By Hilarion M. Henares Jr.
SINCE the end of World War II, a whole generation of national leaders and economic planners, especially of the Third World, have proceeded on the assumption that foreign investment is a sine qua non in the economic development of nations.
A whole mass of US-inspired propaganda published internationally, and re-echoed by Third World opinion makers on US travel grants, conspired to convince the rest of the world that foreign investment holds forth three advantages for host countries: managerial know-how, technology, and above all, large amounts of new capital.
It became obvious, as the years went by, that managerial know-how can be learned and technology can be bought, and that the only real advantage to be derived from foreign investment is that it brings the enormous capital needed but sorely lacking.
That foreign investment is the source of capital in enormous quantities is the conventional wisdom accepted as an article of faith by most national leaders and economic planners, especially rightwing economists of Opus Dei CRC like Bernie Villegas.
Yet no satisfactory proof has been presented. No detailed study was ever made. It was accepted on faith alone. And the only subject under discussion became: How to encourage foreign investment.
A pamphlet by Professor Wilson Schmidt of the George Washington University issued and widely distributed in the early 1960s by the United States Information Services (USIS) claimed that the USA itself was developed by foreign investment.
It turned out that by foreign investment, Schmidt meant “immigrant capital” and repayable “foreign loans,” NOT the foreign owned and controlled “direct investment,” which the US authorities were eager to foist on other countries.
On Dec. 6, 1960, I read a paper before the IXth CAFEA-ICC Session (International Businessmen's Conference) in Karachi, Pakistan, in which I made distinctions between types of foreign investments: 1) foreign loans, 2) immigrant capital, 3) joint ventures, 4) foreign owned and controlled direct investment, and 5) “colonial investments” that entered the host country in bygone colonial days, “whose original capital had been fully repatriated many times over, and which prospered under conditions repugnant to the host country.”
Needless to say, I was applauded by Third World representatives, shouted down by Western representatives, and never again invited to a similar gathering.
Soon thereafter during the latter part of the 1960s, in the Decade of Development as decreed by the United Nations, Third World nations began to perceive that the contribution of foreign direct investments was minimal.
For instance, the Five-Year Socio Economic Development Plans of both Macapagal and Marcos showed that out of the total capital expenditures required, only three percent were to be contributed by foreign direct investment, 11 percent by foreign loans, and 88 percent by local sources.
Not only that, foreign corporations were bringing into the host country a minimal amount of capital and raising an inordinately large proportion of their capital needs from local sources.
In Latin America, where there is an accumulated history of American investment dating back to the turn of the century, a UN study by Fernando Fajnzylber showed that US-based multinationals financed 83 percent of their Latin American investments from reinvested profits and domestic borrowings, so that only 17 percent therefore represents a real transfer of capital from the United States to the poor countries of Latin America.
In the Philippines, when the effects of the Laurel-Langley Agreement came up for study, an NEC Report by BG Bantegui on 108 American corporations doing business in the Philippines, covering a period from 1956 to 1965, showed that out of a total capital expenditure of $489.7 million, fully 88 percent or $431.1 million was generated from reinvestments and domestic borrowings, and only 12 percent or $58.6 million came from abroad as loans and new investment.
In June 1975, in my speech before the Second Businessmen's Conference sponsored by the Chamber of Commerce of the Philippines and held at the Central Bank, I said that foreign companies do bring in minimal capital and do resort to massive domestic borrowings to finance their local operations, citing specifically Ford Philippines and Levi Strauss.
Since then, an interagency committee of the government has studied the financial structure of foreign firms, confirmed my findings, and decreed that henceforth within three years, foreign firms must maintain certain debt-to-equity ratios before being allowed to borrow from local sources.