Senior Deputy Speaker and Pampanga Rep. Gloria Macapagal-Arroyo on Monday defended the proposed Maharlika Wealth Fund (MWF) from its critics, saying President Ferdinand Marcos Jr. was ultimately responsible for managing the country’s first sovereign wealth fund.
“The success of any fund, sovereign or private, lies in the quality of its management. In the current version of the Maharlika Wealth Fund, the President of the Philippines chairs its governing Board,” Arroyo said in a statement.
“This is a powerful statement that the highest official of the land will hold himself as ultimately accountable to the Filipino people for the performance of the Fund,” she added.
“Sovereign Wealth Funds are not new. Singapore, for example, has had Temasek Holdings since 1974 and the Government of Singapore Investment Corp. since 1981. There are more than 20 sovereign wealth funds in the Middle East,” Arroyo said in a statement.
Even in the Philippines, the idea is not new, the former President said. She recalled that then-Senator Paolo Benigno Aquino filed a bill to create such a fund in 2016.
“Once the Fund is operational, the President will also be able to count on advice from the Department of Finance, the nation’s steward of sound fiscal policy,” Arroyo added.
The President’s son, Ilocos Norte Rep. Sandro Marcos also defended the decision of the House of Representatives to pursue the MWF, echoing Arroyo’s view that the idea had been broached before by former senator Aquino.
“So, it’s not a new idea,” Rep. Marcos said. “Yes, it became apparent that the President was in support of creating a sovereign wealth fund, but the idea did not come from him per se. Because this is something that has been in the works or something that’s been pushed by not even this administration but past administrations.”
“It just so happens that we are lucky that this administration is just starting, so we have six years to hopefully be able to craft a piece of legislation that will see out and go beyond the President’s term,” he noted.
“I think part of the reason was that, of course, it’s been politicized, but the whole point of this exercise is that this corporation will be free from politics. That’s why it needs to be run by technocrats; they have no interest in politics,” the young lawmaker said, adding that the fund would last beyond his father’s six years in office.
Government Service Insurance System (GSIS) president and general manager Jose Arnulfo “Wick” Veloso also defended the proposed Maharlika sovereign wealth fund, as he said now is the time to invest and reap more funds for member benefits.
He said the measure has the necessary safeguards and that additional funds are needed to provide benefits to members.
“Our job is to put money in the right place where it will reap more so that when the proceeds are given to us, we can provide more benefits to our members,” he said in Filipino.
However, Bangko Sentral ng Pilipinas officials said they were concerned over how the Maharlika fund may impact the central bank’s management of the country’s gross reserves and its supervision of banks.
Under the proposed MWF, the BSP is required to make regular contributions equivalent to 10 percent of remittances from overseas Filipinos or roughly $3 billion (P165 billion).
BSP Monetary Board Member Bruce Tolentino said this has bearing on the Philippines’ gross international reserves (GIR).
The BSP had to increase its intervention in the foreign exchange market, Tolentino said in an ABS-CBN report, because of the pressure exerted by the US Federal Reserve’s aggressive interest rate hikes.
The Fed’s rate hikes are blamed for weakening the peso, which plunged to as low as P59 to the US dollar in early October.
Regarding BSP’s supervision of banks, Tolentino said it also wants to ensure that “DBP (Development Bank of the Philippines) and Landbank remain strong.”
Veloso was part of the country’s economic managers who also expressed support for the MWF, according to a statement from the Department of Budget and Management.
On behalf of the economic team, Budget Secretary Pangandaman shared her optimism that the MWF “will help the administration achieve its Agenda for Prosperity.”
The team underscored the benefits of institutionalizing the proposed fund during the 183rd Development Budget Coordination Committee (DBCC) meeting held Monday at the DOF Press Conference Room.
The meeting was led by Pangandaman with Finance Secretary Benjamin Diokno, Socioeconomic Planning Undersecretary Rosemarie Edillon, Bangko Sentral Monetary Board Member V. Bruce Tolentino, and GSIS head Veloso.
The DBM said the MWF is a sovereign wealth fund “which will be used by the government to invest in a wide range of outlets such as foreign currencies, fixed-income instruments, domestic and foreign corporate bonds, commercial real estate, and infrastructure projects, among others.”
Diokno added that the country should have had the sovereign wealth fund a long time ago “to set aside funds for the future generations.”
However, business groups and the academe jointly spurned House Bill No. 6398 that aims to create a P275-billion sovereign wealth fund by siphoning off funds from two of the country’s major sources of investable funds.
“We register our serious concerns and reservations against the proposed MWF,” the groups said in a statement.
They said they opposed the establishment of such a fund on the principles of fiscal prudence, concerns about the solvency of social pension funds, the monetary independence of the Bangko Sentral ng Pilipinas (BSP) and transparency.
Signing the statement were the Foundation for Economic Freedom, Competitive Currency Forum, Filipina CEO Circle, Financial Executives Institute of the Philippines, Institute of Corporate Directors, Integrity Initiative, Inc., Makati Business Club, Management Association of the Philippines, Movement for Good Governance, Philippine Women’s Economic Network, UP School of Economics Alumni Association and the Women’s Business Council Philippines, Inc.
These groups asserted that the Philippines has neither commodity-based surpluses nor surpluses from external trade and state-owned enterprises from which the government can tap as source for the fund.
The groups also noted that the government is in a tight spot as massive public spending has increased the fiscal deficit to 8 to 9 percent of gross domestic product (GDP) from only around 3 percent before the pandemic, and the national government debt has ballooned from 40 percent to 64 percent of GDP.
