Maharlika fund could eat into budget, analysts say

By Luisa Maria Jacinta C. Jocson, Reporter

A PROPOSED Philippine sovereign wealth fund could affect essential public services as it eats up public funds, analysts said at the weekend.

“It’s incorrect to say that the Maharlika Investment Fund (MIF) will have no impact on the budget because funds that would otherwise have gone to the National Government (NG) will be diverted to the fund,” Calixto V. Chikiamco, Foundation for Economic Freedom (FEF) president, said in a Viber message.

These include dividends of the Bangko Sentral ng Pilipinas (BSP) and income from Philippine Amusement and Gaming Corp. (PAGCOR).

“Worse, the funding of the MIF overrides the principle that Congress will allocate and have oversight over the spending of public funds,” he added.

Finance Secretary Benjamin E. Diokno on Friday said the fund would have “no negative impact” on the budget.

“The only contribution of the NG is the initial P50 billion that comes from the BSP,” he said. “These are dividends declared by BSP to the NG for the next two years. Once it reaches P50 billion, the BSP will have no contributions.”

The Finance chief said contributions of Land Bank of the Philippines (LANDBANK) and Development Bank of the Philippines (DBP) are “small, relative to their investible funds.”

“Why is it smart for them to invest in the fund?” he asked. “They’re investing in low returns. The 10-year return on investment of LANDBANK is 4.23%. For DBP, it’s less than 4%. There’s a possibility to earn as much as 8.64%.”

The additional P50 billion and P25 billion are only 3% of total investible funds, he added.

On May 31, Congress approved the bill creating the country’s first sovereign wealth fund. The bill is awaiting President Ferdinand R. Marcos, Jr.’s signature.

Under the measure, Maharlika Investment Corp., which will control the fund, will be financed by contributions from LANDBANK (P50 billion) and DBP (P25 billion), as well as the National Government (P50 billion).

The BSP will contribute 100% of its dividends in its first two years. Funds may also be taken from PAGCOR and privatization proceeds.

In a discussion paper released last week, faculty members from the University of the Philippines School of Economics said the fund “threatens to encroach upon the budget process.”

“If the government wishes to set up the MIF primarily to invest in projects that yield economic or social externalities, such goals may be better achieved through the normal budget process, not a specialized investment fund,” according to the paper.

“There is a very good reason for doing so, since it may prove difficult to hold accountable the specialized investment fund on the basis of economic returns, which are more amorphous and difficult to measure than financial returns,” it added.

It cited a study that said sovereign wealth funds should “create a clear separation between the government as promoter of investments and as owner of the fund.”

Domestic investments by the fund should also not be used to finance public expenditure bypassing budgetary controls.

“The Maharlika Investment Fund bill fails to define the relative share or importance of financial and economic investments,” the college said. “In the event it focuses more on domestic investments — and gets to finance sufficiently many development projects like toll roads or dams — will the MIF also risk bypassing the normal budget process, thereby diminishing Congress’ power of the purse?”

‘ULTIMATE OBJECTIVE’
The bill creating the sovereign wealth fund also does not contain bankruptcy provisions, according to the paper.

“This might mean that, implicitly, the Philippine government will still shoulder in the end any liabilities or losses that may arise from the MIF,” it added.

“The current funding sources remain a serious concern, as this subjects LANDBANK and DBP depositor funds to financial risk, endangering government payroll and the banks’ funding of other development initiatives,” Terry L. Ridon, a public investment analyst and convenor of think tank InfraWatch PH, said in an e-mail.

“To be clear, sovereign wealth funds should be funded from surplus government revenue or through revenue from natural resources. None of these exist in the Philippines today,” he added.

Antonio A. Ligon, a law and business professor at De La Salle University, cited the lack of public consultations.

“The question remains whether the public is fully aware of why the bill is being passed and how it will impact the lives of ordinary citizens,” he said in a Viber message.

“Those in Congress are supposed to be the representatives of the people. The issue is whether the people are conscious and gave their knowledgeable consent on the matter. The feedback and insights of citizens on the bill is apparently absent,” he added.

Mr. Ridon said the fund does not seem to have a clear objective.

“The Marcos government remains uncertain on the ultimate objective of the fund, whether it is to generate better returns than current investment instruments, or whether to fund the country’s infrastructure projects,” he pointed out.

While both are legitimate objectives, better returns are not always consistent with funding infrastructure projects because these are not necessarily return-driven endeavors, he said.

Mr. Ridon said the Philippines does not need a sovereign wealth fund to boosting infrastructure.

“Existing funding modes such as official development assistance and public-private partnerships are sufficient to provide the necessary funding for infrastructure programs,” he said.

“The President needs to provide greater clarity on the ultimate objective of the fund in order to guide policy makers and the MIF leadership team on the types of priority investments that the fund should focus on,” he added.