Module 6

Module 6

Foreign Direct Investment, Privatization and Insolvency Regimes

Multiple Choice

Refers to the effect the presence of MNCs has on domestic firms in the same sector.

• horizontal spillover

• vertical spillover

Multiple Select

Result of the interaction between domestic and foreign firms that are not in the same industry.

• Horizontal spillover

• Vertical spillover

Increasing foreign investment can be one of the indicators that the host country’s economy is growing and in general, opening its windows on globalization.

• Ownership Advantage

• Location advantage

• Internalization Advantage

FDI Policy Shift in the 1990s

FDI Performance

> FDI inflows to manufacturing sector declined while inflows to service sector increased

> Only paper and paper products in manufacturing sector witnessed an increase in FDI inflows

> Inflows from US declined in 1980s due to the presence of other developed countries such as Japan, Netherlands, UK, and Singapore

> Despite of increase in FDI inflows, the Philippines, on overall, ad the lowest level among ASEAN countries

Key Features in the Investment Climate

• Access to finance and international integration

• Governance

• Infrastructure

• Skilled labor force

• Macroeconomic factors

• Political stability

• Technology factor

Pro-privatization

Accountability

Funds

Dispersion of Resources

Corruption

Tainted Purpose

No More Subsidies

Natural Monopolies

Political Influence

Profits

Security

Anti-privatization

Accountability

Capital

Concentration of Wealth

Cuts in Essential Service

Downsizing

Goals

Job Loss

Natural Monopolies

Political Influence

Privatization and Property

Profits

Multiple Choice

Asset insolvency refers to the inability to pay its debts when they fall due while cash flow liquidity

pertains to a state where the entity’s asset is lesser than its liabilities.

• True

• False

Consequence of Insolvency

Business turnaround/ Business recovery

is the remodeling of the financial and organizational structure of the corporation experiencing financial distress as to permit the rehabilitation of their business

In some jurisdiction, it is a violation under the insolvency laws for a corporation to continue in business while insolvent.

In others, the business may continue under declared protective arrangement while alternative options to achieve recovery are being workout.

Multiple Choice

Rehabilitative feautre allows restructuring of debtor’s obligation

while distributive

feature allows equitable distribution of properties among creditors

discharges debtor of is obligation

• True

• False

Rehabilitation Law

• Stay order

• Adequate Protection

• Rehabilitation Receiver

• “Equality is Equity” Principle

• Cram Down

Corporate Recovery and Insolvency Act (CRIA)

The proposed Corporate Recovery Act, now called Corporate Recovery and Insolvency Act (CRIA) is made to replace the old insolvency law

expressly categorize different forms of debt reliefs:

1.Suspension of Payments

2.Fast-track Rehabilitation

3.Court-Supervised Rehabilitation

4.Pre-Negotiated Rehabilitation

5.Dissolution and Liquidation

Multiple Choice

The 1973 Constitution and other Acts/Laws restricts/limits the activities of Foreign Investments.

• True

• False

Foreign Investment Negative List

- mandated by FIA to the Government of the Philippines (GPH)

- updated every two years

two parts:

Part A – restriction by Constitution/law

Part B – limitation of foreign ownership (generally 40%) for reasons such as national security, public health, morals, and protection of SMEs

The 1973 Constitution and other Acts/Laws restricts/limits the activities of Foreign Investments.

FDI and Regional Production Networks

Participation in regional/global production networks provide domestic firms not only access to export markets but to newer technologies as well. These can generate substantial positive spillovers and externalities.

Multiple Select

There are numerous evidence that productivity and employment spillovers took place between foreign and domestic firms either through backward or forward linkages.

• True

• False

FDI and Regional Production Networks

Conducted by Prof. Rafaelita Aldaba and Prof. Fenando Aldaba from Philippine Institute for Development Studies (Nov. 2010)

There is no evidence that productivity and employment spillovers took place between foreign and domestic firms either through backward or forward linkages.

Policy Suggestions for the Spillover

• Human Resource Development and Training

• Industrial and Technology Upgrading

• SME Finance Support Programs

• Linkages Improvement and Promotion of Subcontracting and Outsourcing Activities

• Improvement of Infrastructure and Logistics and Overall Investment Climate

• Capacity Building

• Conversion and Transfer Policies