Three key economic reforms

Big business groups last week praised lawmakers for passing three key economic reform measures aimed at boosting investments, improving transparency in government transactions, and speeding up key infrastructure projects.

The Makati Business Club (MBC) lauded Congress for approving amendments to the Foreign Investors’ Long-Term Lease Act, and the E-Governance Act, and the Right of Way (ROW) Act, reforms that “aligned with our advocacies for improvements in governance, infrastructure, and transparency, which we see as key drivers to attract more investors and create more jobs.”

 The Filipino Chinese Chambers of Commerce and Industry Inc. (FFCCCII), for its part, noted that the business sector had long been urging the government to enact these reforms to attract more foreign investments and ease bottlenecks in infrastructure development.

The changes to the long-term lease law seek to encourage more foreign capital by extending the allowable lease period to 99 years from 75 years previously, thus bringing the Philippines more in line with regional competitors and address the major issue often cited by prospective foreign investors on their limited ability to secure land for extended periods, which made long-term planning and investment riskier.

The E-Governance Act, meanwhile, seeks to promote transparency and efficiency by expanding digital access to government services. By mandating the digitization of public services and integrating platforms across agencies, the reform aims to reduce red tape and improve the overall ease of doing business needed by investors.

High ROW costs

The most important of the three is the ROW (Right of Way) amendments, which will hopefully put an end to a problem that has nagged previous administrations as far back as the 1970s. The ongoing P448-billion Metro Manila subway project is a case in point.

The administration of the late former president Benigno Aquino III removed the project from its pipeline due to issues such as high ROW costs. It was included in the ambitious “Build, Build, Build” program of former President Rodrigo Duterte in 2017 as the Mega Manila Subway and carried over to the present administration of President Marcos as part of its P9-trillion infrastructure flagship projects list. It was targeted for partial operation before the end of Mr. Marcos’ term in 2028.

It is designed to interconnect with other rail systems — the operating Lines 1 and 2 of the Light Rail Transit system and the Metro Rail Transit Line 3 on Edsa; the MRT Line 7 (another project that has been delayed for years now), and the North-South Commuter Railway Extension at the FTI and Bicutan Stations.

Thorny issue

Based on a plan dated Sept. 27, 2019, construction of a section of the subway was to start in 2019 and operate in 2022. Construction of the remaining sections was to begin in 2022 and operate in 2025. It has become doubtful if partial operation can start by 2028 as ROW problems continue to hound the project.

These same issues have also delayed the completion of a key segment intended to link the North Luzon Expressway–South Luzon Expressway connector road to the Metro Manila Skyway Stage 3 as well as many other important infrastructure projects across the country.

The Accelerated and Reformed Right-Of-Way Act that will amend the current ROW law addresses the thorny issue of compensation, perhaps the most common cause of ROW delays, by updating the standards for assessing the value of property subject to negotiated sale using Republic Act No. 12001, or the Real Property Valuation and Assessment Reform Act, which was signed in January this year.

Ease of doing business

At the end of the day, however, a law becomes truly effective only when it is put into action. As MBC noted, it hopes that the proper implementation of these reforms will achieve the intended goal of enhancing the country’s competitiveness.

For the E-Governance law, its success will depend a lot on whether local government units, which are notorious for bureaucratic red tape, embrace the digitization of public services and for the different departments to integrate their platforms across agencies as mandated by the proposed law.

This will hopefully improve the overall ease of doing business and attract investors, particularly outside the traditional urban centers of Metro Manila, Cebu, and Davao.

For the ROW amendments, the involvement of all concerned agencies will be crucial to successfully implement these reforms, which the FFCCCII describes as essential changes to break a cycle of failure.

“Standardized valuation based on fair market principles, guaranteed funding for land acquisition, and structured resettlement programs address the root causes of delay: arbitrary pricing, fiscal uncertainty, and inadequate planning,” it pointed out.

And as Transportation Secretary Vince Dizon emphasized, solving ROW issues is not just a problem of his agency, but concerns that need “a whole-of-government approach.”

Source: Inquirer

Raise the land ownership retention ceiling

Raising the land ownership retention ceiling to at least 25 hectares.

This was pegged at 5 hectares for a married couple tilling the land and 3 hectares for an individual under the Comprehensive Agrarian Reform Law (CARL) of 1988. Note that the low land retention ceiling was intended to break up vast tracts of land under the ownership of a single individual or a family.

Agrarian reform advocates at that time said that this was meant to dismantle the monopoly hold of big landlords over local economies and politics, which had resulted in severe inequality and the exploitation of tenants and agricultural laborers.

So oppressive was the situation then that it led to a number of uprisings in the countryside, led by the communist insurgency. Hence, agrarian reform became an anti-insurgency instrument by successive political administrations.

There was the added argument, provided by liberal economists, that agrarian reform would result in greater productivity. They theorized that if the owners of the land were now the actual cultivators, there would be greater incentive to become efficient. No longer would the tillers have to share their harvests with their landlords.

Fast forward or nearly four decades after the CARL was passed, what were the results?

Undeniably, land ownership became more equitable as the average agricultural land holding is currently just a hectare. Now, one can hardly hear complaints about an evil landlord owning vast tracts of land and exercising the power of life and death over tenants.

As such, the anti-insurgency aim of the reform measure was successful. The communist movement never took over as a political power. Currently, its armed component has almost been decimated even in areas where they used to have effective control.

