OPINION
It is more than ironic that the proponents of the Maharlika Investment Fund (MIF) who literally breezed through both houses of Congress in getting it passed are now struggling for words in trying to explain how the Fund could actually yield any additionality and help sustain the growth path of the Philippine economy.
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Are we playing midwife to an elephant in giving birth to a mouse?
We are all one in hoping for any strategic means to securing the momentum of consumption, investment, government spending and external trade so that in the process we could achieve the targeted economic growth of 6.0-7.0 percent for 2023 and 6.5-8.0 percent for 2024. But it looks like the MIF may not measure up.
Instead, it could very well be the sands in the wheels of economic growth, or outright stopper.
To begin with, we all know that we have neither surplus funds nor windfall profits from the sale of any public resource or assets. As the MIF relies on the same public money from which funding for infrastructure and social services would be sourced, the trade- off could only be anti-growth. The MIF would deprive the population of some funds for more productive food production, better education, improved medical facilities, more livable mass housing and broader digitalization of the economy today. These urgent concerns are normally included in the annual budget for both national and local government undertaking. To the extent of the diversion, national output could only decline. Indirectly, the other components of growth are bound to ease as well.
Public investment a la MIF makes sense only if the basic current and capital spending needs have been met. The national budget has been programmed for these purposes so any diversion represents a diminution for these social requirements.
As a consequence, MIF would force the national government (NG) to borrow more, impose higher or more taxes, or do both to compensate for the diverted funds. It is misleading to argue that the diverted funds are invested funds, and therefore, not exactly lost. They would bring in some return, yes, and perhaps additional investment, but only in the future and only if they made good money. The social demand could wait.
For financial investments, at least a year is necessary to collect the return. For physical investments, it would depend on the period when these projects start producing some returns like toll fees for roadways, usage fees for airports and seaports. But what about dams? Real estate? Corporate take-over?
How then does the MIF differ from doing a public-private partnership (PPP) in which the government splits the cost with the private sector? Or from the Government directly borrowing funds from multilateral agencies and bilateral sources especially from Japan which charges nearly zero interest rates and undertaking those infra projects? How does the MIF become superior to concessional loans for funding infrastructure when it would be using public money, some of which could have been borrowed through the sale of Philippine bonds in the Philippines and global bonds in the US or Europe? Aside from the borrowing cost, the MIF will be charging a maximum of 2 percent for management fee.
Some would even argue that we need an MIF to jumpstart infra projects and encourage more RSAs, MVPs and EKRs of this world to undertake more flagship infra projects in the pipeline. Again, it’s difficult to explain how the current PPP scheme may be set aside in favor of MIF which is using public money anyway.
In short, an MIF is no less than a budgetary nightmare unless the government intends to push back spending on both infra projects and basic social and economic services. This is an existential issue that could set off travails among us taxpayers in the near future.
From its inception to its current form as approved before Congress adjourned the first regular session of the 19th Congress last May 31, the MIF would have to contend with at least a few of the 24 Santiago Principles. These principles are meant to guide the management and administration of sovereign wealth funds around the world, that they are run with economic and financial underpinnings. In general, they aim to maintain stability of the global financial system and free flow of capital and investment. Regulatory compliance is also an important goal of these principles. Finally, good governance is championed to ensure adequate operational controls, risk management and accountability.
The MIF bill specifically provides for the implementation of these Santiago Principles to ensure that the investment and management of funds are in accordance with their standards of transparency and accountability.
But MIF may fail Principles 1 (legal framework) and 2 (clearly defined goals). Since the funding is to be drawn literally from the budget, civil society can very well raise the issue of Congress abdicating on its power over the purse. Both the Land Bank and the DBP have their own charter as what they can and cannot do which the MIF bill can also affect. The use of the BSP dividends to help the National Government produce its ₱50 - billion contribution to the MIF seed fund runs counter to the recent amendment of the BSP charter providing for the use of its annual dividends to recapitalize itself. It’s true that Congress can always amend the laws but the issue remains whether it is wise or necessary to do it?
The MIF bill is also quite vague as to what it intends to do. From what we read in the draft legislation, MIF’s objective is to promote socio-economic development by one, making strategic and profitable investments in key sectors; two, obtain the optimal absolute return and achievable financial gains on its investments; and three, satisfy the requirements of liquidity, security and yield to ensure profitability.
The problem here is that the Maharlika objectives duplicate those of the government and of the other public agencies. For one, it is precisely the main goal of NG to promote socio-economic development. The budget is its vehicle. For another, both the Land Bank and the DBP, other government corporations and financial institutions are also doing their financial investment by optimizing their returns. There is clearly an additional layer of bureaucracy with identical goals and strategies.
If ever, the MIF’s additionality is only in consolidating the fund from all relevant public agencies many of which are already doing the expected role of the Maharlika.
The other issue of the MIF with the Santiago Principles is with respect to its admittedly direct domestic macroeconomic implications, or Principle 3. Earmarking the dividends of the BSP will undermine its ability to deliver on its mandate of price and financial stability. Assigning the Land Bank and DBP to shoulder the cost of Maharlika’s seed fund will affect their ability to lend and invest on their own account. Diverting funds from the budget will force the fiscal authorities to consider increasing taxes or borrowings, or both. Otherwise, the government has no option but to trim its spending and restrain economic growth.
Finally, we should recall that it was from the non-profit, non-partisan think tank Milken Institute that the Philippine Government sought some assistance in the creation of a sovereign wealth fund late last year. After some “financial innovations labs,” the Institute in January 2023 prepared a comprehensive report “Best Practices of Sovereign Wealth Funds: The Case for the Philippines” with some actionable recommendations to the authorities in the design of what is now the MIF:
Articulate a clear objective with funding that can accelerate investment goals.
This is clearly Santiago Principle 1. Moreover, the Institute also advised to ring fence revenue sources to ensure flexibility and minimize political conflict of interest. Clearly this was hardly done for until the last minute, the Senate attempted to include the GSIS and SSS pension funds and in the finaldraft,retainedthedividendsoftheBSP to fund the ₱50-billion share of NG in the P125-billionseedfund.
Create a governance structure with a clear delegation of duties, operational accountability, and disclosure policies based on the Santiago Principles.
This is Santiago Principle 6 . Accountability is difficult to establish in the MIF because Congressional power of the purse is effectively delegated to an appointed MIF officials and members of the Board. Audit by the Commission on Audit will be done only once every five years.
Engage community stakeholders, capital markets, government leaders, and the public through a structure for disclosure of operations and activities.
This is nearly impossible to do because the proponents in Congress hardly consulted and engaged as many stakeholders as possible within a reasonable amount of time. Some of the senators themselves have outstanding issues with the final draft and they are very fundamental to the existence and sustainability of the MIF.
Design a long-term investment strategy, and designate performance benchmarks aligned to short- and long-term goals, minimal currency risk, and a range of indicators to measure financial performance, ESG risk, and development goals.
The MIF bill was passed without a semblance, oranidea,ofwhattheMIFisallaboutwith respect to its long-term strategy considering its source of funding and alternative schemes for undertaking infrastructure projects.
But one thing we know, MIF needs more restructuring, while Milken Institute concluded its recommendations that only a well-structured SWF in the Philippines could help attract foreign investment, increase the return on investment in national savings, and promote growth and social development.
" But one thing we know, MIF needs more restructuring, while Milken Institute concluded its recommendations that only a well-structured SWF in the Philippines could help attract foreign investment, increase the return on investment in national savings, and promote growth and social development.
Diwa C. Guinigundo was the Former Deputy Governor of the Bangko Sentral ng Pilipinas.
