The year 2022 may well go down in history as a turning point for the Philippines: Ferdinand Marcos Jr, or “Bongbong” as he as colloquially known, was sworn in as president following six years under Rodrigo Duterte and the country posted gross domestic product (GDP) growth of 7.6% — the strongest rate since the 1970s.

Beyond these surface-level changes, at the heart of the change in mood music in the Philippines is a 180-degree turn in its attitude to foreign investors, which started under Mr Duterte and has continued under Mr Marcos. Since 1987, the country has had a ban on foreign investors owning more than 40% of businesses in the Philippines enshrined in its constitution — which it relaxed in serveral sectors, except certain sectors including non-renewable energy. With renewable energy now an inherent part of the Philippine government’s plans for the future (see other page), the constitution did not need to be dramatically altered, just loosened.

In an interview with fDi, Felipe Medalla, governor of the Philippine Central Bank (BSP), explains that “the problem of the constitution is very hard, practically impossible”. 

“But there are loopholes,” he adds. “The sun and the wind belong to everybody. It’s lucky we found a good lawyer,” he quips, referring to energy secretary Raphael Lotilla, a trained lawyer who remarked there was no need to amend the constitution to allow foreign investors to fully participate in renewable energy projects before officially opening up the sector in November 2022. Foreign investors can now own 100% of renewable energy projects, while traditional energy investments remain capped at 40%.

“Many other countries are better than us in the [renewables sector] and the idea that foreign businesses must find domestic partners before they can invest is [unnecessary],” he adds.

“The Philippines’ long-held protectionist mentality is being eroded, as many are coming to realise that all these restrictions are not really very good for the economy or for the Filipinos themselves,” he says.

In the meantime, in his role as governor of the country’s central bank, Mr Medalla raised interest rates by 300 basis points only after several months into the job — a decision he stands by. “As you can see, the economy can take it,” he says, alluding to the GDP growth figures for 2022.

He is bullish on digital banking too, where he is quick to point out there are “no foreign restrictions”. As of the second quarter of 2022, the BSP has allowed six digital banks to operate in the Philippines, most of which are digital iterations of pre-existing Philippine banks. 

Elsewhere, plans are afoot to establish a Philippine sovereign wealth fund, the Maharlika Fund, which will be modelled after the Indonesia Investment Authority and will boost economic development in the country.

With the risk of recession in the air, Mr Medalla is not too worried about a slowdown in domestic demand for goods and services, but highlights that demand for exports remains a risk.

“The real problem is that our high growth requires a lot of important capital goods and so if there is not enough demand for exports, we may end up with a current account deficit,” he says. “But with FDI and foreign portfolio flows, we think we can offset that.”

This article first appeared in the February/March 2023 print edition of fDi Intelligence.