Creation of sovereign wealth fund backed

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CREATING a sovereign wealth fund (SWF) even if the Philippines does not yet have an aging society would still be a good move, considering that it will ensure future generations could still enjoy the country’s current wealth in the years to come, according to the National Economic and Development Authority (Neda).

At the sidelines of a press briefing on Monday, Neda Undersecretary for Planning and Policy Rosemarie G. Edillon told reporters that in the 98 other SWFs worldwide, some were created by young societies.

Several sectoral groups and economists, however, have joined the chorus of opposition to the creation of a Maharlika Investment Fund, as proposed in a House bill. 

Edillon explained that the origins of the SWF initially was to preserve the wealth of resource-rich nations, especially if these resources are renewable. It has already evolved and attracted even countries who are not resource-rich such as Singapore.

“The origins of the SWF is really the resource-dependent countries and [the] problem where [the resources are not] renewable [such as countries that are] oil-rich, [those who have] minerals. [The intention is] just to make sure that the next generation will also have a share [of the wealth],” Edillon explained.

Edillon assured the public that the Neda, one of the agencies comprising the technical working group (TWG) on the SWF, will ensure safeguards are in place to protect the interest of Filipinos.

“We’re glad that its being discussed, especially it’s being discussed in Congress. We are also part of the TWG. So in our discussion, there’s many of us agencies there, we will do our due diligence and make sure that the safeguards we think are important should be in the proposed legislation,” Edillon said.

Tolentino on BSP

As for the Bangko Sentral ng Pilipinas (BSP), Monetary Board Member Bruce Tolentino said at the briefing that in general the BSP will support government efforts to widen its fiscal space.

The SWF, however, will have an impact on BSP’s role in terms of the use of Gross International Reserves (GIR) which has already seen a decline to $94 billion as of end-October 2022 (Full story: https://businessmirror.com.ph/2022/11/18/bsp-reports-lower-bop-deficit-in-october/) from close to $110 billion in 2021.

Tolentino said the BSP has recently been intervening in the foreign exchange market to address volatilities in the exchange rates. The US dollar peaked at P58.994 on October 11 but slowly declined to P56.02 on Monday.

“We’ve expended some ammunition and we’d like to try our best to preserve that ammunition for future battles,” Tolentino said.

Tolentino said the SWF will also impact its supervisory role in monitoring banks. In the case of the country’s SWF, the Development Bank of the Philippines (DBP) and the
LandBank of the Philippines (LBP) are proposed to be part of it.

He said the BSP will ensure that DBP and LBP investments, including those that would potentially go to the Maharlika Fund, are within the rules set for investments which also apply to all banks nationwide.

Opportunity cost

Meanwhile, Government Service Insurance System (GSIS) President and General Manager Jose Arnulfo Veloso said the opportunity cost of not creating the SWF includes not having enough resources to put up new or expand industries.

Veloso said the SWF could help the government raise sufficient capital expenditures to bankroll its investments in local industries that would generate more jobs and boost the economy.

This, he said, would also raise government taxes as new businesses and expanding enterprises would tend to raise tax revenues. Veloso noted that this will serve as the fuel driving the Philippine economy in the years to come.

However, according to the Sovereign Wealth Fund Institute (SWFI), and SWF is a government-owned investment fund or entity that is commonly established from balance of payments surpluses and official foreign currency operations.

These funds can also be created using the proceeds of privatizations; governmental transfer payments; fiscal surpluses; and/or receipts resulting from resource exports.

The SWFI, however, said sovereign wealth funds exclude foreign currency reserve assets held by monetary authorities for the traditional balance of payments or monetary policy purposes.

It also does not include state-owned enterprises (SOEs) in the traditional sense; government-employee pension funds (funded by employee/employer contributions); and assets managed for the benefit of individuals.

Back burner

Meanwhile, Philippine Chamber of Commerce and Industry (PCCI) President George T. Barcelon said on Monday the idea of setting up a sovereign wealth fund should be put on the “back-burner” for now.

“My concern is…put this in the back-burner in the meantime, because we don’t want to go into something that might affect our credit standing,” Barcelon said in a televised interview on Monday.

The head of the PCCI, who was recently appointed as private sector representative to the Legislative Executive Development Advisory Council (Ledac) by President Ferdinand “Bongbong” Marcos Jr., said he fears that this is a primary concern “because as far as the two government agencies [are concerned], they are donating a big chunk for this sovereign wealth fund.”

With Andrea E. San Juan