The Philippine House of Representatives approved a bill creating a sovereign wealth fund despite the concerns raised by some economists and political analysts that it is unnecessary and will be prone to mismanagement.
It took only 17 days for legislators to pass the bill after it was tabled for deliberations because of the priority certification issued by President Ferdinand Marcos Jr. The Senate is expected to tackle the bill in January or February.
Marcos said in a media interview that the bill, which will create the Maharlika Investment Fund (MIF), was his idea, and is intended as an innovative approach to raising capital for his infrastructure projects.
His cousin, House Speaker Martin Romualdez, described the measure as an “effective vehicle to execute and sustain high-impact infrastructure projects, urban and rural development, agricultural support, and other programs that would generate more income and economic activity in the country.”
But the proposal was initially widely opposed by various stakeholders. Critics pointed out that the country does not have surplus funds and that the government should use its revenues to prioritize poverty alleviation programs. Legal scholars and labor groups also raised concerns about the plan to tap the pension funds of workers as a source of investments for the MIF.
Even the president’s sister, Senator Imee Marcos, was critical of the proposal. “I think creating a sovereign fund at this time of gargantuan debt and an impending world recession seems heedless and extremely risky,” she said in a statement.
For opposition Senator Risa Hontiveros, the MIF is “premature, and a misplaced priority.”
To appease critics, proponents revised the bill by removing the use of pension funds of workers in the MIF. The bill also allocates 25 percent of profits for social welfare programs. The fund body is also prohibited from investing in activities or entities linked to human rights violations, the production of weapons of war, and environmental degradation.
Allowable investments include foreign currencies, metals, fixed-income instruments, domestic and foreign corporate bonds, equities, real estate, infrastructure projects, loans and guarantees, and joint ventures or co-investments.
The president’s economic team welcomed the passage of the bill and highlighted how the creation of a sovereign wealth fund can help achieve the government’s development targets.
“Intergenerational benefits include increased access of future generations to income from investments, such as potential earnings from extracted natural resources such as in mining,” they said.
“They will be able to ensure the availability of an alternative high-return investment platform, obtain the best absolute return for the funds, find additional sources of liquidity as the need arises and perform better risk management, given additional layers of checks and balances in the use of investible funds,” the economic managers added.
“Positive returns for Maharlika placements will mean hefty private returns (bonuses) for these select groups, but negative returns will be socialized, that is, charged to the nation,” he wrote in a briefing, which also warned that “no other layers of firewall will correct the concept.”
“In the Philippines, the concentration of funds tends to disappear because of our weak rule of law,” he added. “The fact is that under weak rule of law, the MIF bill is wrong in principle and is thus beyond repair.”
Proponents cited the experience of Indonesia and Singapore in managing a sovereign wealth fund, but they were silent about the corruption mess that hounded Malaysia’s 1MDB fund. Fabella also reminded them and the public about the experience of the Philippines under the Marcos dictatorship in the 1980s when state funds were used to pay the “behest loans” of government cronies.
The passage of the bill in the House of Representatives does not mark the end of the campaign against it. The opposition can still lobby for more amendments or the complete withdrawal of the measure in the Senate. Marcos proved how his allies in Congress will support his priority bills, but the spontaneous protests that erupted against the MIF showed the potential wider backlash that this proposal may generate next year.