The House of Representatives has been intensifying its efforts to hasten the ratification of the bill which proposes to establish the Philippines’ first-ever Sovereign Wealth Fund (SWF), despite concerns raised by the citizens, economists, and lawmakers alike.
On November 28, House Bill No. 6398 or the “Maharlika Investments Fund (MIF) Act” was filed by six representatives to ‘support highly powerful national development initiatives and other investments’. As of December 1, the proposal has been approved in principle by the House Committee on Banks and Financial Intermediaries, and has recently been subjected to amendments after encountering public backlash.
That being said, what do we actually know regarding the introduction of this Fund in the Philippines? And for that matter, is the country, in its current state, even capable of accomplishing the supposed goals of this bill sustainably? More of these FAQs are answered as we go along.
What is a Sovereign Wealth Fund?
Key term being “surplus funds,” Sovereign Wealth Funds (SWFs) are money from the government's financial surplus, which occurs when government income surpasses government spending, as set forth in its yearly budget.
The surplus funds must obviously be public funds and the public should be able to benefit from both the SWFs' initial funding and revenue. This is why it is often only carried out by countries having sufficient financial capacity and resilience.
Although the MIF Act isn’t the first time the Philippine Congress had considered a proposal to establish a SWF, its legislative route has thus far reached higher success.
Who proposed the bill?
The principal author of the bill is the cousin of the Philippine President, House Speaker Ferdinand Martin Romualdez. Other lawmakers who introduced the bill include: Martin’s wife Tingog Party-List Yedda Romualdez, presidential son Senior Deputy Majority Leader Ferdinand Alexander Marcos, Tingog Party-List Representative Jude Acidre, Marikina City Representative Stella Luz Quimbo, as well as House Majority Leader Manuel Jose Dalipe.
Needless to say, President Marcos has pledged full cooperation and support for the bill.
Who will manage it?
The initial proposal of the bill stated that nine people would make up the MIC Board of Directors, including the Finance Secretary who would represent the national government, two independent directors, and six people chosen from the founding government financial institutions (GFIs), whose membership seats are distributed according to the percentage of their investments. The Chairperson and Chief Executive Officer (CEO) of GFI must be derived from the original GFI member with the biggest fund investment for a term of seven (7) years.
During a meeting on December 1, the panel discussed a few amendments to the bill. The President of the Philippines was said to be the one to chair the board, and the number of MIC board members was increased from nine in the original bill to 15 under the revised version.
On December 9, proponents of the bill finalized these amendments and stated that the President would be replaced by the Finance Secretary as the chair of board, as designated by the amended bill discussed on this day. The House Committee on Banks and Financial Intermediaries' head, Rep. Irwin Tieng (Manila 5th District), also announced that the 15-member Maharlika board will now include four independent directors in place of the original two.
Where will the funds be sourced? (pre-amendment)
Unlike SFWs in other countries like Singapore and Norway, the MIF will neither be financed by the country’s foreign reserves and surplus funds, nor will it be sourced from the revenue of the extraction of natural resources. Before House Bill No. 6398 was subjected for refinements, funds would be largely sourced from pension funds and government banks, such as the following:
· Government Insurance System (GSIS) – P125 billion
· Social Security System (SSS) – P50 billion
· Land Bank of the Philippines (Landbank) – P50 billion
· Development Bank of the Philippines (DBP) – P25 billion
· National budget – P25 billion
The initial investment would constitute P275 billion, while annual contributions would also be expected from the Bangko Sentral ng Pilipinas (BSP), Philippine Amusement and Gaming Corporation (PAGCOR), national government appropriations, and others.
Where will the funds be sourced? (post-amendment)
In response to the public criticism and protests from different key sectors that the proposal earned, the proponents of the bill introduced amendments to pacify unfavorable responses over the controversial bill.
Central refinements to the Maharlika bill include:
· Removal of GSIS and SSS as funding sources
This comes amid widespread opposition to the earlier version's clause mandating the two state pension funds to contribute a combined P150 billion to the SWF, which skeptics claimed may jeopardize contributors' and pensioners' retirement assets.
· BSP will be used to fill the financing gap
The Bangko Sentral ng Pilipinas's earnings are suggested to be utilized to fill the financing gap caused by the elimination of GSIS and SSS in the revised version of the Maharlika bill. If passed into law, the BSP would be required to invest Maharlika with all (100%) of its announced dividends for the first two years after the fund's creation.
What will it be used for?
Basically, the bill does not have any clear goals. What initiatives the fund would finance was not stated expressly in the statute. Instead, if the bill passes, it will be up to the Maharlika Investments Corporation (MIC) to choose which assets and endeavors to invest in.
Albay Representative Joey Salceda only stated that the Maharlika fund was created in accordance with President Marcos’ request. He claimed that Marcos suggested creating a fund to finance significant initiatives that are frequently dropped from the national budget after being approved by Congress.
Issues revolving around the bill
· Fiscal incapacity of the government
According to the analysis of retired Supreme Court senior associate justice Antonio T. Carpio, the Philippines does not currently have the surplus funds to create a legitimate sovereign wealth fund. The government is spending more than it generates revenues. In actuality, the national government has had yearly fiscal deficits for a number of decades. The sum granted to the SWF will, in effect, raise the government's debt load and debt payment costs if we compel the approval of this law. Therefore, the establishment of the MWF under House Bill No. 6398, cannot be called a legitimate sovereign fund, since there aren't any existing surplus funds.
· Fund Resources
According to Mercer CFA Institute Global Pension Index (MCGPI), among 44 countries the Philippines has the second-worst pension system globally. It is therefore deemed outrageous that it was even proposed to source funds from these institutions. GSIS and SSS funds are not even public resources. The funds of the GSIS and SSS are private funds contributed from the salaries of its members. Concerned individuals fear that pensioner benefits might suffer if investments fail to generate strong returns. But ultimately, it would be simply unlawful to send these amounts to the national government to support the national budget. To the delight of many, the MIF has been modified, omitting pension funds as sources.
The fund will also utilize resources from the Land Bank and the DBP. That would severely restrict the amount of money that the aforementioned government banks could lend to MSMEs, which are essential to our economy in terms of creating jobs for the general public. The fund's ability to draw from supplemental appropriations may potentially diminish the amount of money available for essential social services including education, healthcare, and housing.
· Unclear Goals
There is no explicit clause stating that the fund's governing body would represent or benefit labor employees. There is no provision in the law for giving citizens a direct cut of profits. Instead, revenue would flow to the financial institutions run by the government. Furthermore, none of the profits are certain. Inclusion of clear objectives in the regulation would serve as a safeguard in addition to providing predictability over the SWF's course.
· Philippine agencies’ history of funds mismanagement and scandals
The coco levy fund, the Social Security System, the Philippine Health Insurance Corporation, are just a few examples of government-managed funds that have been rife with corruption scandals, according to experts. A major investment such as the MIF is risky considering this history.
· MIF; a family business?
At least two lawmakers with ties to the thieving regime that the people of the Philippines overthrew in 1986 are the authors of the bill. And it is certain that the same governing dynasty will have enormous control over the sovereign wealth fund.
· No check and balance
The bill further indicates that the MIC Board may invest MIF money in any project it chooses because it is this same Board that establishes the Investment and Risk Management Guidelines which authorizes the investments. It is staggering that there isn't even a single (independent) check or balance authority in place regarding the investment of public funds.