Marcos-backed Philippines sovereign wealth fund faces pushback from business groups

[MANILA] Business leaders and economic analysts in the Philippines have criticised the plans by the government to establish a sovereign wealth fund that’s being backed by President Ferdinand Marcos Jr.

The proposal to create the Maharlika Investment Fund (MIF), as it is called, faced plenty of resistance soon after it was filed in Congress. It took just 18 days for congressional approval to be given, compared to months for previous bills, after Marcos certified it as urgent as he seeks to boost foreign investment.

The country’s central bank governor Felipe Medalla was among those who have openly questioned the need for the fund, as he wondered how it would be governed and compared it to Malaysia’s disgraced state investment fund 1MDB.

Sonny Africa, the executive director of the Ibon Foundation think-tank in Manila, described many of the MIF bill’s provisions as “self-serving”, adding that its Board and personnel are “given too much license to give themselves compensation even if the fund fails”.

He said that aside from the MIF being exempt from “any and all forms and kinds of direct or indirect taxes,” the administrators will be allowed to use the fund to invest in domestic corporate bonds, listed or unlisted equities, joint ventures and co-investments, and commercial real estate.

The MIF bill was filed in Parliament by Speaker of the House Martin Romualdez, a cousin of Marcos. It initially proposed pooling nearly US$5 billion from various government-controlled assets and banks, including social security and insurance. Drawing from civilian resources generated heavy backlash against the bill.

The bill was later revised to say that the fund would on longer tap on citizens’ pension savings or the central bank’s reserves. An updated version that says the fund will get money from state-owned banks has since won the support of lawmakers and is likely to be passed.

Economic officials in the Philippines government have explained that the MIF takes its cue from the success of countries in the region such as Singapore, which employs a similar strategy to “fund the country’s big-ticket infrastructure projects”.

As things stand, the MIF will obtain capital from two state lenders. A total of 50 billion pesos (S$1.22 billion) will come from the Land Bank of the Philippines, and 25 billion pesos will come from the Development Bank of the Philippines. The central bank will contribute all of its dividends for the first two years once the fund is operational. 

Recently, the Makati Business Club issued a statement expressing its concerns. “We see no guarantee that this diversion of funds will result in higher returns to the National Government but instead more definitely result in higher interest rates and greater crowding out of private sector investments,” said the private non-profit business association.

The Philippine Institute for Development Studies hit out against a “distortion” of the sovereign wealth fund concept that should be used to maximise a nation’s surplus resources.

“But the Philippines does not enjoy such excess. Instead, the country has a heightened fiscal deficit, has a so-so export performance, and has not enabled the major commodity exports to bolster foreign currency reserves,” it said in a statement.

House Deputy Minority Leader France Castro, one of the few lawmakers in Congress who voted against the bill, said even the watered-down version does not guarantee it will not dip into people’s hard-earned savings.

During the Congressional deliberations, he raised concerns about a provision that allows state corporations to re-channel their assets towards the MIF should their respective board of directors say so.

House lawmaker Arlene Brosas said that the rush to push through the bill is proof that the government’s priorities are out of sync with other pressing national concerns such as the rising cost of living and inflation.

Last month, the Philippines recorded a 14-year high inflation rate of 8 per cent. In the days leading up to Christmas this weekend, consumers are bracing for another increase in oil prices.

“We need to put wage increases and financial aid first, not Maharlika,” said Brosas.

Fellow lawmaker Edcel Lagman, one of six people who rejected the proposal in the 312-member House, was quoted in a Bloomberg report as saying “there is no urgency and necessity for the enactment” of this bill.

“We must bail out our people today from poverty, inflation and the dire prospects of recession, rather than investing in long-term ventures,” he said.