THE use of the Gross International Reserves (GIR) and lowering the reserve requirement of banks to finance the Maharlika Investment Fund (MIF) may limit the tools at the disposal of the Bangko Sentral ng Pilipinas (BSP) during times when inflation is high.
In his Commission on Appointments hearing on Tuesday, Socioeconomic Planning Secretary Arsenio M. Balisacan said the GIR and the adjustments in the reserve requirements of banks are important instruments of the BSP to implement monetary policy.
Senator Chiz Escudero asked if Balisacan would back proposals to use the GIR and adjust the reserve requirement to allow banks to invest in the MWF in lieu of the removal of pension funds from financing the sovereign wealth funds. On the latter, Escudero said, the country had the highest reserve requirement among its peers and some high-income countries, at 12.2 percent.
“If you believe there is high inflation and part of that is because of high liquidity, that’s [reserve requirement] one instrument [BSP can use to cool inflation]. I wouldn’t want the Bangko Sentral to lose these instruments,” Balisacan said.
Balisacan also said banks’ investments in general must be diversified in order to minimize risk. This was his response when Escudero asked if he was in favor of allowing banks, including government financial institutions, to invest all their funds in the MIF.
“I don’t think that’s a good idea, your honor. The portfolio of the bank has to be diversified enough, to allow it to absorb [shocks],” Balisacan said. “But I think what the fund could do is to diversify its possible sources of [financing].”
Balisacan also said the impact of drawing the financing for the MIF through the National Budget would largely depend on which part of the budget will be drawn from.
If the funds are sourced from infrastructure projects, as used in the example of Escudero during the hearing, Balisacan said it may be
more useful to finance infrastructure projects immediately rather than wait for the returns from the MIF.
Ultimately, Balisacan believes the funding sources for the MIF could be created over time. He said he is already studying the possible ways to do this.
Earlier, the economic managers of the Marcos Jr. administration urged Congress to fast-track passage of the MIF, which they claimed would lead to a more “prosperous” Philippines.
In a press briefing, Finance Secretary Benjamin E. Diokno said the world economic managers are backing the passage of the MIF, which they described as “long overdue.” (Full story: https://businessmirror.com.ph/2022/12/09/diokno-on-maharlika-wealth-fund-dont-deprive-people-of-chance-at-prosperity/)