Opinion: Philippines SWF controversy draws parallels with Indonesia

Will the result be what happened in Indonesia? One thing is certain: the desire to create state investment platforms is growing regionally and globally.
Opinion: Philippines SWF controversy draws parallels with Indonesia

History has a way of repeating itself.

The controversy surrounding the Philippines's attempt to create a sovereign wealth fund (SWF) shares some striking similarities with the way Indonesia's wealth fund was recieved when it was established.

In February 2021, Indonesia launched its sovereign wealth fund, Indonesia Investment Authority (INA) - which international experts greeted with a certain degree of wariness.

While the fund was established to attract global investments into the country, its success was believed to greatly depend on whether it could convince investors that it would be free of political interference in its investing processes and implement solid governance processes to prevent corruption.

Fast forward to 2022 and many of those doubts seem to have been laid to rest. INA has attracted more than $20 billion in committments from foreign investors since it launched.

INA was also responsible for some of the $3.9 billion Indonesia attracted from SWFs and global pensions in 2022.


The Philippines’s proposal to create something similar, announce in late 2022, has also run into similar starting issues  -  and and more vocal resistance from local businesses, think-tanks and industry experts.

In this instance, resistance turned out to be a good thing because the original proposals underwent changes that improved the profile of the proposed SWF: pension funds were ruled out as funders; the Philippines' president was replaced by the finance secretary as the fund's chairman, and the government promised an external auditor would be appointed to review financial statements. 

Still, big concerns linger.

One of the main arguments against a Philippines SWF, named Maharlika, is that it could be vulnerable to corruption given widespread low faith in the country’s public sector.

The Philippines ranks 117 out of 180 countries in Transparency International’s 2021 corruption perception index, while Indonesia fares slightly better at 96.

Back in 2021, Indonesia’s newly minted INA faced similar concerns from some quarters that with no foreign expert on its board, the fund would be vulnerable to public-sector corruption, like many other state institutions.

Yet, the fledgling state-owned investor has surprised the industry by the speed and initiative it has shown at inking deals with global investors such as Canada’s CDPQ and China’s state-owned Silk Road Fund in areas ranging from green energy and traditional infrastructure to healthcare and ecommerce.  

To its credit, the Indonesian government has marketed INA very aggressively and reached out to more than 100 investors including SWFs and public pension since the fund's launch, a Global SWF 2023 report said. 

INA also joined the International Forum of Sovereign Wealth Funds as an associate member, voluntarily agreeing to work towards applying the Santiago Principles, a set of governance rules.

INA’s boards of supervisors and directors, while local, seem to have sufficient experience and expertise, according to industry experts. Legislation requires the fund to report investment and organisational information and run management committees.

All these have gone a long way in soothing international investors' initial concerns around INA's governance.


This doesn't necessarily mean that Philippines’ fund will eventually turn out like Indonesia’s.

However, executed well, a Philippines SWF has the potential to encourage foreign investors to invest in much-needed infrastructure through a ‘gateway’ fund, much like Indonesia’s INA.

The Philippines needs infra projects

As of now, it’s highly likely that given the public outcry, investors will adopt a wait-and-see attitude before they decide to invest.

The fact that the Philippines doesn’t have a current account surplus or excess reserves – the typical funding drivers for SWFs – is not necessarily an argument against its establishment.

Apart from INA, India’s National Investment and Infrastructure Fund is a good example of a country with current account deficits and/or high debt levels opting for a new style SWF structure.

They operate as strategic funds or state investment platforms and are considered institutional investors entrusted with managing and investing a pool of capital from various depositors or funds.


If anything, the entire Philippines SWF saga is a timely reminder of the importance of public discourse and the need for greater clarity about the whys and hows of SWFs.

The issues of accountability and transparency will continue to stir up passions around the topic in the Philippines – the bill to create the fund won approval in the House of Representatives, and is headed next to the Senate, where it could face resistance.

There is an investment case for a country like the Philippines to have a state investment platform similar to the likes of INA or NIIF – these platforms can venture outside conventional investment markets, invest in alternatives and also become cornerstone investors in projects or sectors that are deemed to be highly important for future growth, with the help of competent global partners.

Partnerships with global pensions funds or insurers, who by their nature are not highly risk-seeking and have ESG requirements inbuilt into their investment processes could develop the Philippines’s own financial and ESG capabilities.

The political will to ensure the fund gets governance right is imperative for the SWF to succeed.

For now, the world is watching.


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