However, it is in the productivity or efficiency side that agrarian reform fared poorly. Overall, agricultural productivity is stagnant, averaging an annual growth of only 1 percent. It has not been able to keep pace with population growth, which has averaged 1.3-1.5 percent. Expectedly, our agricultural and food imports have kept on increasing.

Not surprisingly, agrarian reform advocates blame the government for this. They argue that the lack of government assistance is the reason why agrarian reform beneficiaries fail to significantly raise their productivity.

The argument is quite egregious. If the law wanted to turn our cultivators into farmer-entrepreneurs, why make them perpetually dependent on government assistance or subsidies to become successful? Isn't it the mark of a successful entrepreneur that of being innovative and resourceful? Don't real entrepreneurs value their independence as they find government regulation stifling to growth?

Unfortunately, one of the unintended consequences of the protracted implementation of the CARL is that it destroyed the middle-class farmers who could have transformed themselves into real agricultural entrepreneurs. The main reason is the low land ownership retention ceiling.

With the fragmentation of farm lands into miniscule sizes, there is no way that an agricultural venture can enjoy economies of scale and earn a decent income. A study by the late and revered friend Dr. Rolando Dy of the University of Asia and the Pacific's Center for Food and Agribusiness revealed that the economically viable land size for most crops is around 25 hectares (smaller for vegetables but larger for sugar).

Raising the land retention ceiling to 25 hectares will undoubtedly attract middle-class individuals to invest in agriculture as they have the means to buy the land, are educated enough to decide on the best agri-ventures to engage in, invest in technology to improve productivity and access greater markets for their products using e-commerce platforms.

It is a stylized fact in economic literature that investment is a function of savings and that growth is a function of investment. There are mainly two sources of investment for the agricultural sector: government and the private sector.

A study by another late colleague, Dr. Ramon Yedra, showed that there was little private sector investment in agriculture over the past three decades. There were hardly any new huge investments by big agribusiness corporations during that period, which coincided with the implementation of the CARL. This accounts for agriculture's stagnation as government resources are not enough to support the needs of various economic sectors.

There is a need to actively attract investments from the private sector, but until we are able to lift the low land ownership retention ceiling, this will remain an elusive goal.

But what about the government's farm clustering and consolidation effort so that economies of scale can be enjoyed by farms owned and operated by the small farmers? I am not too hopeful about it given the rigid and inflexible nature of our bureaucracy. Actually, the idea of farm clustering and consolidation started during the term of former Agriculture secretary William Dar.

After nearly four years since its introduction, nothing much has been attained. In other words, if we rely on the government to implement much-needed structural reforms to achieve an efficient, productive and competitive agricultural sector, it will take ages to happen without the guarantee that one will achieve the desired effect.

Just look at various government infrastructure projects: airports, a subway, reviving our rail system and now the EDSA upgrading. By the time these are completed, they will already be considered obsolete because they no longer meet the needs of their users, who have dramatically grown in size over the period the project was being constructed.

The best course of action is to rely on market forces, but this can only happen if we have the right policy framework that will be conducive for the private sector to participate in the agricultural economy to a greater degree. Absent that understanding from our agricultural policy makers, the sector will continue to be in deep trouble.

Source: Manila Times

Oral partition of property is valid

Article 1079 of the New Civil Code of the Philippines provides for the meaning of partition, which states that:

"Art. 1079. Partition, in general, is the separation, division and assignment of a thing held in common among those to whom it may belong. The thing itself may be divided, or its value."

"Every act which is intended to put an end to indivision among co-heirs and legatees or devisees is deemed to be a partition. Partition may be inferred from circumstances sufficiently strong to support the presumption. Thus, after a long possession in severalty, a deed of partition may be presumed." (Spouses Marcos v. Heirs of Bangi, GR 185745, Oct. 15, 2014, penned by Associate Justice Bienvenido Reyes)

In the case of Espinas-Lanuza v. Luna, Jr., GR 229775, March 11, 2019, penned by Associate Justice Jose Reyes Jr., it is stated that:

"An oral partition by the heirs is valid if no creditors are affected. Even the requirement of a written memorandum under the statute of frauds does not apply considering that such a transaction is not a conveyance of property resulting in change of ownership but merely a designation and segregation of that part which belongs to each heir."

Citing an earlier case, the high court explained in Espinas-Lanuza v. Luna that:

"On general principle, independent and in spite of the statute of frauds, courts of equity have enforced oral partition when it has been completely or partly performed.

"Regardless of whether a parol* partition or agreement to partition is valid and enforceable at law, equity will in proper cases, where the parol partition has actually been consummated by the taking of possession in severalty and the exercise of ownership by the parties of the respective portions set off to each, recognize and enforce such parol partition and the rights of the parties thereunder.

Thus, it has been held or stated in a number of cases involving an oral partition under which the parties went into possession, exercised acts of ownership, or otherwise partly performed the partition agreement, that equity will confirm such partition and in a proper case decree title in accordance with the possession in severalty."

In many families, the issue of property inheritance often causes confusion and conflict, especially when the division of property is not formalized through a written agreement.

For an oral partition to be valid, it must be made with the consent of all the heirs. The oral partition is considered valid if the heirs have already taken possession of their respective shares in the property. If the heirs physically possess their designated portions, this can serve as proof of their agreement to the oral partition.

*Parol partitions are oral agreements between co-tenants to informally partition land.

Source: Manila Times