Maharlika’s many red flags

The country’s latest attempt at putting up its own sovereign wealth fund (SWF) is raising a lot of concern, especially since it will involve a pile of public money in the form of members’ contributions to the Government Service Insurance System and the Social Security System, as well as funds from state-owned Development Bank of the Philippines and Land Bank of the Philippines, and possibly the national budget and the Bangko Sentral ng Pilipinas (BSP).

The administration moved with lightning speed on the matter, as it was revealed that the proposal has the imprimatur of President Marcos Jr. himself. House Bill No. 6398, or the Maharlika Investments Fund Act, was filed Monday last week by Speaker Martin Romualdez and six other lawmakers, including the President’s son. On Tuesday, the House banks and financial intermediaries committee approved it in principle, subject to amendments to be proposed by a technical working group (TWG) created to fine-tune the bill. The next day, the TWG apparently had worked overtime as the House panel said it had approved the revisions to the bill and set a public consultation/hearing today (Dec. 5) on the proposed measure.

There is no questioning the intention of putting up SWFs, which is to maximize the profit potential of the state’s investible funds. Proponents cite Singapore’s GIC Private Ltd., which has been managing the island nation’s foreign reserves since 1981. As of June this year, GIC is already overseeing $690 billion worth of assets for the Singaporean government. On the other side of the SWF picture, however, is Malaysia’s case. Its 1MDB sovereign fund was used in a multibillion-dollar corruption scheme by its founder, former prime minister Najib Razak, who was convicted of corruption and money laundering. Investigations found as much as $10 million going to Najib’s bank account and a raid at his properties led to the seizure of some 280 boxes containing jewelry, expensive watches, designer bags, and cash belonging to Najib’s wife.

If the Marcos Jr. administration insists on putting up the country’s own SWF, it can learn much from Singapore’s experience, whose fund managers are professional and independent. According to the GIC, while it is government-owned, “its relationship with the government is that of a fund manager to a client,” and that it acts autonomously on individual investments without influence from the government or the board chaired by the prime minister.

As things stand, however, Maharlika’s management remains unclear. Finance Secretary Benjamin Diokno notes that it will be administered by a governing “private sector” council from which the government “is totally out,” with the secretary of finance as the only official representative. The proposed bill, as amended by the TWG, says otherwise: The Maharlika Investments Corp. proposed under HB 6398 will be run by a 15-member board of directors representing the contributing government financial institutions, chaired by the President himself.

Mismanagement as seen in Malaysia’s case has been the main reason why BSP governor Felipe Medalla is not too keen about Maharlika. “To me, the experience of 1MDB Malaysia is the biggest risk,” Medalla says in an interview with Bloomberg TV. “Even if the current guys are okay, will the guys five years from now still be okay? It’s a governance issue.”

The administration must similarly address the funding issue raised against Maharlika. It’s not as if the government is awash with cash, with many agencies short of funds, and many sectors crying out for support and higher wages amid soaring prices. The proposal to get money from the national budget is worrisome considering that the government has long been short in generating revenues, while expenses for social and health services rise due to the pandemic. “What is the principle behind allowing funding the sovereign fund from the [debt-financed budget] when the very spirit and essence of such a fund is really the excess wealth, the surplus, of the government?” asks Northern Samar Rep. Paul Daza.

As opposition lawmaker France Castro pointed out, “a person can only set aside money for investments if he has excess cash after buying food and other basic needs.”

Then the concern about timing. Do the government and its financial institutions actually expect to make more income by investing in such a fund, considering the global economic climate that is forecast to get gloomier?

And finally, why the rush to approve such a critical proposal that has so many red flags and requires the most thorough deliberations and scrutiny, especially by sectors whose pension and retirement money will be at stake? Why are its proponents stampeding the House and the Senate into approving the measure, just days after the bill was filed? Notwithstanding its name, which evokes memories of martial law propaganda, the bigger issue that proponents of this Maharlika fund should address is how to prevent this from becoming another opportunity for large-scale money laundering and wanton corruption.