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Maharlika Fund and the state of the nation

Is the Maharlika Fund a vehicle for the kind of corruption we saw in the time of Marcos Sr.?

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As anticipated, the Maharlika Investment Fund was a highlight in the state of the nation address of President Bongbong Marcos.

A sovereign wealth fund (SWF), sovereign investment fund, or social wealth fund, refers to a government-owned investment entity that allocates its resources in both real and financial assets, including stocks, bonds, real estate, precious metals, and alternative investments such as private equity funds or hedge funds.

These funds have a global investment strategy, investing in various locations worldwide.

The primary sources of funding for most SWFs come from revenues generated by commodity exports or from foreign-exchange reserves managed by the central bank.

Some sovereign wealth funds are managed by a central bank, which accumulates the funds while overseeing the nation’s banking system. This type of fund holds substantial economic and fiscal significance.

On the other hand, there are sovereign wealth funds that consist of state savings invested by different entities aiming for investment returns.

These funds might not play a significant role in fiscal management.

The Maharlika Investment Fund, the country’s version of the sovereign investment fund, has been established to enable the national government to invest in a diverse range of assets, including foreign currencies, fixed-income instruments, corporate bonds, joint ventures, mergers and acquisitions, real estate, and infrastructure projects.

The bill that officially created the Maharlika Investment Fund was successfully passed in Congress in December 2022 and later in the Senate in May 2023.

On July 18, 2023, President Ferdinand “Bongbong” Marcos Jr. signed it into law, a week before his second State of the Nation Address (SONA).

The speedy progress of the bill through the legislative process can be attributed to President Marcos Jr.’s certification of its urgency, which resulted in swift approvals in both the House of Representatives and the Senate.

The primary source of initial funding for the Maharlika fund will come from government banks, the Bangko Sentral ng Pilipinas, and other government revenue sources.

Its main objective, as outlined in the bill, is to promote socio-economic development in the country.

However, some lawmakers and economists have expressed concerns in the past regarding the bill’s potential impact on pensioners, as well as the need for stronger safeguards in its management.

Despite these apprehensions and concerns, Republic Act 11954 was signed into law.

In the House of Representatives, the proposed bill was authored by Speaker Ferdinand Martin Romualdez, along with several other lawmakers, including Speaker Romualdez’s wife, Tingog Representative Yedda Romualdez, and presidential son Senior Deputy Majority Leader Sandro Marcos.

The House bill received significant support, with 282 co-authors and a final approval vote of 279-6 on December 15, 2022.

On the Senate side, the bill was sponsored by Senator Mark Villar and received a swift approval with a vote of 19-1-1 at 2:32 am on Wednesday, May 31.

Senator Risa Hontiveros was the only one voting against the bill, while other senators raised questions about the fund’s necessity and safeguards during the short deliberation process.

The concept of the Maharlika fund drew inspiration from successful sovereign wealth funds in other Asian countries such as Singapore and Hong Kong.

The Government of Singapore Investment Corporation is a Singaporean sovereign wealth fund that manages the country’s foreign reserves.

It was established by the Government of Singapore in 1981 as the Government of Singapore Investment Corporation.

According to the Sovereign Wealth Fund Institute, the GIC controls the eighth largest sovereign wealth fund in the world, with $390 billion in assets under management as of mid-2018.

GIC invests internationally in developed market equities, emerging market equities, nominal bonds and cash, inflation-linked bonds, private equity and real estate.

However, unlike those funds, the Philippines will not finance the Maharlika fund from excess wealth or foreign reserves, nor will it be funded by profits from natural resource extraction, similar to Norway and Kuwait.

Instead, the fund’s startup capital will come from government financial sources.

The fund will be taking its start-up capital from government financial institutions and the national government:

• Land Bank of the Philippines (Land Bank) – P50 billion

• Development Bank of the Philippines (DBP) – P25 billion

• National government – P50 billion

The MIC, a government corporation established by the bill, possesses the authority to determine the assets and projects suitable for investment.

According to Rep. Joey Salceda and Marcos’ economic managers, the Maharlika fund was created at the President’s behest.

They stated that Marcos sought a fund to invest in significant projects that often get removed from the national budget after going through Congress.

During a December 1 House hearing, Salceda remarked, “This is genuinely a presidential aspiration to finance grids, dams, national broadband, which are typically reallocated to other programs by tradition in this Congress.”

The MIF is expected to yield several positive impacts:

• Enhanced investment capital: As a long-term source of investment capital, the MIF will contribute to economic growth and job creation.

• Infrastructure development: The fund’s utilization in financing infrastructure projects like roads, bridges, and airports will enhance connectivity and attract more investors to the country.

• Increased foreign investment: By attracting foreign investment, the MIF will inject fresh capital and technology, stimulating economic growth.

• Strengthened governance: The fund will be overseen by a board of directors appointed by the president, leading to improved governance and corruption prevention.

The MIF represents the Philippines’ inaugural sovereign wealth fund, with allocation across diverse assets such as foreign currencies, fixed-income instruments, domestic and foreign corporate bonds, commercial real estate, and infrastructure projects.

To fulfill its objectives, at least 70 percent of the fund’s assets will be invested within the Philippines, with strict prohibitions against investing in gambling, tobacco, or alcohol production.

President Marcos views the MIF as a “game-changer” and a transformative force for the economy, playing a vital role in his strategy to spur economic growth and job creation.

But is it true?

Or is the Maharlika Fund a vehicle for the kind of corruption we saw in the time of Marcos Sr.?

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