rest are non-binding. The binding constraints are a few bottlenecks at a particular point, and resolving these bottlenecks would have sizeable, significant, and direct effects on investments (and hence growth).

To quote Hausmann et al., “go for the reforms that alleviate the most binding constraints and, hence, produce the biggest bang for the reform buck. Rather than use a spray-gun approach in the hope that we will somehow hit the target, focus on the bottlenecks directly.”

The Philippines has been quite adept at using the diagnostics approach and identifying the binding constraints. The binding constraint during the time of Gloria Arroyo was bad governance. Thus, Noynoy Aquino’s daang matuwid triumphed.

During Aquino’s term, a binding constraint was the narrow fiscal space. His administration addressed this by passing a difficult piece of legislation then — the reform of the tobacco and alcohol excise taxes. The sin tax reform increased tax effort and made the Philippines creditworthy again.

This in turn created the momentum for a series of tax reforms, which happened during Rodrigo Duterte’s term. Duterte’s tax reforms have enabled the country to finance “Build, Build, Build.” “Build, Build, Build” is a response to another binding constraint — the inadequacy and deterioration of infrastructure.

From the narration above, economic or non-economic measures can address the most binding constraints.

Today, we ask, what is the principal bottleneck? The obvious answer is the pandemic. How Cha-cha can help fight the pandemic — the biggest problem confronting not only the Philippine economy but all other aspects of Philippine society — bewilders me.

Thus, in relation to reviving growth, the government must focus on beating the pandemic. Economic policy cannot be distracted, and it must serve the primary objective of saving lives and flattening the infection curve. Economic policy, specifically through aggressive fiscal policy, must enable an effective vaccination strategy, which in turn should be part of a broader health and development strategy.

Here, Cha-cha is simply off at a tangent. But we do accept that the economic restrictions found in the Constitution are constraints. In Douglass North’s definition, institutions by themselves are constraints.

We can debate whether these constraints are acceptable or desirable. Nevertheless, those favoring the easing of such constraints can do so without having Cha-cha. The Constitution’s economic constraints, non-binding that they are, can be tackled through other means.

Specifically, this administration and even its political opponents support several economic bills that will essentially address the Constitution’s economic restrictions. These bills intend to amend the Public Service Act, the Foreign Investments Act, and the Retail Trade Liberalization Act. The leaders of Congress support these bills and in fact consider them priority bills.

Similarly, BusinessWorld (Jan. 18, 2021) reports that Senator Koko Pimentel “urged legislators to focus on the economic reform bills instead of pushing for Constitutional amendments, citing the limited available time to amend the Charter.”

It is odd, too, that Speaker Velasco, has stalled the passage of the bill called CREATE (Corporate Recovery and Tax Incentives for Enterprises Act). Speaker Velasco has delayed convening the bicameral conference committee, which will reconcile the bills of the House of Representatives and the Senate. The passage of CREATE will end the investors’ uncertainty, but Speaker Velasco is more fixated on a Cha-cha that will go nowhere.

Yes, it will go nowhere. Because the Congress’s version of amending Cha-cha merely introduces general phrasing that says: “unless otherwise provided by law.”

What a waste of time and political capital. Having the above-mentioned economic reform bills passed has much more value than this empty exercise of Cha-cha.

Filomeno S. Sta. Ana III coordinates the Action for Economic Reforms.