How to save ‘Maharlika’
It is clear that the so-called Maharlika sovereign wealth fund got off on the wrong foot.
The proposal to pool the resources of government entities to create a superfund that would invest in undertakings to help boost economic growth, while earning good returns in the process is, on paper, not a bad idea.
The country does need a better way of mobilizing the resources of both the public and private sectors and channel them to productive uses.
The idea of the Maharlika fund was for our fund managers to invest our funds ourselves, rather than just handing them off to fund managers who would deploy our money overseas that help other economies grow in return for meager profits and the promise of safety and stability of these investments.
Such is what happens with the excess dollar reserves of the central bank, which is invested overseas in low-yielding but safer instruments, awaiting the call to be repatriated to the Philippines in the event the money is needed to defend the local currency. In the meantime, the funds are deposited abroad, making some other foreign country rich.
To varying degrees, the resources of other pension funds are also deployed in this way, with some invested in safe and low-interest bearing dollar bonds of foreign governments or foreign firms, funding undertakings that help other nations’ economies, and create jobs for other nations’ citizens.
If implemented correctly, the sovereign wealth fund could help correct this situation.
If funded sufficiently and correctly—which is to say, if its seed money isn’t diverted from some other more urgent need, and if it is given enough financial size and muscle—the Maharlika fund could be an important platform for funding projects that would otherwise have to be financed by foreign loans or foreign firms. We’re talking of projects that not just cost billions of pesos but hundreds of billions of pesos—like a new dam that would provide water for millions of citizens, or a new international airport to help tourism and ease the travel burden of passengers.
Worries about Philippine companies’ inability to shoulder the burden of funding oil and gas exploration in the West Philippine Sea would not be a problem for the Maharlika fund. Similarly, worries about Chinese companies owning large portions of the country’s utilities could also be addressed as the resources of a sovereign wealth fund can be used to buy out foreign entities and protect the national interest.
If managed properly, such a fund could also be used to bring in more investments into the country by serving as a big brother for foreign capitalists who have the cash but are unfamiliar with the local business landscape. In fact, “handholding” is a role embraced by sovereign wealth funds of other countries, many of whom regularly partner with foreign businessmen in investing in the local scene. Wealthy investors from abroad will be much more comfortable in navigating often treacherous Philippine waters if they have the reassurance a government entity like the Maharlika fund is their coinvestor in, for example, a massive telecommunications project or a new critically needed highway.
If, if, if.
With the fund having gained an overwhelming majority of votes in the House, it’s clear there is no stopping the Marcos Jr. administration from making this fund a reality, despite robust opposition from other sectors. The responsibility now falls upon the Senate to make sure there are sufficient safeguards in the fund to ensure that Filipinos will enjoy as much of the benefits it can yield with as few of its attendant risks as possible.
This begins with ensuring that the law will require that the fund be run by professional managers instead of political appointees, as is often the case with government-managed resources in this country. The fund’s board should also have an ample representation from the most important sectors of the economy whose resources are being used to fund the undertaking.
Finally, specific investment and performance parameters for it should be clearly outlined in the law and its implementing rules, so that no one would be tempted to deviate from its mission years down the road and, perhaps, use the money where it shouldn’t be.
No doubt, the idea for a Filipino sovereign wealth fund started on the wrong foot. With the proper safeguards in place and with prudential measures instituted, it can be made to work for the good of the people.
And maybe change its name, too. Something as simple, nondescript, and prosaic as “Philippine Investment Fund” would be better than a lightning rod name like “Maharlika.”
