The concept of sovereign wealth came about because commercial banks demand exorbitant interest rates.
Even the concept of developmental loans by counties have been taken over by big international financial institutions such as the International Monetary Bank, the World Bank, and the Asian Development Bank to lend credit to countries in need of capital fund to finance their own developmental projects.
The race to acquire credit has become so tight that often countries borrowing from these banks end up biting the conditionalities imposed to finance their needs.
Worse, they impose high interest rate on the loans.
In the Philippines, there is no much choice for us.
Local commercial banks have streamlined their interest rate alongside with the interest of private commercial banks.
Once their so-called financial managers are entrapped into this game called “debt trap,” only then will they realize the calvary of servicing the loans that often end up exceeding the amount they loaned and the period to pay the loans to finance the developmental projects.
The concept of sovereign wealth fund (SWF) notably came about by the eagerness of newly independent states to speedily achieve progress at the fastest possible time.
SWF is the fastest way to acquire huge capital using the mode of financial capitalization to attain the country’s desired objective called progress.
Finance managers see the acquisition of capital as an achievement itself.
This has led to the creation by countries of their respective SWF, having in mind the idea of getting away with the standardized interest rate, unaware of the enormity of capital equally imposed.
Many countries thought that by creating their own SWF that would substitute the original practice of borrowing from banks instead of striving to achieve their own trade surplus encouraged by innovative production of new products that has since time immemorial been proven as the surest way to the creation of wealth.
Countries subsisting on SWF seldom allocate their own foreign currency reserve because of their obligation to pay the loan.
The Philippines is a rare breed of exporter.
Instead of relying on our export, we relied more on f foreign currency remitted by our overseas workers.
Local capitalists often lack the capital to generate more funds or make reservations to pay their loan obligations to international lenders or like servicing their loan instead of allowing them to accumulate wealth in the concept of savings.
Many communist states today resort to creating or they apply their SWF because many of them today adopt the system of state capitalism instead of the conventional approach to socialism.
Socialism, strictly interpreted, is geared towards the development of the country in the concept of applying the common good.
The concept of private business is prohibited if such is geared for the benefit of the private individual and not for the common good. Everything is for the good of the people.
This in turn deprives the people of their talent, creativity and innovativeness which is essentially the harbinger to the creation of wealth.
This ideological approach to development denies the people their incentive to create more goods and from there produce more surplus for the people to be enjoyed by the greater number of people.
The very concept of SWF came about by our acceptance of state capitalism.
The concept of free enterprise as seen by many Marxist ideologues a revision to socialism.
In state capitalism, the concept of SWF essentially means the state runs the business except that this time they are no longer concerned in earning for the state but more in making profit.
Profit becomes the main preoccupation that gives incentive to those running the business.
Nonetheless, the objective of free enterprise under traditional concept of capitalism is akin to state capitalism or for the fact that it is the state servers as employers to the people and provides the business.
Some say, in socialism, people are employed by the state since it is the state that engages them.
In state capitalism, the SWF business is essentially operated like a private business and officials are forewarned to avoid corruption and financial losses.
State capitalism became a fad among socialist and developing countries: first, as part of the continuing ideological race between capitalism and socialism.
Second, to provide developing socialist countries easy access to big capital for developmental projects.
Third, to compete with those big and institutional financial institution in financing developmental and selective projects but often offering generous interest rate.
Fourth, the system of finance capital offered by capitalist countries have been weaponized such that often the funder selects the project to be funded.
That usually projects are selected on the basis that will benefit the funder than the recipient state.
SWF is often funded and guaranteed by the state such that SWF is readily dissipated.
The twist about the application in the trust funds is the use of sovereign wealth fund as capital.
The trust fund generally comes from the contribution by employees from the private sector (the SSS) and from the employees in the public sector (the GSIS).
Some question the fact that contributions to the trust fund partake that of a loan.
Many argue that to interpret the trust fund as a loan by the contributors can be constitutionally questioned.
To re-loan it is to essentially capitalize a private business which is unconstitutional because this partakes of a second loan without their consent.
From an original borrower, which is the state, the loan is taken without their consent capitalized by the use of SWF that erases the nature of the loan to be guaranteed by the government.
Besides, to use the fund to capitalize a private endeavor is to open the capital to possible business loss.
Many have their anxiety, knowing that borrowers of the SWF are identified cronies of the administration and are suspected to be merely using their connection with the administration to have access to the SWF to acquire added capital.
This now reverts us back to the cycle, that when a capital is re-loaned for the second time, the original owner of the capital expects a higher interest rate.
They cannot get the same interest rate, aside from the unconstitutionality of the second re-lending. Members of the trust fund will be the first to revolt to this new policy.
Many socialist countries today resort to state capitalism.
Many of them allowed private entrepreneurs or capitalists to undertake developmental projects often entering into an agreement with the state in funding their project but surrendering what they accomplished to the government.
This way the socialist nature of the state is not transformed to capitalism or that only a handful of the elite will benefit from the loan provided by the government.
The system of state capitalism in China is an example where capital has grown enormously large to finance a continuing system of development.
On the other hand, many are opposed to the use of the trust fund to provide loan, for, strictly speaking, they form part of their own savings, reason why caretakers are required to provide loans to members out of their own contributions for their needs like housing, education for their children, hospitalization for the members of the family, calamities, etc.
This explains why massive funding is required to provide greater social benefits to the greater public.
Most important, the concept of sovereign fund was conceived to finance anything that will benefit the public good.
The public cannot itemize everything that is good for the people.
The turnover of public-funded services is necessary to trim down government bureaucracy.
If not, it might result in corruption and the employment of sinecure employees.
Fear of corruption is more apparent and real for, often, they treat public funds as their own not to be treated with extra care and diligence.