Finance Secretary Benjamin Diokno (Photo from the Department of Finance)
MANILA, Philippines — The creation of the Maharlika sovereign wealth fund has the green light from President Ferdinand Marcos Jr., but its inception goes way back to the previous administration, Finance Secretary Benjamin Diokno said on Wednesday.
At the Kapihan sa Manila Bay news forum, Diokno said that he was in fact in the thick of things when he was governor of the Bangko Sentral ng Pilipinas (BSP) during the Duterte administration.
“The idea was to create a fund that will take care of future generations of Filipinos,” he noted.
For the Maharlika fund, Diokno said there was an interagency committee, which included officials from agencies such as the National Economic and Development Authority as well as government financial institutions (GFIs).
“We talked among ourselves and presented our proposal to the president, and we prepared a draft bill,” Diokno said.
He added, however, that he was asked that it be made sure the Maharlika fund would not be identified with the president, “so that whoever is in office could not meddle with how the fund will be used.”
He added that it would be administered by a governing council from which the government “is totally out.”
The council would be “private sector, but I think the secretary of finance is a member, the only representative of the government,” Diokno said.
The finance chief said that in other countries, a sovereign wealth fund was backed by government revenues from depletable resources, citing as an example the case of Norway, where part of taxes from petroleum was set aside for such a wealth fund.
Closer to home, Diokno said Singapore and Australia, and more recently Indonesia, have sovereign wealth funds.
“Ideally, part of revenues from the Malampaya natural gas should have been set aside for a sovereign wealth fund,” Diokno said. “Same with revenues from telecommunications bandwidth and mineral resources.”
Asked why the fund for Maharlika would come from pension funds and state banks, contrary to his examples, Diokno said these institutions needed more diversified options for their investments.
Fast approval
The Maharlika was proposed in House Bill No. 6398, or the Maharlika Investments Fund (MIF) Act. The money will come from GFIs, which will then be placed in a wide range of outlets such as foreign currencies, metals, fixed-income instruments, domestic and foreign corporate bonds, listed or unlisted equities, mutual and exchange-traded funds, commercial real estate, and infrastructure projects.
The measure proposes an initial investment of P250 billion from the Government Service Insurance System (GSIS), Social Security System (SSS), Land Bank of the Philippines, and Development Bank of the Philippines (DBP), as well as P25 billion from the national government. Subsequent annual contributions may come from the BSP and the national budget.
The bill will create the Maharlika Investments Corp., an independent corporate body that will handle investments using the MIF. It will be helmed by a nine-member board of directors representing the contributing GFIs.
On Tuesday, the House banks and financial intermediaries committee approved in principle HB 6398, a day after it was filed by Speaker Martin Romualdez and six other lawmakers. The approval was subject to amendments to be proposed by a technical working group created to fine-tune the bill. It was also referred to the House ways and means committee for its tax provision and the appropriations panel for its budgetary aspect.
Romualdez said the bill was necessary to maintain the momentum of the country’s growing economy, which expanded by 7.6 percent in the third quarter.
“As the Philippines secures its place not only as the Rising Star of Asia but as a real economic leader in the Asia-Pacific, the creation of the (Maharlika fund) becomes imperative,” he said.
The bill likens Maharlika to that of Singapore’s wealth fund which acquired assets to ensure the proper management of its foreign reserves. It also mentioned the fund of Indonesia that allowed it to put money into infrastructure and emerging industries.
In other countries, however, such funds have been a source of corruption.
Misgivings
Malaysia’s 1MDB sovereign wealth fund was used as part of a multibillion-dollar corruption scheme that implicated former Prime Minister Najib Razak in massive bribery. Najib was convicted in 2020, sentenced to 12 years in prison, and fined $46.88 million for illegally receiving $10 million from a unit of 1MDB.
On Wednesday, House Deputy Minority Leader France Castro also expressed misgivings over the proposed creation of the Maharlika fund.
The House deputy minority leader cited a provision of HB 6398 which said that the fund would be made up of P125 billion from the GSIS, P50 billion from SSS, P50 billion from Landbank, and P25 billion from DBP, plus an initial P25 billion from the national government.
“At the minimum, this will amount to P275 billion and if these investments fail then the pensions of millions of workers would be wiped out,” Castro warned.
Castro pointed out that her initial concern was the current inability of SSS and the GSIS to provide decent benefits despite the payment of premium contributions by pensioners. “Then we would gamble these contributions on risky investments?” the ACT Teachers party-list lawmaker said.
Conflict of interest
“It is worrisome and suspicious that the company created by the proponents would invest money which isn’t theirs. Apart from conflict of interest, this could become a nest of corruption,” she added in Filipino.
Castro also pointed out that only countries with a budget surplus create sovereign wealth funds, explaining that “a person can only set aside money for investments if he has excess cash after buying food and other basic needs. The same goes for a country. Many are hungry and unemployed. The people need aid and there’s the pandemic. Would we have anything left to invest?”
“The administration should instead impose a wealth tax on the superrich,” she stressed, adding that the pensions of the poor and middle class should not be gambled away.