Kristian Bautista

With only a sole opposition and an abstain in the Senate, the Maharlika Investment Fund (MIF) gets swiftly approved and is now on the desk of the President only a few months after the chief executive marked the creation of a sovereign wealth fund as an urgent matter. 

Cartoon by Ace Vincent Lorico

A sovereign wealth fund (SWF) is a government-owned investment fund that consists of money generated by the government, financed through major commodities like oil and gas, as well as the government's surpluses in budgeting, foreign exchange reserves, and revenue from privatizations of businesses. 

The Maharlika Bill's passage was mired with controversy as the original proposal included the participation of the Government Service Insurance System (GSIS) and the Social Security System (SSS)in the wealth fund. The lawmakers later removed the pension funds as a source of the MIF; however, according to Finance Secretary Benjamin Diokno and National Treasurer Rosalia de Leon, alternative methods exist for GSIS and SSS to interact with the MIF. Indeed, it is evident that the attempt of the country to create a fund was poorly executed and rushed, resulting in confusion and unclear guidelines on who can engage with the MIF.

Professors and lecturers from the University of the Philippines School of Economics have slammed the bill for posing severe risks to the economy and the public sector, which can be observed in the proposal. From its vague goals to unclear plans, the MIF violates fundamental principles of economics and finance as it could strain the national budget without any concrete proposal for the fund's risk management.
A controversial proposal to many, it is apparent that staunch critics criticize the thought process of the Senate for approving the said bill as it is a sovereign fund that clings to the success of other nations while disregarding the possible risks it may ensue for the Philippine economy.

Successful SWFs can let the government invest overseas, generate profit, and increase foreign reserves – like the Government of Singapore Investment Corporation (GIC). However, the success of GIC comes from internal and external factors – an account surplus to fund the MIF and the current economic state of the country – top that with the current principals working at the state.

For the GIC to work, it had to rely on Temasek Holdings to manage the government's investments. Given the financial standing of Singapore at the time, full of government surpluses, as well as proper management and investment of finances, the SWF stands as one of Southeast Asia's biggest and most established funds.

As opposed to this, the MIF relies on equity contributions from the Land Bank of the Philippines, the Development Bank of the Philippines, and national government appropriations as it lacks surpluses. The bill has even been redesigned to change the funding source to government financial institutions like state-run banks and even the Bangko Sentral ng Pilipinas – which puts the pension of many at risk.

In Malaysia, the 1Malaysia Development Berhad (1MDB) SWF was set up to promote economic development but got flamed after investigating $4.5 billion of its funds being offshored to the client who managed the funds. This led to multiple corruption schemes and even the imprisonment of former prime minister Najib Razak for allegedly embezzling the funds.

Given that the Philippines currently ranks 117th out of 180 countries in the most recent Corruption Perceptions Index, there is no doubt of skepticism over the potential for similar mismanagement of an SWF.

Top that, with a current weak currency and high inflation brought by the pandemic and no contingency plans for recovery aside from the state visits and country trips of the President – the country is doomed to be run by oligarchs fiending of the money of the people.

A rushed investment fund with no articulate financial and developmental goals is a recipe for financial disaster. If the Philippine government wanted to invest in financial projects while substantially generating economic returns, they could have quickly done it through the normal budget process - not through a poorly designed wealth fund.

It is imperative that President Ferdinand Marcos Jr exercises his veto power and refrains from implementing the MIF. The Philippines, currently grappling with the challenges of post-pandemic economic recovery, cannot afford to divert its limited resources towards an expensive and risky venture like the MIF.