OFFICIALS of the Bangko Sentral ng Pilipinas (BSP) will meet members of the House Committee on Appropriations on Friday to discuss the funding provisions of the proposed Maharlika Wealth Fund (MWF).
House Committee on Appropriations Senior Vice Chairperson Stella Luz Quimbo said the BSP will be one of the sources of funds for the creation of the MWF after they decided to remove the Government Service Insurance System (GSIS) and Social Security System (SSS) as fund contributors, amid an uproar from members of the pension funds.
According to Quimbo, Central Bank Governor Felipe Medalla has been reassured that the fund would only utilize profits of the BSP.
“The BSP was reassured because we are not getting the BSP reserves but only the profit, as they use it [reserves] to defend the peso,” Quimbo said.
Medalla was earlier cool to the idea of creating the MWF, as proposed in House Bill 6398, warning of the dangers of another 1MDB scandal in the making. Sen. Imee Marcos also cited, as basis for her caution, the 1MDB mess—which ended with former Malaysian Prime Minister Najib Razak jailed for corruption involving over $700 million of the sovereign wealth fund.
Quimbo said the government still needs funding for social services, including subsidies for the poor, constructions of hospitals, education, airports and bridges.
On Wednesday, Quimbo said the House leadership and the economic managers had reassessed the Maharlika Fund bill as drafted by the economic managers.
“Based on our assessment of the proposed changes put forward by the economic team, we are amending the bill to change the fund sources, removing GSIS and SSS as fund contributors and instead utilize profits of the Bangko Sentral ng Pilipinas,” she said.
Upon the Speaker’s instructions, Quimbo said the changes would be introduced into the bill on Friday.
Quimbo said the funds that the BSP will invest will also be determined at their Friday hearing.
As the House tackles the bill, Quimbo said lawmakers will put in place safety nets that will ensure the success of this project.
Under the original draft of House Bill 6398, GSIS, SSS, Land Bank, the Development Bank of the Philippines, and the national government are mandated to invest equity with a combined total of P270 billion to start up the fund.
GSIS was to provide an initial investment of P125 billion, P50 billion for both the Social Security System and Land Bank of the Philippines, P25 billion from the Development Bank of the Philippines and P25 billion from the Treasury of the Philippines.
For his part, House Committee on Ways and Means Joey Sarte Salceda said the proposal is really expected to affect the cash flow of SSS and GSIS.
“Now that I have already dispensed with my role as TWG Chair, allow me to make my own personal assessment of the Maharlika Investment Fund Act as currently structured. The SSS and GSIS stand to suffer a reduction in cash flow during the gestation period of long-term projects like dams and grids, while foreign financial instruments will slightly reduce cash flow in the short-term, not to mention the friction cost of foreign currency conversion,” said Salceda.
“The SSS and GSIS overall returns will also suffer a reduction initially before the long-gestation projects make ROI [return of investment], but will increase significantly as the dams and grids start getting ROI, since the return on equity for dams and grids can be as much as 40-50 percent. Meanwhile, foreign financial instruments offer the chance for higher-beta investments that could increase returns, but probably at a maximum of 2 percent increase in the GSIS and SSS’s total returns,” he added.
As for liquidity, Salceda said the long-term investments will reduce the GSIS and SSS liquidity, which could affect their ability to meet claims.
“Foreign financial instruments offer better liquidity than long-term domestic investments. But the Fund could miss profit opportunities if GSIS and SSS have to liquidate investments every so often to meet claims. In conclusion, I believe that the SSS and GSIS have more limited gains from being invested in the fund compared to the potential gains for state banks with funds they could leverage to maximum advantage,” he said.
According to Salceda, there is also a need to delete Section 38 of the Maharlika bill so that it is covered by reviews of contracts by the OGCC, and Section 41, to ensure full disclosure of documents and records.
“The deletion would make the bill more consistent with GAPP 1-4 of the Santiago Principles,” he added.
“My idea is to recapitalize the National Development Company with LandBank resources [around P700 billion] so that it becomes something like LandBank InfraCapital as an allied undertaking pursuant to LBP’s classification as a Universal Bank. This would allow the bank to more vigorously invest in dams [90 percent of water use is by farmers], grid connectivity for rural communities, among other major projects that the President wishes to undertake,” he added.
Exclusion
Meanwhile, Northern Samar Rep. Paul R. Daza commended the House leadership’s decision to amend the MWF bill and remove the GSIS and SSS as funding sources.
“This is indeed a step in the right direction,” Daza said. “As I’ve previously mentioned, I’m not entirely against having a State Wealth Fund like the [MWF]. However, we may not be able to sustain such a fund due to the current state of our economy,” he clarified.
Daza also appealed to his peers to also exclude the annual national budget as a source of funding.
“It is clear that the process of dialogue, stakeholder discussions, and expert consultations are leading to improvements to the bill. I hope that the national budget will also be reviewed as an SWF funding source, because I believe it does not belong there,” he said.
“I reiterate that there is a proper way to execute this fund. Let us please not rush this through Congress. We must study this carefully and create a working MWF that would suit our current economic situation,” Daza appealed to his fellow Congress members.