Lawmakers in the Philippine House of Representatives last week approved a Senate bill allowing for the establishment of the Maharlika Investment Corporation (MIC), the body that will manage the Philippines' new Maharlika Investment Fund (MIF). Philippines president Ferdinand ‘Bongbong’ Marcos signed off on the bill on June 1.
The Philippines’ new sovereign wealth fund, long talked about and now finally in play, will not have an easy time of it, judging from the hostility directed from various quarters. Above all, there are fears that the fund has insufficient governance in place.
An initial proposal to tap the country’s Social Security System (SSS), Government Service Insurance System (GSIS), and other pension funds has been “absolutely prohibited” in the new legislation.
Marcos on Wednesday last week allayed concerns over the sources of funding, but also said he sees nothing wrong with state pension funds investing in the MIF.
"We will not use it as a seed fund. However, if a pension fund…decides the Maharlika fund is a good investment, it's up to them if they want to invest in it," he said at a media briefing.
Seed funding for the SWF will come from the central bank, Bangko Sentral ng Pilipinas (BSP), and various government institutions. The BSP will contribute 100% of its remittances during the first and second year of the Maharlika fund’s establishment, up to a maximum of P50 billion ($900 million).
The total investments from government financial institutions, such as the Landbank of the Philippines (Landbank) and the Development Bank of the Philippines (DBP), have also been capped at 25% of each’s net worth. In the case of Landbank, the cap is at $900 million, while for the DBP it is at $450 million. The Philippine Amusement and Gaming Corporation will also contribute to the fund.
The MIC will have an authorised capital stock of P500 billion ($9 billion) and has been given a term of 35 years, reviewable at any time.
Speaking to local media, Senator Sherwin Gatchalian said the main purpose of the Maharlika Investment Fund is to invest in “profitable infrastructure so that it will get returns that can go back to the economy.”
Senator Martin Romualdez said the MIF would provide “an opportunity to ensure the government institutions’ optimal asset allocation, as well as ensure that resources are efficiently channelled to investments that will provide the most value, not only to the participating government institutions, but also to the country."
INSPIRATION FROM ABROAD
Romualdez said the MIF could also be used to manage the country’s foreign reserves and bring in job-generating direct investments, citing the success stories of Singapore's GIC and the Indonesia Investment Authority (INA).
As AsianInvestor has reported, when Indonesia launched the INA in 2021, its success depended on whether it could convince investors that it would implement solid governance processes to prevent corruption.
As also reported by AsianInvestor, the experience in Malaysia with 1MDB showed that having a large pool of wealth at the disposal of government officials and politicians was not necessarily a recipe for good governance.
There is still some dispute as to whether the powers and functions of the MIC board of directors are sufficiently arms-length from the management functions.
Philippines House deputy minority leader France Castro said there is no valid reason to centralise state resources for investment under the direct supervision and, effectively, discretion of the President.
At this early stage, there is understandably a lack of clarity about the strategy for the hiring of an internal investment team. AsianInvestor made a request for comment from government agencies on the plans for hiring and development of the investment team, and has not received a response.
Opposition has come from all sides. Business groups, including the Financial Executives Institute of the Philippines, the Institute of Corporate Directors, the Makati Business Club, and the Management Association of the Philippines, have made a collective statement against the fund.
They claim there is no gap or "missing institution" in the Philippine economy that necessitates the creation of a sovereign wealth fund. They also note that the Philippine economy has no commodity-based surpluses or surpluses from external trade from state-owned enterprises that need managing within a sovereign fund structure.
The former director-general of the National Economic and Development Authority, Winnie Monsod, speaking to local media last week, echoed the concerns about the funding source for the MIF.
“This is not a sovereign wealth fund. I cannot see that it comes from government surpluses because we have no government surplus. It does not come from a balance of payments surplus because we don’t have a balance of payments surplus.”
The establishment of sovereign wealth funds is often the subject of controversy and dispute, especially when it comes to how government funds should be allocated. Even in New Zealand, which has globally one of the most successful sovereign fund structures, many people do not appreciate the wealth that NZ Super has generated for the nation.
NZ Super's CIO Stephen Gilmore told AsianInvestor, "If you look back, we’ve had contributions (from government), less tax, of around NZ$14 billion, and the fund size is NZ$62 billion."