Senate Bill No. 2020 or the Maharlika Investment Fund Act of 2023 hurdles final Senate Approval on May 31, 2023, showing a sneak peek into what could be a new chapter of the Philippines’ economic journey.
Legislators from both chambers of the Congress, after marathon deliberations, agreed to adopt the Senate version of the bill, authored by Senators Mark A. Villar, Raffy T. Tulfo, and Robinhood C. Padilla, creating the Maharlika Investment Fund.
On paper, it aims to better the economic and financial situation of the Philippines; hailed by supporters as a catalyst for economic advancement, while opponents raise concerns over the persistent vagueness of goals, potential exploitation and irredeemable loss in returns.
Acquiring 19 votes in favor, one against, and one abstention, the Maharlika fund's quick trip through the legislative mill of the upper house came to a satisfying conclusion for its supporters. Only Sen. Risa Hontiveros voted against the measure whereas Sen. Nancy Binay abstained from voting. Meanwhile, Hontiveros’ only colleague in the minority, Senate Minority Leader Aquilino Pimentel III, was absent during the voting.
With just a signature away from becoming a law of the nation, what has since changed of the bill, what concerns have lingered, and with the measure certified as urgent by the Philippine President, will FIlipinos be able to look forward to economic flourishing to some degree?
Where will the seed fund come from?
Pension and welfare funds are now “absolutely prohibited” from investing in the Maharlika Investment fund whether mandatory or voluntary, after it sparked protest both from the public and opposing lawmakers. Such funds include the Social Security System (SSS), Government Service Insurance System (GSIS), Philippine Health Insurance Corporation (PhilHealth), Home Development Mutual Fund (PAG-IBIG Fund), Overseas Workers Welfare Administration (OWWA), and Philippine Veterans Affairs Office (PVAO).
Initially, the unrevised version of the Senate bill only restricted these funds from being "requested or required to contribute to" the Maharlika Investment Corporation (MIC), but Sen. Risa Hontiveros expressed concern that this would allow these organizations—specifically GSIS—to voluntarily join the fund by prompting the board of government pension to shift their investment approach; hence the revision.
The approved "seed fund" will comprise Php500 billion. In the first and second years of the Maharlika fund's inception, the Bangko Sentral ng Pilipinas will invest 100% of its announced dividends to a maximum of Php50 billion. The Land Bank of the Philippines and the Development Bank of the Philippines would each contribute Php50 billion and Php25 billion. Also, ten percent (10%) of the Philippine Gaming Corporation’s (PAGCOR) profits allocated to the National Government will be included in the financial mix for a period of five years. Investments from private financial institutions and businesses are also permitted.
It is to be noted that there are various dangers involved with transferring funds from governmental institutions, such as the BSP and DBP, into the MIF. Taxpayers and bank depositors will be at a severe disadvantage that they might not be able to overcome when losses mount up, as a result of major liabilities in the Fund's transactions.
What will the Board of MIC compose of?
The Board of Directors would be composed of nine members: the Secretary of Finance as the Chairperson, President and Chief Executive Officer of the MIC as Vice-Chaiperson, President and CEO of LBP, President and CEO of the DBP, two regular directors, and three independent directors from the private sector.
Given that every member of the MIC board and its advisory body—including its so-called "independent" directors—is a presidential appointee, critics of the bill contend that its governance structure is poorly thought out and leaves room for political interference and corruption. It compromises the operational independence of MIC and opens up the possibility of politicization.
Safeguards in the Senate version
House Speaker Martin Romualdez stated that one of the safeguards emphasized in the MIF is transparency. Three stages of auditing would be used to complete the MIF's financial reporting system: an appointed Internal Auditor, an External Auditor hired for a maximum of three consecutive years, and will also be audited by the Commission on Audit (COA).
A clause in the fund limits the investments made by LBP, DBP, and other GFIS, to not exceed twenty-five percent (25%) of their net worth. Correspondingly, Senators put forth an amendment that would require MIC to ask Congress for legislation under certain circumstances wherein there is a need to raise MIC's capitalization in its 35 years of corporate term, which can also be extended or repealed sooner if the Congress finds it necessary.
Another safeguard implemented into the statute as called for by opposition senator Risa Hontiveros, include the prohibition against the appointment of individuals with a "hint of corruption" to the MIC. Anyone with a pending case relating to the misuse of money or breach of trust is disqualified from being a member of the board.
The MIF proposal that the Senate passed also establishes harsher sanctions for unlawful actions involving the investment fund.
