Philippines makes slow progress on SWF plan

Legislative bottlenecks are delaying the establishment of the development fund. Outstanding issues include the amount to be invested and whether it will use an offshore asset manager.
Philippines makes slow progress on SWF plan

The Philippines is moving towards introducing a sovereign wealth fund, but draft legislation appears to have stalled, with no schedule set for its discussion by Senate committees, local sources have told AsianInvestor. It is therefore seen as unlikely to go live this year, despite strong support for the plan.

The legislative proposal for the Philippine Investment Fund Corporation (PIFC) was introduced by Senator Paolo Benigno ‘Bam’ Aquino – the cousin of former president Benigno Aquino III – in October 2016. It states that the PIFC will be a long-term investment vehicle for accumulating national savings and promoting growth and social development.

Discussions took place in February this year between consultants who are promoting the idea, Senator Aquino and President Rodrigo Duterte, to gain agreement in principle on setting up the fund.

Carole Malenab, the policy officer in Aquino's office who is handling the sovereign wealth fund, told AsianInvestor this week that the president and his staff had no concerns about the bill's intended purpose and its potential benefits for the country.

"The provisions that need to be discussed thoroughly are the amount that will be invested by the fund initially and whether we need another government agency or corporation to handle the fund," she said. "Or do we need to consider having an offshore third-party fund manager to handle it?"

On the back burner

The Senate bill has now been put before the economic affairs committee. AsianInvestor contacted the office of the senator chairing the committee on economic affairs, but received no response.

 Duterte to chair the SWF?

Jesse Cruz, chief executive of Manila-based consultancy Sovereign Wealth Funds Research and Advisory (SWFRA), had told AsianInvestor in January that she expected the new SWF to go live this coming June. But that outcome is now unlikely, given that the bill has still to go through three readings in the Senate, and there is no schedule for this. Cruz was unavailable for comment this week. 

Malenab suggested the project was unlikely to get off the ground this year. Legislation takes years to pass in the Philippines, even for priority bills that have the approval of the executive and the legislature. “On a good day it would take a year,” she said. "If there are a lot of contentious issues, it may take three to four years."

Malenab's best estimate was that the SWF might be up and running by the fourth quarter of next year."The group pushing for this [the SWFRA] is very aggressive; they have been briefing senators and congressmen, so there is a widespread awareness of the purpose of the bill and why we need the fund and what the process would be."

Sharon Almanza, deputy treasurer at Bangko Sentral ng Pilipinas, the central bank, confirmed that discussions on the proposal had taken place at the president’s offices.

Investment implications

The Senate bill said the PIFC would establish a diversified portfolio of investments globally and is expected to be initially capitalised with Php200 billion ($4 billion) and to receive subsequent additional yearly funding of between 0.2% and 0.5% of Philippine GDP.

The PIFC will also receive an additional $3 billion, possibly to come from another funding source, as an initial contribution to a primary investment fund account to be invested internationally. Permitted investments include equities, bonds, commodities, futures, private markets and real assets. The fund can consider joint ventures and co-investments.

The PIFC will be funded out of surpluses and capital may also be diverted from other development funds, said Malenab.

Moreover, the bill says the PIFC will implement international best practice in investing and managing assets according to the Santiago Principles. These are voluntarily endorsed by members of the International Forum of Sovereign Wealth Funds and promote transparency, good governance, accountability and prudent investment practices.

Since the fund has yet to be announced, Malenab said it was too early to identify the likely board members and executive management, and which external fund managers, administrators and custodians would be appointed. Duterte has been proposed as chairman of the fund.

The International Monetary Fund this week forecast that the Philippines would see its GDP grow by 6.8% in 2017 and 6.9% next year, putting it alongside India as the fastest growing Asian economy.

Meanwhile, the Duterte administration reiterated its commitment to bolstering the country’s straining infrastructure this week, with the unveiling of a Php8 trillion ($160 billion) infrastructure development plan involving rail and metro links for the country’s major cities. This will be financed by government funds and foreign direct investment.

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