As the Marcos administration drums up support for the Maharlika Investment Fund (MIF) in Saudi Arabia, analysts said there were some changes that the government could apply to make the fund work, including a phased contribution by state-run banks to avoid straining their balance sheets.
Calixto Chikiamco, president of the Foundation for Economic Freedom, said that while the creation of a sovereign wealth fund was “hard to justify” at the moment due to a lack of surplus resources, a gradual injection of capital by Land Bank of the Philippines (Landbank) and Development Bank of the Philippines (DBP) would make more sense rather than a one-time transfer.
Chikiamco said the government can add this to the MIF’s implementing rules and regulations (IRR), which has been suspended pending “further study” by economic officials.
“After all, the MIF doesn’t have a business plan in place. Therefore, the initial capital contribution will just stay idle for many months,” he said.
“A phased capital contribution will allow Landbank and DBP not to breach their respective capital requirements,” he said. “It will allow the banks to build their capital and to continue to lend to farmers and for development projects without need for regulatory relief.”
Chikiamco also said a “better way” to reimagine the MIF was not as a sovereign wealth fund but as a development fund, particularly for infrastructure and green projects with equity contribution from multilaterals “to assure good governance and sound investment.” He was referring to international lenders like the World Bank and the Asian Development Bank.
Landbank and DBP earlier sought regulatory relief as their contributions to the MIF might make them noncompliant with the capital requirements set by the Bangko Sentral ng Pilipinas (BSP).
Landbank last month remitted to the Bureau of Treasury its P50-billion contribution to the MIF while DBP turned in P25 billion.
On Thursday, Fitch Ratings warned that the credit strength of Landbank and DBP may weaken following their investments to the MIF if the government does not put mitigating measures in place.
Leonardo Lanzona, an economist at Ateneo de Manila University, said the government should add more safeguards to the IRR to keep the MIF free from political influence.
“While the funds are public in nature, the government’s role should only be limited to providing a clear roadmap for the operations of the MIF and ensuring that it aligns with the government’s intentions and the interests of the public,” Lanzona explained.
Still on track
“Allowing the government to design its organizational structure creates the risk of political pressure influencing financial decisions, rather than allowing the fund to operate independently based on financial considerations,” he added.
President Marcos said the MIF is still on track to be launched before the end of the year despite the suspension of the IRR. He has also invited businessmen in Saudi Arabia to invest in the fund during his visit to the Gulf state, with Finance Secretary Benjamin Diokno assuring investors of the MIF’s safeguards.
“Maharlika aims to attract capital from both domestic and global equity investors, including large funds here in the Middle East seeking to diversify its portfolio in fast-growing emerging markets like the Philippines,” Diokno told businessmen during a roundtable meeting in Riyadh on Thursday.
At the roundtable organized by the Saudi Ministry of Investments, Mr. Marcos said that the MIF was a flagship investment opportunity that would show the Philippines’ global competitiveness.
The MIF is the Philippines’ “first-ever sovereign investment fund designed to drive long-term economic development through increased investments in high-impact sectors,” he told the meeting of about 30 businessmen. The President arrived in Riyadh on Thursday, a day before the Association of Southeast Asian Nations (Asean)-Gulf Cooperation Summit in the Saudi capital.
From King Khalid International Airport, Mr. Marcos proceeded to his meeting with the business leaders.
He told them that the Philippine government also aims to learn from the Saudi government how it manages its own sovereign wealth fund (SWF).
The Kingdom of Saudi Arabia has one of the world’s biggest SWFs. Its Public Investment Fund (PIF) has about $776.7 billion in total assets.
READ: Saudi Arabian business leaders express interest in Maharlika Investment Fund
But the PIF has also been at the center of controversy in recent years due to allegations of human rights violations committed by the Saudi government in its forced takeover of various companies in a massive anticorruption campaign.
The Saudi government carried out mass arrests of various personalities, including princes, current and former government officials, and prominent businessmen, according to a Human Rights Watch report.
Those arrested were allegedly forced to turn over their companies in exchange for their freedom from detention at Riyadh’s five-star Ritz-Carlton Hotel, the same hotel where Mr. Marcos and his delegation stayed during his two-day visit.
In his speech, the President said investments in the Philippines would be timely as its economy was on a “high growth trajectory,” recording a gross domestic product of 7.6 percent last year, the fastest growth rate since 1976.
He also cited measures to ease the entry of foreign investments, including amendments to the Foreign Investments Act, the Retail Trade Liberalization Act, the Public Services Act and the Renewable Energy Act.
The Philippine government is enticing foreign investors with various tax incentives through the Corporate Recovery and Tax Incentives for Enterprises (Create) Act, the President said.He added that the country’s financial and banking sectors were “healthy and robust” and that the Philippines’ credit rating “continues to receive stable and positive investment grades.”