• A majority of urban Filipinos support President Rodrigo Duterte’s plans to overhaul the constitution and install a federal government, an FTCR survey shows.
  • President Duterte has a greater chance to succeed in this than his predecessors.
  • Poorer regions will continue to rely on revenue from Manila under a federal system.

President Rodrigo Duterte wants to change the Philippines’ 31-year-old constitution and establish a federal government to spread wealth beyond Metro Manila. Although Mr Duterte has a greater chance of success than his predecessors, we think a federal system is unlikely to significantly reduce inequality between regions.

Mr Duterte, who hails from Mindanao, made federalism a big campaign pledge, believing that local governments are better placed to respond to the needs of their constituents than what he calls ‘Imperial Manila’. Despite average gross domestic product growth of 6.2 per cent in the past seven years, more than a fifth of Filipinos remain poor, and in the southern regions of Visayas and Mindanao there is a disproportionately high level of poverty. 

Two presidents before Mr Duterte, Fidel Ramos and Gloria Macapagal Arroyo, unsuccessfully tried to change the constitution. Their failure was partly caused by popular suspicion that constitutional change would be used to extend their terms of office. 

Our survey of 1,000 urban Filipinos also shows a wariness of Mr Duterte’s motives, with 45 per cent of respondents saying that constitutional change is a ploy by the government to prolong its term. Nevertheless, our survey also found a majority in favour of a federal government. Filipinos on the island of Luzon, where Manila is located, are generally against federalism but there is clear support among residents of southern territories such as Cebu and Mindanao.

Mr Duterte remains very popular, bolstering the prospect that he will get his way on constitutional change. He has also tried to allay suspicions by repeatedly saying that he will step down from office once a federal government is established in 2020, following a referendum that the government aims to hold in May 2019. Although this timeline may slip, a referendum is likely to take place during Mr Duterte’s term, which ends in 2022. He has majority support in the House of Representatives, while the Senate president has pledged to prioritise legislative discussions on federalism this year. 

Eight roughly equal regions

The process of changing the constitution has started, with the creation of a 22-member consultative committee in December by Mr Duterte. The committee, led by the former chief justice, Reynato Puno, has been told to draft a new charter within six months. It is considering the establishment of eight federal regions out of the current 17 provincial regions, plus the federal capital, currently called the National Capital Region. 

In broad terms, the federal government would have authority over defence, foreign policy and monetary policy, while regional governments would have oversight over the social services provided to their constituents. The federal regions would also have greater fiscal autonomy as well as independence in the management of natural resources. 

The proposed regions are intended to be relatively equal in terms of population size, land area, tax collection and social development. The commission has formulated an index that shows that the eight proposed regions, with the exception of the restive Bangsamoro region in Mindanao, have similar economic capacity.

However, official data show that regional administrations are heavily reliant on central government transfers for their revenue. We calculate that among the proposed federal regions where data are available, only two raised 15 per cent or more of their revenues locally in 2016. 

Given that the National Capital Region and other parts of Luzon island contributed 72 per cent of the Philippines’ GDP in 2016, it is unlikely that federalism would significantly reduce inequality, even if regions in Visayas and Mindanao could retain a greater share of their income. 

Nevertheless, autonomy in resource management would lead to regional regulatory variations for sectors such as mining. Currently, national and local governments both have oversight over mining firms, resulting in conflicting decisions. Under the proposed federal constitution, mining would be regulated at the regional level, as would ownership issues arising over the ancestral lands of indigenous populations, where some miners do business. This would likely speed up settlements between the tribes and miners. 

Federalism would also allow the regions to make it easier for companies to operate, encouraging competition to attract investment. At present, businesses must get licences to operate from the central and local governments. Under the proposed system, they would only have to secure permits from regional governments.

In addition to federalism, the constitutional change seeks to lift the 40 per cent cap on foreign ownership in sectors such as power, and lift the ban on foreign land ownership. Mr Duterte sees the removal of such restrictions as a way to shake up the dominance of oligarchs, but such proposals are likely to be resisted by nationalists in the legislature, and inclusion in the final draft of the proposals remains unclear. 

Prinz Magtulis, Philippines Researcher, FT Confidential Research

FT Confidential Research is an independent research service from the Financial Times, providing in-depth analysis of and statistical insight into China and south-east Asia. Our team of researchers in these key markets combine findings from our proprietary surveys with on-the-ground research to provide predictive analysis for investors.