Economists still skeptical about Maharlika fund after Congress approval

ECONOMISTS remain skeptical about the newly passed Maharlika Investment Fund (MIF) bill, saying it still contains provisions that could affect the independence of government financial institutions (GFIs) and the central bank.

Filomeno S. Sta Ana III, coordinator of the Action for Economic Reforms, said it is “redundant” to call the fund an investment mechanism to finance development programs because even without it, “GFIs that are ordered to contribute to Maharlika are using their funds to contribute to Philippine development in different ways.”

“The problem with Maharlika is it doesn’t really know what it wants to do,” he said in a Facebook Messenger chat.

Congress approved on Wednesday the bill creating the country’s first sovereign wealth fund.

Under the bill, the Land Bank of the Philippines and the Development Bank of the Philippines are mandated to contribute PHP 50 billion and PHP 25 billion, respectively, to the Maharlika Investment Corp. (MIC), which has control over the fund. The National Government is also required to contribute PHP 50 billion to the MIC.

Funds from the Philippine Amusement and Gaming Corp. and proceeds from the privatization and transfer of government funds may also be used for the MIF.

“As a consequence of diverting capital from GFIs, Maharlika impinges on integrity and independence of decision making of these GFIs,” Mr. Sta. Ana said.

The Bangko Sentral ng Pilipinas (BSP) is also asked to contribute 100% of its dividends to MIC in its first two years. After the two-year period, the BSP’s contribution drops to 50% of its dividends, with the remaining 50% to be deposited into a special account holding its capital build-up funds.

Former central bank deputy governor Diwa C. Guinigundo warned that using BSP dividends as seed capital for the MIF would further delay the central bank’s capital buildup.

“Now you have the Maharlika Investment Fund. So instead of the initial estimate that it would take eight years to recapitalize the central bank fully, P200 billion out of its own dividends, it will now be extended to about 17 years,” Mr. Guinigundo said in an interview with One News Channel’s The Chiefs. “Now, anything can happen.”

The former BSP official said that to replenish public money that will be used for the Maharlika fund, the government would be forced to either increase taxes or borrow money domestically or abroad — or do both.

Leonardo A. Lanzona, who teaches economics at the Ateneo de Manila University, said the use of BSP dividends for the MIF “could mean lower revenues for the government and thus can result in higher taxes.”

“Trading off the government’s limited funds from one use to another obviously carries with it significant opportunity costs along with conflicts of interest to its proposed board members,” he said via Messenger chat.

“The speed with which the MIF has been passed is a clear sign that not all concerns have been addressed.”

Mr. Sta. Ana also questioned the MIF bill’s objective, which is to promote socio-economic development by making “strategic and profitable investments in key sectors to preserve and enhance the long-term value of the Fund,” obtaining “the optimal absolute return and achievable financial gains on its investments,” and satisfying “the requirements of liquidity, safety/security, and yield in order to ensure profitability.”

“But this contradicts the objective of growing the funds because financing development like infrastructure projects is not exactly about growing money or earning a high financial return,” Mr. Sta. Ana said.

INVESTMENTS

Under the bill, the MIC board can approve the fund’s investments in commodities, fixed-income instruments, corporate bonds, equities, Islamic investments, joint ventures, mergers, and acquisitions, as well as real estate and infrastructure projects.

The fund can also invest in projects that “contribute to sustainable development” and “with sustainable and developmental impact.”

For global investment banker Stephen Cuunjieng, the list of investments that the MIC board can approve is too broad.

“The purpose in the Senate bill seems to imply without stating it that it’s for national development so that would assume it’s to be used domestically only. But if you read (the bill), the fund can invest in foreign bonds. Basically, it says I can invest in practically anything,” he told OneNews Channel.

“What I’m allowed to invest in, which is delineated in the law, seems to be much broader and more open, so in other words it’s kind of really up to the fund managers and the board to decide what to do or not.”

Public budget analyst Zyza Nadine M. Suzara said the public needs to “closely monitor” how funds for the MIF will be incorporated in next year’s national budget.

“When budget legislation for the 2024 national budget begins, we need to watch out how much the appropriations for MIF will be and how the limited fiscal space will be reallocated,” she said via Messenger chat. “What programs and projects will be deprioritized and therefore lose appropriations in order to give way for Maharlika?”

The proposed 2024 national budget has been set at PHP 5.75 trillion.

Enrico P. Villanueva, a senior lecturer of money and banking at the University of the Philippines Los Baños, said the public should be vigilant on the MIC, the fund’s holder, which is empowered by the bill to “acquire and hold… assets and incur… liabilities in connection with its operations.”

“It elicits fears of corruption and distrust of government. Hope is better pinned on grassroots development corporations,” he said via Messenger chat.

According to the bill, the MIC board may request Congress for legislation to increase MIC’s capitalization.

“The most effective way of raising funds is by strengthening institutions,” Mr. Lanzona said. “Strengthening institutions that go after corrupt people and appropriating ill-gotten wealth not only raise revenues for the government but also increase the credibility of its institutions.” – Kyle Aristophere T. Atienza, Reporter