FILIPINO First Policy is a rule under Article XII Section 9 of the 1987 Constitution,

which heavily favors Filipino businessmen over foreign investors with respect to the
grant of rights, privileges, and concessions covering the national economy and
patrimony. On February 3, 1997, the Supreme Court (SC) decided the landmark case of
Manila Prince Hotel v. Government Service Insurance System et. al (G.R. No. 122156)
and enlightened the people as to why a living testimonial of Philippine heritage like that
of Manila Hotel, which has become a part of our national economy and patrimony,
should be kept within the control of Filipinos.
In the said case, Government Service Insurance System (GSIS) sold through public
bidding 30 percent to 51 percent of the issued and outstanding shares of Manila Hotel
Corp. (MHC) pursuant to the privatization program of the government. There were
only two bidders which participated. Manila Prince Hotel Corp. (Manila Prince), a
Filipino corporation, offered to buy 51 percent of the MHC, or 15,300,000 shares, at
P41.58 per share. Renong Berhad, a Malaysian firm, bid for the same number of shares
at P44 per share, or P2.42 more than the bid of Manila Prince. Pending the declaration
of Renong Berhad as the winning bidder, Manila Prince wrote a letter to the GSIS and
matched the bid price of P44 per share tendered by Renong Berhad. It also sent a
managers check for P33 million as bid security to match Renong Berhads bid.
However, the GSIS did not act on its letter and refused to accept the same. Thus,
Manila Prince went to the SC and filed a Petition for Prohibition and Mandamus,
invoking the above-mentioned provision of the 1987 Constitution. Manila Prince
sought to prohibit MHC from perfecting and consummating the sale to Renong Berhad.
Manila Prince maintained that since the Manila Hotel is part of the national economy
and patrimony, it should be preferred over Renong Berhad after it has matched the
latters bid offer, in accordance with the Filipino First Policy enshrined in the aforesaid
provision of the Constitution. The GSIS, on the other hand, argued that Manila Hotel
does not fall under the term national patrimony.
In deciding for Manila Prince, the SC ruled that the term patrimony pertains to heritage
and that Manila Hotel has become a landmarka living testimonial of Philippine
heritage. While it was restrictively an American hotel when it first opened in 1912, it
immediately evolved to be truly Filipino. Formerly a concourse for the elite, it has since
then become the venue of various significant events which have shaped Philippine
history. Dubbed as the Official Guest House of the Philippine Government, it plays
host to dignitaries and official visitors who are accorded the traditional Philippine
hospitality. Moreover, the SC emphasized that for more than eight decades, the Manila
Hotel has bore mute witness to the triumphs and failures, loves and frustrations of the
Filipinos; its existence is impressed with public interest; its own historicity associated
with our struggle for sovereignty, independence and nationhood. Verily, Manila Hotel
has become part of our national economy and patrimony.

The SC held that privatization of a business asset for purposes of enhancing its business
viability and preventing further losses, regardless of the character of the asset, should
not take precedence over nonmaterial values. A commercial, nay even a budgetary,
objective should not be pursued at the expense of national pride and dignity. The
Manila Hotel or, for that matter, 51 percent of the MHC, is not just any commodity to
be sold to the highest bidder solely for the sake of privatization. The hotel is not an
ordinary piece of property in a commercial district, but a historic relic that has hosted
many of the most important events in the short history of the Philippines as a nation.
This hotel has played and continues to play a significant role as an authentic repository
of 20th-century Philippine history and culture. In this sense, according to the SC, has
become truly a reflection of the Filipino soula place with a history of grandeur; a
most historical setting that has played a part in the shaping of a country.
In view of the foregoing, the SC directed the GSIS to cease and desist from selling 51
percent of the shares of MHC to Renong Berhad, and to accept the matching bid of
Manila Prince to purchase the subject 51 percent of the shares of MHC at P44 per
share.

If you are one of those Filipinos who thinks that the Filipino First Policy of actively
discouraging Foreign Direct Investors and multinational companies from coming into
the Philippines by requiring them to partner with local Filipino investors who will own
at least 60% of the company set up in the Philippines is a step in the right direction,
think again. Local Filipino investors are not numerous enough to create as many
businesses that would create the huge number of jobs necessary to absorb our countrys
unemployed. In fact, the amount of money that most local investors have with them
let alone the money that they are usually willing to invest is often very low when
compared to international levels of investment.
Whats very frustrating is that the rest of the ASEAN region, starting with Singapore,
relied heavily on attracting massive foreign direct investments as a means of creating a
lot of jobs for their people. When Singapore did this, even huge countries like China
followed suit. Malaysia too, under Mahathir bin Mohamad, also pursued an aggressive
policy of attracting a lot of foreign direct investments as a means of creating massive
employment. Everyone else in the region, including Indonesia, Thailand, Vietnam,
Cambodia and even recently, Myanmar have joined in the aggressive foreign investment
attracting game.
Only the Philippines remains the lone country in which Foreign Direct Investment is
seen as being harmful and infringing upon our sovereignty. Wow. What idiocy!
So instead of allowing foreign direct investors and multinational companies to come to
the Philippines and create jobs for Filipinos in the Philippines, Filipinos would prefer to
send jobless Filipinos abroad to work in foreign countries, working for foreigners. The
main difference is that had these Filipinos been working in the Philippines, they would
at least be together with their families and loved ones, unlike when they work abroad as
OFWs and are away from their families and loved ones for years, oftentimes ending up
with broken families.

