HERE is a letter that Due Diligencer could not ignore because the reader raises a significant issue in reacting to a piece which appeared in this corner last week. James K. Sweeney Esq. of 424 South Rosemead Blvd, Ste C, Pasadena California, who posted the email on December 13 (in the US), wrote:
“I read your column about Travellers [International Hotel Group Inc.] and was surprised to learn of the 40-percent foreign ownership rule. I think the US has a rule like that as to communications companies such as a TV business but not as to general business companies. I disagree with the US rule and wondered if you disagree with the Philippine 40 percent rule.”
This writer, not being a lawyer, can explain only the implication of the 40-percent ownership limit not only in Travellers International Hotel Group Inc. but in other businesses as well. (Note: The corporate name uses two Ls.)
For the information of Mr. Sweeny, the 40-percent ceiling imposed by the Philippines on foreigners in certain industries is not a result of a legislation passed by our Congress; it is, in fact, a provision in our Constitution reserving for Filipinos the majority control of at least 60 percent of companies engaged in the exploitation of natural resources such as mining and oil drilling, public utilities, among so many businesses.
In the case of Travellers Hotel, if the law limits foreigners to 40-percent equity ceiling, it could be because it is engaged in casino, a gaming activity, which our Securities and Exchange Commission has ruled should be controlled by Filipinos. As to the hotel business, ownership of hotel is never a problem in this country because international chains need not invest in ownership but need only to tie up with local hotels that need them for wider exposure. A few of them have been operating here on revenue-sharing scheme for many years. Among them were Hilton and Hyatt.
Do I writer agree with the 40-percent foreign equity restriction?
Well, I may not agree with the law but that is the law that has been dictated by the nationalistic ideals of the framers of our Constitution, ignoring the fact that nationalism stunts economic growth and discourages the flow of foreign investments. And worse, nationalism does not create jobs for this country’s burgeoning population.
Unfortunately, the present Aquino administration and its officials mistakenly believe that foreign investments inflow has been increasing. This is the product of a leadership that is obsessed with issuing press releases to mislead the public.
Let me put it this way: When the Bangko Sentral ng Pilipinas (BSP), which is how we call our central bank, reports foreign investments data, it tends to paint a rosy picture for press release purposes. To make its investment data credible—I did use “more”—our BSP should have broken the numbers into details such as how much went to new stock corporations and to other existing businesses in the form of additional equity participation. It also either forgot or intentionally omitted the data on the dollar inflows that were invested in bonds and other borrowings by local companies, particularly those that are listed on the Philippine Stock Exchange.
Of course, foreigners see investment opportunities in bonds that pay them interests. But for government reportorial purposes, our central bank should have clearly identified in the reports the amounts of foreign borrowings of local companies. In this way, the Filipinos would know the reason why many of them remain jobless despite the government’s positive reports on the rising foreign investments.
Perhaps, Mr. Sweeney is wondering if foreigners could end up controlling casinos in the Philippines. Definitely, this is possible and the possibility is not very remote. Equity participation in industries, which our laws say should remain at least 60-percent-controlled by Filipinos, is just a numbers game. The accountants in your country should find how this would work. Due Diligencer has studied the formula, which, however, is not for public consumption yet.