FDI: Linking Bank Liberalization and Employment Opportunities in the Philippines

By Sarah Carson

On July 20, President Ninoy Aquino signed a law removing a longstanding 60 percent ownership cap on foreign banks. Previously, only ten banks were permitted to have fully owned operations in country, including Bank of America and Citigroup.

On a broad scale, this new banking liberalization policy has enormous potential to help the Philippines become the next “economic miracle in Asia.” The reform agenda will likely result in increased foreign investment but also new livelihoods, technologies, and capacity for the Philippines ahead of the ASEAN Banking Integration Framework (ABIF), which will open Philippine banks to competition from within ASEAN starting in 2015.  In this regard, the reform may help remedy the Philippines’ persistently poor performance relative to comparable ASEAN neighbors in terms of FDI and employment rate.

FDI

Major shifts lie ahead for the Philippine financial sector, but one of the most important changes likely to occur is the influx of foreign direct investment (FDI). Historically, FDI in the Philippines has hovered between $2-4 billion per year. Many regional neighbors, such as Malaysia, Thailand, Vietnam, and Indonesia have been much more successful in this domain, partly due to less restrictive policies regarding foreign banks.

FDI ASEAN

Data Source: World Bank Continue reading