Philippine President Rodrigo Duterte has just issued a threat to those who seek to use their political power, wealth and ability to obstruct attempts at good governance with the threat of “revolutionary war”. During a recent speech in Puerto Princesa City, Palawan, Duterte lashed out at those hindering progress in fighting corruption in respect of the procuring of inequitable government contracts with private firms and foreign countries. Duterte stated:
“So don’t push me. You, along with rebels, criminals, and drug offenders want to make me suffer)? I will declare a revolutionary war until the end of my term. Then I don’t care. Come what may hell or other way. I’m willing to be hanged, I’m willing to die”.
Duterte continued, saying:
“I ordered the review of the contracts and here comes [Senator Frank] Drilon saying that be careful. Be careful of what?
Why should I be very careful in reviewing contracts that are not to the interest of the people? And the onerous and burden provisions there that people have to honour, so you think that I will allow it just because we cannot impair the obligation of our contracts?”
Far from being an emotional outburst, Duterte’s frustration is the logical result of a system that does not allow government to properly scrutinise contracts made between the state and private entities as well as those made between the state and foreign nations. The endlessly convoluted and obscurantist political system in The Philippines is a labyrinth of conflicting legislative bodies, a president who is physically detached from the legislature and a rival vice president whose entire purpose is to undermine the president. Beyond this, unaccountable bloated governmental departments continue to ignore the real issues of tackling corruption and fighting inequitable agreements because there is nothing to link these bureaucracies to elected officials who can be regularly scrutinised.
By contrast, in a parliamentary system, all enquiries, debates and arguments about such matters would take place in a single legislative chamber in which all legislative factions would be able to express their view in real time. Furthermore, agreements made between the government and companies as well as between the government and foreign countries would be scrutinised by professional civil servants within ministries that are directly responsible to the parliament itself. Furthermore, in the event of a deal being exposed as inequitable after signing and performance, parliamentary systems are able to appoint professional Inquiries which then deliver their verdict to parliament, thereby allowing the government to act on the responsible recommendations of the Inquiry.
There is a further reason that The Philippines is uniquely subjected to bad deals in terms of state contractual relations with private companies and foreign countries. The archaic foreign direct investment laws of the country effectively chase out good deal making possibilities before they even have a chance to be seriously considered.
In monetary policy, Gresham’s law states that “bad money drives out good”. In respect of grotesque restrictions on FDI, the 1987 Constitution’s 60/40 rule prohibits foreign investors from from owning a controlling interest in their own investment. Because of this, some of the best potential investors are automatically frightened away and as a consequence, this clears the path for less desirable investors who happen to be willing to sacrifice control over their own investment. While some decent investors would be willing to take the hit that the 60/40 rule forces them to take, many more will simply invest in a country that gives them freedom to control a majority interest in their own investment. As a result, the 60/40 drives out the best and most honest investors and clears the way for the worst.
Thus, in spite of international financial trends, The Philippines automatically has two major factors working against it when it comes to welcoming more FDI. First of all, as the leadership of a successful president gradually nears its end, foreign investors often worry that the next president may rapidly switch to a less business friendly atmosphere and because of this very real worry, such people are not willing to risk investing in a country with a political system that lacks both stability and accountability.
Secondly, constitutional prohibitions on flexible and transparent FDI make it so that some of the best and most otherwise enthusiastic foreign investors will simply turn away and invest somewhere else, thus resulting in the phenomenon of bad FDI chasing out good.
When one therefore examines a system in which the proper scrutiny of foreign contracts is difficult if not impossible both before and after they are signed – a system in which transparency is muddled by contradiction and deadlock and a system in which crippling anti-modern restrictions on FDI chase out good investments, it is not difficult to understand why a man who cares deeply for his people as Rodrigo Duterte does, is so utterly frustrated.