Moreover, government-owned-and-controlled corporations are also far from generating large operating surpluses.
What the groups suggest is for the government to focus on managing fiscal deficit and the public debt to avoid a downgrade of the country’s credit rating while revenues should be used to cover public expenditures to keep the fiscal deficit and public debt from increasing further.
The business groups said the MWF is not relevant at this moment for lack of resources that will support its creation.
“Instead of leaving a legacy of surplus funds to be managed for future generations, the current generation is leaving a legacy of heavy indebtedness which future generations need to pay or refinance. There is no need, or even justification, to pool the reserves of government financial institutions and pension funds into larger amounts to earn higher returns,” the statement read.
Diverting funds from government banks is merely an act of transferring resources, which is not creation of wealth, which is what the bill proposes, the groups said.
“Requiring the Land Bank of the Philippines (LBP) and the Development Bank of the Philippines (DBP) to fund the SWF on the ground that they invest in government securities is in no way a creation of wealth. The LBP and DBP deposits exist because of the requirement for GOCCs to deposit their funds in government financial institutions.”
The groups also said the funds of the Government Service Insurance System (GSIS) and Social Security System (SSS) belong to their members, and pension funds are intended to pay for pension liabilities, benefits, salary, and housing loans of their members.
The primary objective of the respective Investment Funds of the GSIS and SSS is therefore capital preservation with sufficient returns, which demands conservative investment strategies.
The groups said it is not appropriate to impose on the GSIS and SSS members such risks on their retirement funds.
Adding to this, the groups also noted the provision requiring the BSP to contribute 50 percent of its cash dividends to the national government is problematic in many aspects and is perceived to be a direct assault on the constitutional mandate of the BSP as an independent central bank in promoting price stability and managing exchange rate volatility.
“Instead of putting in more capital to the BSP, the SWF bill deprives it of quicker capitalization and in the process, undermines the BSP’s independence and its ability to discharge its role as the country’s central monetary authority and systemic risk regulator.”
Another observation from the business community is that the House bill failed to realize that sequestering the dividends of GOCCs to the SWF will also impair the national government’s own ability to fund the fiscal deficit and increase the pressure to borrow more from both domestic and foreign sources.
“In the first place, 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,” the groups said.
The statement stressed that should the bill pass, the proposed SWF will only create a platform for the government to actively participate and intervene in the economy.
Philippine Chamber of Commerce and Industry President George Barcelon, meanwhile, said this type of investment may cast doubts and affect the country’s credit rating.
“My concern is, to put this on the back burner, in the meantime, because we don’t want to go into something that might effect our credit standing,” Barcelon said.
“Our credit standing, the foundation laid by the previous administration has been carried forward and I think that’s important for us because with a good credit standing we do get preferential or lower rates of foreign banks,” he said.
Despite these reservations, the House committee on ways and means on Monday approved the tax provisions of the proposed MWF.
Albay Rep. Joey Sarte Salceda, the panel’s chairman, said the tax provisions approved were those drafted by the tax committee’s team and were already adopted in the technical working group (TWG) prior to the meeting. Salceda’s panel has recommended the bill for plenary action.
In a statement, Salceda said that the tax provisions ensure that the benefits of the tax savings go purely towards the investment fund, increasing potential returns for the SSS and the GSIS.
Salceda also reassured members of the minority in the House tax committee that all concerns raised on the provision will be considered, as the House TWG version “is still evolving.”
He also said new safeguards have been proposed to make the bill “more airtight.”
As a general principle, Salceda introduced an amendment that “All transactions of the MWFC shall abide by the arm’s length principle and the prudent person rule.” This ensures that the fund does not take positions that disadvantage it, he said.
Senate finance commitee chairman Senator Juan Edgardo Angara branded the MWF a “high-risk, high-reward endeavor.”
Because of this, he said, there should be safeguards and limitations on investment into riskier endeavors.
“Accessing contributions of pension funds would be a ticklish issue and may encounter some obstacles,” Angara said.
He said it is best to access investable funds and use dormant government assets or those with high potential upsides like real properties abroad as part of the equity of the fund.
“I’m sure senators will scrutinize the measure and inject safeguards and best practices,” he added.
Meanwhile, the opposition Akbayan Party said it supports the creation of a wealth fund provided that its funding is taken solely and directly from “the Marcos family’s P125.9 billion in ill-gotten wealth, together with their P 203 billion in tax liabilities.”
“We can even call this the Balik Nakaw Sovereign Wealth Fund,” the group said in a statement.
“We oppose any attempt to move or transfer funds from the Social Security System (SSS), or the Government Services Insurance System (GSIS). The proceeds from the SSS and the GSIS are meant to benefit their contributors. Tampering with these funds is illegal.”
On the other hand, the chairman of a labor coalition said instead of tapping workers’ funds for the sovereign wealth fund, the government should tax billionaires and use their money instead.
Sonny Matula, Nagkaisa Labor Coalition chairman, made this proposal after House Speaker Martin Romualdez led several lawmakers in filing House Bill 6398 seeking the creation of a sovereign wealth fund called the Maharlika Investment Fund.
Under the proposal, the Maharlika Investment Fund will get allocations from the following government financial institutions:
• P125 billion from Government Service Insurance System
• P50 billion from Social Security System
• P50 billion from Land Bank of the Philippines
• P25 billion from the Development Bank of the Philippines
• P25 billion from the National Treasury
President Ferdinand Marcos Jr. will be the chairman of the government corporation that will handle the fund.
