The opposition to the contentious Maharlika Wealth Fund (MWF) intensifies despite government concessions. To allay the widespread anger of citizens, Congress, with the consent of the Executive, is withdrawing from its bill the participation of the Government Service Insurance System (GSIS) and Social Security System (SSS) in the MWF.
Representative Stella Quimbo, co-author of the MWF bill, conceded that government “got off on the wrong foot.” Apart from excluding the GSIS and SSS from taking part in the MWF, Representative Quimbo said that other changes to the bill are underway, including the removal of the national government’s contribution of a seed fund.
Government is hoping that such concessions will take the wind out of the opposition’s sails. But will it?
The terse answer: No.
It is in this light that I share the full statement signed by former Cabinet Secretaries including five former Economic Planning Secretaries, other former senior government officials, professors of economics and other disciplines from the country’s leading universities, civil society personalities, and the men and women of Action for Economic Reforms.
A full reading of this statement, issued before government announced the concessions, sheds light on why the bill must be fully discarded.
To illustrate, removing the GSIS and SSS from participation in the MWF does not change the fact that the MWF remains a “behest” transfer. The remaining entities — the Bangko Sentral ng Pilipinas, the Land Bank of the Philippines, and the Development Bank of the Philippines — are ordered “to participate by quota when there is no inherent reason for these to do so.”
The statement likewise points out how muddled the bill is. This is a point all the more reinforced by the later “Statement of Economic Managers on the Creation of the Maharlika Wealth Fund.” The “Statement of Economic Managers” reveals a spray gun approach. The managers say the MWF can be used to fund “the country’s big ticket infrastructure projects, high-return green and blue projects, and countryside development”; have investment gains; and secure intergenerational benefits “such as potential earnings from extracted natural resources.” So, which is which?
What Emmanuel Esguerra, former director-general of the National Economic and Development Authority, told me neatly summarizes the sentiments of those who signed the statement opposing the MWF. He said: “People in Congress are debating if there are enough safeguards against mismanagement and corruption. Instead the proponents should be first made to make the case for a Sovereign Wealth Fund. There is none.”
For a fuller understanding of why the case for MWF cannot be salvaged, read on.
STATEMENT ON THE MAHARLIKA WEALTH FUND
(Dec. 7, 2022)
We, concerned citizens from the civil society, academe, and private sector, ask the Executive and Congress to scrap the Maharlika Wealth Fund (MWF) bill or House Bill (HB) 6398.
Establishing a Sovereign Wealth Fund (SWF) is not novel. Given the right conditions, institutions, and governance, it is a relevant investment fund.
Unfortunately, HB 6398 distorts the core concept of a sovereign wealth fund, and it is an ineffective measure to address the bill’s stated intentions.
The MWF is a warped version of what the SWF should be. Sovereign wealth funds usually solve a problem of excess. Some examples: excess revenues in a situation of consistent large budget surpluses, windfall revenues from booming extractive industries, and excess foreign currency reserves from enduring balance of payments surpluses, which are invested abroad to help stem currency overvaluation. 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.
Furthermore, the MWF’s stated intention to “create jobs, promote trade and investments, strengthen connectivity, expand infrastructure, achieve energy and food security” can be achieved more effectively through other established measures.
The administration’s goal of promoting infrastructure spending can be more efficiently facilitated through annual appropriations, concessional lending, or public-private partnerships (PPP).
House Bill 6398 establishes a Maharlika Investment Corporation and a corresponding Maharlika Investment Fund, but it fails to establish a clear operationalization of its principles; lacks proper safeguards and disciplining mechanisms; and only pays lip service to the “Santiago Principles.” It is also alarming that the Fund pulls primarily from the pension funds of the Government Service Insurance System (GSIS) and Social Security System (SSS), exposing contributors’ savings to unnecessary, unmitigated risk.
The Maharlika scheme is essentially a “behest” transfer by ordering entities like the GSIS, SSS, Development Bank of the Philippines (DBP), Land Bank of the Philippines (LBP), and the Bangko Sentral ng Pilipinas (BSP) to participate by quota when there is no inherent reason for these to do so. It undermines the autonomy of their investment decisions and preempts their portfolio choices, not necessarily in an optimal fashion. In other words, the Maharlika Wealth Fund Corporation usurps the investment decision-making of independent institutions, thus weakening them and undermining their credibility.
For instance, a provision in the MWF bill deprives the BSP of 50% of what it should be receiving in dividends to be counted as equity infusion, undermining its independence and ability to stabilize prices and the exchange rate.
A sovereign wealth fund should mitigate the impact of volatility and unpredictability while enabling a nation to achieve its long-term macroeconomic objectives. The rules of the game — the institutions, governance, and incentives — that define HB 6938 run counter to principles of prudential regulation and risk management, conflict-of-interest avoidance, transparency, and accountability. This muddled, inconsistent, and redundant bill is only setting the MWF up for failure, and will only enable cronyism, rent seeking, and corruption.
While the Philippines may someday see the windfall revenues to sustainably fund its sovereign investments, this current proposal misses the mark by far. We are better off pursuing the necessary fiscal reforms to achieve our socioeconomic objectives; enacting an inclusive and sustainable budget that prioritizes health, social protection, and infrastructure; reforming our pension system; and improving the country’s governance and institutions to enhance our prospects for investment.
Thus, we call for the scrapping of House Bill 6398.
Among those who signed the statement are former Cabinet Secretaries Solita Monsod, Cielito Habito, Dante Canlas, Emmanuel Esguerra, Ernesto Pernia, Florencio Abad, Alberto Aldaba Lim, former BSP Deputy Governor Diwa Guinigundo, Former Finance Undersecretary Milwida Guevara, former Education Undersecretary Nepomuceno Malaluan, former Finance Assistant Secretary Ma. Teresa Habitan, former President of the Philippine Institute for Development Studies Gilberto Llanto, Professor Emeriti and Professors from leading universities, namely Emmanuel de Dios, Maria Socorro Bautista, Edita Tan, Maria Serena Diokno, Michael Alba, Maria Joy Abrenica, Mario Lamberte, Toby Monsod, Renato Reside, Carlos Bautista, Cynthia Bautista, Dan Gatmaytan, Agustin Arcenas, Mary Racelis, Germelino Bautista, Cristina Montiel, Benjamin Tolosa, Fernando Aldaba, Randy Tuaño, Luis Dumlao, Carmel Abao, et al.
