The Philippines must develop stronger institutions

Michael Alan Hamlin

Posted on September 11, 2011

The Philippines ranks number 41—down two places from last year—in the IMD World Competitiveness Yearbook 2011. It trails every other Asian country in this annual survey of 59 countries. The World Economic Forum (WEF) Global Competitiveness Report 2010-2011 offers a similar assessment of the Philippines’ competitiveness. It ranks the nation 85 in a survey of 139 countries. In the entire Asian region, only Bangladesh, Nepal, and Pakistan fair worse.

WEF uses a complex methodology in its evaluation consisting of “12 pillars of economic competitiveness.” The first and most basic is Institutions, or the legal and administrative frameworks of each country studied. The authors write that, “The importance of a sound and fair institutional environment has become even more apparent during the economic crisis, given the increasingly direct role played by the state in the economy of many countries.”

The global economic crisis began in 2009 and has persisted since, hobbling the world’s most developed economies. Although hotly debated, many believe that weak regulatory environments contributed to conditions that brought about the crisis. Unscrupulous financiers and financial executives exploited the financial system for incredible gains. Ultimately, individual investors and homeowners paid the price for their folly.

For the Philippines and other countries that fare poorly in competitiveness rankings, the message is that strong, reliable institutions contribute to the creation of stable and reliable business environments in which ethical and well-meaning investors can earn a reasonable return. Unfortunately, the Philippines fares even more poorly in the WEF assessment of institutional strength. In efficiency of the legal framework in settling disputes, the Philippines ranks 122.

Investors frequently point to the legal framework—including populist labor laws—as an impediment to investment. There are many other pillars for the Philippines to address, but it makes sense to start with the most basic. Unless the base is sound, it is unlikely that the Philippines can effectively address other factors that contribute to competitiveness. This helps explain why the Philippines for half a century has trailed its neighbors in economic development.

Media scrutiny can help strengthen institutions by making their actions transparent. But this can be dangerous in a country where libel law presumes malice and where libel is a criminal offense. Although the Philippines’ 1987 constitution guarantees free speech, the Revised Penal Code—passed in 1930—makes it a crime to “maliciously” dishonor or discredit an identified individual in a published report regardless of whether the individual has in fact committed a dishonorable act.

In other words, commentators, journalists, and authors are not allowed to call a pot black, even if it clearly is, if the intent is to embarrass the pot. Sometimes, a fate far worse than a stiff libel charge becomes the price for shedding light on shady acts.

This explains in part why the Philippines ranks poorly in another survey, the Press Freedom Index 2011. The Philippines fell dramatically in the latest index largely as a result of the Maguindanao massacre. More than 30 of the 58 individuals murdered in that incident were journalists whose presence many thought would contribute to institutional strengthening in the form of a free and transparent election in that fraud-marred region. It probably did, but at great cost.

Not all efforts to silence media are necessarily physically bloody. In 2006 and 2007, Miguel Arroyo, husband of former president Gloria Macapagal-Arroyo, filed 43 libel cases against editors, publishers, and reporters. That effort to undermine media freedom cast the Philippines in a harshly negative light internationally, and the cases were eventually dropped by Mr. Arroyo.

A more recent incident involves veteran Filipino editor and author Marites Danguilan Vitug. Ms. Vitug was charged with libel by a Manila prosecutor in March on the basis of a complaint by Supreme Court Justice Presbitero Velasco, Jr. Mr. Velasco believes that Ms. Vitug libeled him in an article first published December 12, 2009. In the article, Ms. Vitug suggested that Mr. Velasco may have skirted judicial ethics by lobbying support for the Congressional candidacy of his son.

Aside from the regressive character of the Philippines’ libel statute, the complaint is controversial because Mr. Velasco is a sitting associate justice of the Supreme Court, which exercises administrative supervision over all courts and their personnel. That presents the perception that the judicial hierarchy is exercising undue influence on prosecutors and judges involved in the case.

That’s a particularly sensitive issue since judges—not juries—decide whether defendants are innocent or guilty in the Philippines. But there’s an even bigger issue at stake. And that is the perception that the Philippines’ legal system is being used to throttle media, at a time when the judiciary should be—for the sake of the 90 million Filipinos it serves and the investors who create jobs for them—striving to demonstrate unwavering integrity.

(Michael Alan Hamlin is the managing director of TeamAsia and a Manila-based author. His latest book is High Visibility: Transforming Your Personal and Professional Brand. Write him at and follow him on TwitterFacebook and LinkedIn. Copyright © 2011 Michael Alan Hamlin. All Rights Reserved.)

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