Maharlika may put BSP at risk, warns senator
Sen. Sherwin Gatchalian (File photo from the Senate Public Relations and Information Bureau)
MANILA, Philippines — Senators on Monday raised their concerns over the Maharlika Investment Fund (MIF), with Sen. Sherwin Gatchalian pointing out that a P200-billion infusion from the Bangko Sentral ng Pilipinas (BSP) would delay its capital buildup by at least 17 years, affecting its ability to rescue the country’s banks should the economy collapse.
During a hearing of the Senate committee on banks, financial institutions and currencies, Gatchalian pointed to the impact of the BSP’s fund infusion as a “sticking point” in the proposed establishment of the MIF.
“What I am concerned about here is the ability of the BSP during times of banking challenges and we cannot isolate that. The size of the banking industry was the compelling reason for the buildup of the banking industry and delaying (its capitalization buildup) for almost two decades does not give me the confidence that nothing bad will happen in the next 17 years,” he said.
Under several proposed measures, initial funding for the MIF would be augmented by the BSP which would give up 100 percent of its dividends in the first two years and 50 percent in the next years.
Gatchalian expressed concern that putting money into MIF would defeat the purpose of Republic Act No. 11211 or the New Central Bank Act, which was aimed at increasing the BSP’s capitalization from P50 billion to P200 billion.
Simulation
Citing a simulation they conducted on the effects of the MIF, BSP Senior Assistant Governor Iluminada Sicat told the Senate committee that the Central Bank would take 17 years to meet its target capitalization, which was supposedly longer by nine years.
Gatchalian said that by agreeing to put its dividends into the MIF in the following years, the BSP would be left with a capitalization of P50 billion—“too meager” to allow the bank to respond in times of financial distress.
He noted that aside from its role as a banking regulator, the BSP needed sufficient capitalization to be able to provide price and currency stability, and fight inflation.
According to Gatchalian, waiting for 17 years is too long, pointing out that “anything can happen in the next 17 years. The sooner we can build up the capitalization of BSP, the better.”
“But how can we sleep soundly at night, knowing that things can happen and our regulator cannot respond?” he said.
Sicat expressed confidence that the BSP would be able to stem the fund infusion into the MIF, since it had been gaining income since 2019 after incurring losses since 2012.
According to her, the BSP is leaving it to Congress to augment its capitalization when needed, after its depletion by the MIF.
Ideal scenario
“We respect the power of the purse of Congress as it can decide whether to plow back (the dividends) to BSP or make it part of MIF,” Sicat said.
But under questioning by Sen. Nancy Binay about what the BSP would consider the ideal scenario, Sicat said this would be for the Central Bank to retain its dividends instead of turning these over to an investment venture.
“The ideal scenario is that the dividends of the BSP will plow back to the BSP,” she stressed.
Sen. Risa Hontiveros said she was also concerned about the effects of using the BSP, Land Bank of the Philippines and Development Bank of the Philippines as funding sources for the MIF.
“A proposition from one of the (Bankers Association of the Philippines) members told me that a Maharlika fund would only undermine the glide back to a more manageable level of indebtedness projected in the government-owned medium-term fiscal framework,” she said.
In response, BAP president Tony Moncupa said the proposal would definitely affect the government’s delivery of social services to Filipinos.
Fund manager
The National Development Co. (NDC), the investment arm of the Department of Trade and Industry (DTI), had sounded out some senators about becoming the fund manager for the MIF, according to an official who asked for anonymity.
Through letters and in meetings with some senators, the NDC said that it already had the hard assets, systems and people ready to jump-start the formation of a Maharlika Investment Corp.
It also pointed to its other strengths like its expandable charter to create sub-funds and focused investments, and a ready mandate to issue bonds to supplement the MIF.
In a separate letter sent to two senators, a copy of which was seen by the Inquirer, the NDC said that its charter was set up to handle the proposed fund.
“It would not have to start from scratch, and thus cost the government less to set up,” the source said. The NDC was established as a semi-private corporation on March 10, 1919, through Legislative Act No. 2849. On Nov. 13, 1936, it became a state-owned company and was tasked to function as the government’s investment arm while on Oct. 25, 1979, it was reorganized and placed under the DTI.
Its mandate is to invest in pioneering and development-oriented projects needed by the country that private investors avoid because of the high risks and uncertainties involved, or are unable to venture into because of the large investment requirement.
On March 10, 2003, Executive Order No. 184 directed the reorganization and streamlining of the NDC by refocusing its operations as the government’s investment arm. It was also mandated to act as a holding corporation to manage its subsidiaries where government investments are placed, ensure their growth potentials are maximized to enhance government’s shareholder value, and adopt control mechanisms to effectively monitor the performance of the subsidiaries.
