Spirit of Maharlika bill

Despite being passed by Congress in record time, the bill seeking to create the Maharlika Investment Fund (MIF) continues to be mired in controversy that simply won’t go away. Professors and lecturers from the University of the Philippines School of Economics made a last-ditch appeal last week to President Marcos for him to seriously reconsider the measure that, they argue, “violates fundamental principles of economics and finance.” Hopefully, many of the issues raised would be clarified by the implementing rules and regulations (IRR) to be crafted once the President signs the bill into law.

What is similarly pressing is the lingering debate on the participation, or rather nonparticipation, of pension funds in the sovereign wealth fund. Last week, senators took to task Finance Secretary Benjamin Diokno and National Treasurer Rosalia de Leon for saying that other means are available for the Government Service Insurance System (GSIS) and the Social Security System (SSS) to engage with the MIF. Senate Majority Leader Joel Villanueva insists that the MIF bill is “clear” that it is barred from accepting funds from the government’s pension systems.

Quoting from Senate Bill No. 2020, Villanueva said: “We believe that there is no room for interpretation regarding this prohibition—the bill as passed by the Senate and as adopted by the House of Representatives is very clear in absolutely prohibiting ‘government agencies and (government-owned and controlled corporations) … whether mandatory or voluntary’ in the Maharlika Investment Corp. (MIC) and the (MIF).”

Villanueva’s reaction came following a media briefing where Diokno and De Leon stated, among others, that GSIS and SSS are not precluded from infusing funds into projects to be funded by the MIF. Diokno cited Section 14 of the bill, which states that MIC is allowed to engage in joint ventures or co-investments, and Section 15 that empowers the MIC board of directors to “prescribe the form, as well as the terms and conditions, of the joint venture and/or co-investment, subject to pertinent laws, rules, and regulations.” De Leon added that the MIC can approach government agencies to pick which projects can be funded, as well as partners who may want to provide funds, including pension funds.

Villanueva countered that the intent of Congress in crafting the law is to spare pension and social welfare funds from the investments of the MIF. “This prohibition was even repeated three times—in Section 6(2) on the allowed investors to the preferred shares of MIC; on the last paragraph of Section 6 which further solidifies the prohibition of these agencies to invest in the capitalization of the MIC, and again in Section 12 on the investors to the MIF,” he noted.

Senate Minority Leader Aquilino Pimentel III also criticized the finance chief’s “play on words” as a circumvention of the prohibition imposed by the MIF law. “They are avoiding the words used in the law like ‘initial capital, additional capital, bonds.’ If they say ‘subscribe to projects,’ what does that mean? GSIS and SSS will ‘finance’ the projects?” he says, adding that “financing” still means “advancing the money needed.”

Actually, both the economic managers and the senators are correct. Lawmakers are spot on in saying that GSIS and SSS cannot put money in the MIF or MIC, as clearly spelled out in the bill. Diokno and De Leon, on the other hand, are right in stating that under the same bill, the MIF can invest in undertakings and can tap third parties such as the SSS and GSIS as co-investors or partners in the projects themselves, not as equity investor in the MIF or MIC.

Only last April 12, GSIS president, general manager, and acting board chair Wick Veloso signed an agreement with the Global Infrastructure Partners Emerging Markets Fund, stating that the pension fund will invest $300 million in transport, energy, and digitalization ventures. Provided that a prospective MIF project meets the pension funds’ standards on levels of risk and profitability, GSIS and SSS are allowed to invest the money of their members in it.

How then can this impasse be resolved?

For one, Congress can amend the MIF once it has been enacted into law, and put in a provision clearly stating that GSIS and SSS are strictly prohibited from investing in projects to be financed by the MIF. Such a clear prohibition can also be included in the IRR, but lawmakers have to convince the President’s economic team to agree to this. On the Senate’s part, Villanueva said lawmakers will be keeping an eye on the crafting of the IRR and “trust that [it] will be faithful to the bill that we passed.”

As it stands, however, there are no “play on words” or “circumvention” involved in the planned engagement of pension funds. Villanueva’s assertion that the “prohibition was even repeated three times” in the bill refers to fund infusion into the MIF and MIC. But both SSS and GSIS can invest in specific projects that their managers have assessed to be compliant with their parameters on risks and returns, regardless of the proponents of those undertakings.

What lawmakers need to do is convince the President and his economic team to abide by the spirit of the law, which is to keep their hands off the pension funds whenever the MIF or MIC is involved.