Drop the Maharlika fund | Inquirer Opinion
No Free Lunch

Drop the Maharlika fund

/ 04:00 AM December 06, 2022

The Maharlika Wealth Fund (MWF) that House Bill No. 6398 seeks to create has drawn such wide opposition from a broad spectrum of critics, including the President’s own sister in the Senate, that one has to wonder if it has any redeeming value at all.

Much of the resistance seems based on distrust. It doesn’t help that its main sponsors are led by the President’s cousin and his wife, who are Speaker and party-list representative in the House of Representatives, respectively, and the President’s son, also a congressman. These alone raise a red flag. Then they had to choose the controversial name from the spurious guerilla group that Ferdinand Marcos Sr. claimed to have led during World War II, and the name he favored at the height of his dictatorship to rename the country with. The bill also has the President himself chairing the fund’s Board. But giving more substantive basis for the distrust are unsettling provisions granting the fund and its company blanket exemptions from taxes, and from laws meant to ensure transparency and good governance (GOCC Governance Act of 2011, Civil Service Act, Salary Standardization Law), prudent fund management (Dividends Law of 1994), and fair competition (Philippine Competition Act). And given how Malaysia’s similar sovereign wealth fund was plundered by a former prime minister, fears for the same outcome here are not unfounded.

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Even so, distrust alone cannot be enough basis to oppose an idea that is neither new nor unique. But beyond distrust, there are substantive reasons to oppose the measure, well rounded up in a statement released by several business and economic policy advocacy groups. The proposed fund, it notes, violates principles of fiscal prudence, additionality, social pension fund solvency, central bank independence, and good governance.

Several writers, including fellow Inquirer columnist Prof. Randy David, have noted how sovereign wealth funds elsewhere are created to manage accumulated surplus funds to best preserve and grow them for future generations. These may be proceeds of abundant natural resources such as oil, or funds from persistent trade surpluses and profits of state-owned enterprises. The Philippines has no such surplus funds; what we now have is excess debt and persistent trade deficits, especially following the pandemic and global trade disruptions. The government’s focus must be on managing expenditures to keep the fiscal deficit and public debt from further growing and undermining public service delivery.

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There is neither a need for nor added value from pooling funds from government banks (Land Bank and Development Bank of the Philippines) and pension funds (Government Service Insurance System and Social Security System) to earn higher returns. These institutions already have professionals managing their funds for maximum return, and pooling those funds could only raise vulnerability and risk from “putting all eggs in one basket.” Requiring LBP and DBP to fund the MWF creates no new wealth. It merely leads to round-tripping money to the MWF and back—with substantial costs (and fat salaries) incurred in the process.

There’s already a loud outcry against dipping into funds owned by paying members of GSIS and SSS, whose only focus must be maximum financial growth for those funds, and not mix economic and employment growth objectives professed for the MWF. As it is, GSIS and SSS funds reportedly give them an actuarial life of 40-43 years, far below the international norm of 70 years for actuarial sustainability. On the other hand, earmarking funds from the Bangko Sentral ng Pilipinas (BSP) and other government corporations to the fund clips the BSP’s constitutional monetary policy independence, and reduces the government’s ability to fund its deficits from those funds. The various exemptions already mentioned signal a dangerous return to less transparent and centralized economic decision-making, reversing the market-based private sector-driven economy that has propelled our economic growth for the last 36 years.

With no compelling reason to pursue the MWF, yet so many compelling reasons to be wary of it, the compelling imperative would be to drop it.

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