Those of us who are advocating for a freer foreign investment regime should celebrate
the first victory: The leaders of both the Senate and the House of Representatives are
convinced that the very restrictive economic provisions against foreign investments in
the Philippine Constitution should be amended. There is hope that the legislative
process of amendment through Charter change (Cha-cha) can happen during the 20132016 term of Congress.
We have two major challenges. The first is to convince the President that removing
those restrictions will address the problems of mass poverty and unemployment; reduce
red tape and bureaucracy; limit the leeway for corrupt practices; and impose the flow of
foreign funding to very vital infrastructures and public utilities. The second is to educate
the independent judiciary about a correct interpretation of the Constitution so that the
courts, especially the Supreme Court, do not unnecessarily limit even further the
freedom of foreigners to invest in the Philippines.
Last June 26, 2012, I had the occasion to help promote the second objective by
appearing as an amicus curiae (friend of the court) in the PLDT case in which the
Supreme Court had earlier interpreted the 40-percent foreign equity permissible in
public utilities to mean 40 percent of voting stock, instead of total capital stock. The
following are excerpts from my memorandum to the Supreme Court.
Considering present political realities, any amendment of the economic provisions of
the Philippine Constitution will have to wait till after the 2013 elections. Meanwhile,
those of us advocating for more liberal policies towards FDIs should do everything
possible to prevent any more additional restrictions over and above what is already
contained in the Constitution. This vigilance should apply to additional restrictive
interpretations of the actual provisions. For this reason, I would like to comment on the
recent Supreme Court decision to define the 40 percent allowable foreign equity in
public utilities (Article XII, Section 11) as applying only to voting shares instead of the
total capital stock of the corporation. This was in the celebrated case of foreign
investments in the Philippine Long Distance Company.
As an economist with a background in accounting, I took it upon myself to explain to
the best of my ability to the other Commissioners, within and outside the committee
meetings, as well as in the plenary sessions that in 1986, the Philippines was facing a
most serious shortage of foreign exchange and long-term capital and that we needed to
moderate the very strong tendencies among a large number of the Commissioners to
Filipinize the economy. Opening the economy to more foreign capital, in my opinion
then (and now), was the patriotic thing to do if we were to define the good of the
nation in terms of helping the teeming masses who were poor by generating
employment and income for them through larger doses of foreign investments. I have
explained this in another paper entitled Economic Patriotism. My success in this

advocacy was quite limited because a large number of Commissioners were strongly
influenced by decades of Filipino First and nationalist industrialization policies.
This can be seen in the numerous restrictions against foreign investments still encrusted
in the 1987 Constitution.
As can be read in the Records of the plenary sessions of the Constitutional Commission
on Aug. 14, 22 and 23, 1986, the Filipinization of public utilities was one of the most
hotly debated issues in the drafting of the Constitution. The committee on the national
economy proposed to the plenary session that the ratio should be 2/3 Filipino and 1/3
foreign. During the plenary session, however, there was much debate about raising it
further to as high as 100-percent or 75-percent Filipino. I must say that among those
who were proposing much higher Filipino participation were some of the more
respected and eminent Commissioners. Partly because of my strong advocacy for more
openness to foreign capital and with the help of three or four other commissioners who
were equally knowledgeable about the state of the Philippine economy at that time, even
the moral authority of a commissioner who subsequently became Chief Justice of the
Supreme Courtwho was proposing the 75 to 25 ratiodid not influence the majority.
His proposed amendment was voted down 25 to 15. The final ratio was 60 to 40 after a
close vote of 21 to 19. As can be read in the Records of the Plenary Sessions, the
discussion on this issue became so emotional that one of the commissioners, a
professor of political science who was among the strongest proponents of the
Filipinization of the national economy, publicly congratulated the multinational
corporations in the Philippines, in a tone dripping with sarcasm, for having succeeded in
influencing the voting on this issue. Two commissioners, one a former minister of labor
and the other a Catholic bishop, strongly objected to this unwarranted emotional
outburst.
I have gone to some extent describing the process by which the final 60-40 ratio was
arrived at to drive home the point that it was a hard-earned triumph for those of us who
sincerely thought that the common good of the Philippines then required more
openness to foreign equity, especially in very capital-intensive public utilities. That is
why I find it unfortunate that the present Supreme Court has in a way blunted our
victory by giving an erroneous interpretation of the 60-40 requirement, applying the 40
percent to only the voting stock rather than the entire capital stock, which includes both
common and preferred stocks. I sincerely hope that this error can still be corrected.