The Senate's version of the bill, according to Budget Secretary Pangandaman, includes many safeguards against potential exploitation. He listed some of these safeguarding measures. including the bill's supposed adherence to the "internationally-known Santiago Principles." However, it should be pointed out that the MIF's objectives persist to lack clarity, possibly in violation of Santiago Principle No. 2, which specifies that "The policy purpose of the SWF should be clearly defined and publicly disclosed."
Meanwhile Sony Africa, executive director at local nonprofit IBON Foundation said, “The best safeguard on scarce public resources is to put them to best use where they currently are and according to whatever measures are currently in place on funds of the national government.”
Where will the fund be invested?
The MIF will be utilized to make investments in a variety of assets, including, but not limited to, foreign currencies, fixed-income instruments, both domestic and foreign corporate bonds, commercial real estate, and infrastructure projects.
The Senate's version further said that the Maharlika cannot invest in areas that contravene agreements that the Philippine government has signed to uphold laws and conventions.
Documents in FIlipino
All documentation pertaining to the MIF and Maharlika Investment Corp. (MIC) will now be made available in both English and Filipino, following Sen. Robin Padilla's suggestion. Many of those who oppose the measure, he noted, claim that they are unable to comprehend its contents and implications. In line with this, the MIC will also implement Sen. Win Gatchalian's suggestion and make all reports accessible to the public via its website.
Persisting issues on the bill
The opposition argues that the legislation’s safety measures are insufficient. Even after amendments were made, critics continue to claim that creating the Maharlika fund would divert funding from other government initiatives into a fund that, upon its failure, may tax the general population even more.
Anakbayan claimed that the MIF is a poorly timed strategy that, if unsuccessful, will result in widespread corruption and further plunge Filipinos into crisis in the midst of a recession characterized by high prices for products and low incomes, especially with the national debt nearing Php 14 trillion. Diwa Guinigundo, Deputy Governor for the Monetary Stability Sector of BSP, cautioned that if that occurred, the government would be compelled to impose additional taxes, borrow money domestically or internationally, or do both, in order to restore the public money.
The budget deficit of the Philippine government surpassed Php 1.6 trillion in 2022, hitting its highest level in almost twenty years. This indicates that the country lacks the financial capacity to contribute to a sovereign wealth fund, particularly one with an allowed capital of Php 500 billion. So considering the deficits, the MIF may worsen rather than improve the country's fiscal condition, when losses occur.
Skeptics believe that the Congress needs to carefully review its provisions. Sen. Koko Pimentel asserted his opposition to the fund, “the grounds that we have used as our arguments - no surplus, no windfall profit, difficult economic situation, danger to corruption - are still present up to this very moment.” Sen. Risa Hontiveros also said that she will “certainly support” any action to raise the Maharlika Fund to the Supreme Court.
Meanwhile, Sen. Francis “Chiz” Escudero pointed out that, although rectifiable, both houses of Congress made grave procedural and significant legal errors. Additionally, he claimed that the bill was poorly written and that its supporters have not offered evidence that the proposed MIF had met the constitutional requirement of passing the "test of economic viability." Escudero further criticizes the decision of his fellow lawmakers to forbid pension funds from investing in the Maharlika Corporation if they are so convinced that it can succeed.
Furthermore, the MIF bill does not include a criterion to differentiate between inadequate fund management and the general decline of the domestic or global economy. In other words, there are no safeguards that will hold MIF's managers accountable in the event that significant losses are sustained as a result of bad or excessively risky investment decisions, since they may simply attribute such losses to the weak overall economic climate. Furthermore, if accountability is to be ensured, it is extremely untimely to establish SWFs given the current state of the world economy, which (ironically) the President cited in certifying the MIF bill as urgent.
It is also unable to prove that it can generate greater financial returns than its funding sources. Until it can demonstrate how precisely it differs from other government organizations targeted towards development objectives or that it can be anticipated to earn more than its core GFIs, its significance will remain deceptive.
What can the ordinary Filipino benefit from this measure?
Sen. Mark Villar, cited benefits that Filipinos could get from the MIF, economic growth and sustainability, ranging from job opportunity production, even sustainable development. But because it’s an investment fund, there’s no assurance of future yields.
BSP Governor Felipe M. Medalla said to reporters, “I don’t know what it (sovereign wealth fund) will be used for,” just that it will have “many good governance principles”. And with just a signature away from being passed into law, only time would truly be able to tell whether the noble intentions that went into the formulation of this bill would actually benefit the Filipino people.