Economy 6 MIN READ

Maharlika fund has ample safeguards against risks, economic managers say

June 14, 2023By BusinessWorld

The Maharlika Investment Fund (MIF) has “enough safeguards” in place to manage potential risks, the country’s economic managers said in a joint statement on Tuesday.

“Senate Bill No. 2020 imposes enough safeguards to minimize risks for shareholders and fund contributors, including the public sector,” according to the joint statement of the Bangko Sentral ng Pilipinas (BSP), Department of Finance, Department of Budget and Management (DBM), and National Economic and Development Authority (NEDA). “These are more than what an average investor would need to comply with.”

“The MIF is not only beneficial but necessary at this point in time. While the Philippines can offer investment opportunities, given that we are still a growing economy, we see that the cost of debt has risen, making the need to explore vehicles to attract equity financing such as MIF urgent,” they added.

Congress last month approved the bill creating the sovereign wealth fund, which is now awaiting President Ferdinand R. Marcos, Jr.’s signature.

The economic managers cited the fund’s adherence to the Santiago Principles, a set of 24 best practices for sovereign wealth funds.

The board members of the Maharlika Investment Corp. (MIC), which controls the fund, will also face stringent qualifications.

“A person who has pending cases relating to fraud, plunder, corrupt practices, money laundering, tax evasion, or any crimes involving misuse of money or breach of trust would be disqualified from being appointed to the board,” the economic managers said.

“Further, board members shall be bonded for the faithful performance of their duties and accounting of all funds and public properties in his/her custody,” they added, noting that board members must secure a fidelity bond worth P10 million. “The penalties for offenses were also increased to ensure that the same is commensurate with the gravity of the offense. Hence, the amended bill imposes imprisonment as a penalty for certain offenses.”

The MIC board will also create a risk management committee that ensures the fund will “achieve a prudent balance between risk and reward in both ongoing and new business activities, taking careful consideration of risk identification, measurement, assessment, mitigation, reporting and monitoring.”

There will also be an advisory body consisting of the Budget secretary, NEDA secretary, and national treasurer, as well as a joint congressional oversight committee composed of seven members each from the House of Representatives and Senate.

The MIC will also make available to the public its investment policies, risk management plans, activities, terms and conditions with co-investors and joint venture partners, and financial statements, among other documents.

The economic managers also noted other safety provisions in the bill, such as preventing pension and social funds from contributing to the fund.

“This absolute prohibition is a fiscal risk management measure to ensure that fiscal resources, particularly pension and social funds managed by the Social Security System and Government Service Insurance System, and other pension and social funds are used solely for the purpose for which they were created (i.e., to cater to specific needs of the respective individual members,” they said.

As for the contributions of the National Government to the initial financing of the MIF, they said the money would not come from the budget.

“Prior to the inclusion of provisions on the funding of the MIF, the founding government financial institutions (GFIs), the National Government and the BSP were consulted on their financial viability to support the capitalization of the MIC in its initial years,” the economic managers said.

“The National Government contribution only pertains to the seed fund and the contributions of the National Government to the MIC shall not be taken from any of the programmed or even unprogrammed appropriations in the national budget,” they added.

Under the bill, the MIC will be funded by contributions from Land Bank of the Philippines (LANDBANK) worth PHP 50 billion and Development Bank of the Philippines (DBP) worth PHP 25 billion.

The National Government will also contribute PHP 50 billion.

The BSP is also tasked to contribute 100% of its dividends in the first two years.

Funds may also be taken from Philippine Amusement and Gaming Corp.’s income and privatization proceeds.

The economic managers said the fund aims to boost returns and optimize government assets.

“The main advantage of the MIF over government financial institutions is that it can maximize returns because it is allowed to undertake more investment options. In contrast, investible funds of GFIs are concentrated in low-risk investments such as government securities which are less volatile but have low levels of return,” they said.

Investments in the MIC will allow GFIs such as LANDBANK and the DBP to obtain returns higher than their 10-year average return, they added.

“The public can remain confident in the stability of LANDBANK and DBP even, given their investment in the MIC. Limitations have also been established, i.e., investments should not exceed 25% of their net worth,” the economic managers said.

The fund will also “widen fiscal space” because it will help the government rely less on development assistance, borrowings and new taxes.

“Further, the MIC may invest in capital markets (with an emphasis on generating financial returns) or sectoral investments (with an emphasis on generating economic returns) as a matter of investment strategy and policy that the lawmakers wisely afforded to the MIF board,” they added.

The economic managers also clarified the objective of the fund, which is to “execute and sustain high-impact infrastructure and development projects, ease fiscal constraints and maximize expected returns for our country’s investments.”

Investments will be focused on financial instruments, real property, and physical and digital infrastructure, they added.

“By pooling the investible funds of select GFIs and channeling them into diversified financial assets and development projects, the MIF aims to obtain the optimal absolute return and achievable financial gains on its investments, preserve and enhance the long-term value of the fund and promote economic development,” they said.

They also cited some international entities that had expressed interest in the fund, including the Japan Bank for International Cooperation and several US investors.

Finance chief Benjamin E. Diokno earlier said the President would likely sign the bill before his second state of the nation address in July.

He also said the fund is expected to be fully operational by the end of the year. — Luisa Maria Jacinta C. Jocson

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