WITH the expected high profits from the Maharlika Wealth Fund (MWF) investments, an economist-lawmaker on Friday said the national government can ultimately deliver highly effective programs on health, education, food security, social protection, job creation, and poverty reduction.
During a hearing on the proposed MWF, House Committee on Appropriations Senior Vice Chairperson Stella Luz Quimbo said the goal of a sovereign wealth fund is to provide funding for the government’s social services.
“That is precisely the goal of a sovereign wealth fund. The bill creates an investment vehicle that will pool surplus funds of the government and ensures that it will be managed professionally and transparently. We will fund financial investments and projects that have high returns but are lacking capital,” she said, partly in Filipino.
“This investment vehicle will ensure that the government is able to maximize returns to investments of funds that are not currently needed by GFIs and GOCCs. These additional investment returns can be used to augment the national budget to fund our ever growing needs as a nation,” she added.
Quimbo assured that they will put in place safety nets that will be the success of this project.
“One: the bill tasks the Board of Directors to engage an internal and an external auditor. Two: the books and accounts of the fund are within the ambit of the powers of the Commission on Audit. Three: there is a Joint Congressional Oversight Committee to monitor the implementation of this proposal. Four: the Board is also mandated to report to the President on its investment performance. Five: the qualifications to be a member of the Board have been set very high; he or she must be an expert in corporate governance or in investments. Six: there is a risk management unit to ensure that the corporation is achieving a prudent balance between risk and rewards. Finally, there’s a cap on administrative and operating expenses at 2 percent of its initial capitalization,” she added.
BSP charter, capitalization
In response to reports that Bangko Sentral ng Pilipinas (BSP) Governor Felipe Medalla has now committed to allocate a portion of the BSP’s profits into the proposed Maharlika Wealth Fund (MWF), House Deputy Minority Leader and Bagong Henerasyon Rep. Bernadette Herrera advised central bank officials to revisit their charter and ensure that no stipulations are violated.
Medalla initially expressed strong apprehensions about investing its foreign reserves into the fund.
According to a recent announcement by Quimbo, however, the BSP Governor had a change of heart after congressional leaders agreed not to touch the central bank’s Gross International Reserves (GIR), and instead use its dividends.
“He became supportive when we assured him that the reserves would not be used for funding, but rather, the profits. For example, profits from a windfall can be used to invest in the fund,” Quimbo said in Filipino.
Herrera, however, called to mind a requirement in the BSP charter that may affect its involvement in the MWF.
“There is a clear requirement that the capital of the Bangko Sentral shall be P200 billion, to be fully subscribed by the Government of the Republic of the Philippines, hereafter referred to as the Government: Provided, that the increase in capitalization shall be funded solely from the declared dividends of the Bangko Sentral in favor of the National Government,” she added.
“Therefore, until the BSP reaches P200 billion in capitalization, all dividends must first go to it as the national government’s capital payment. According to their financial statements, the BSP has not yet reached this P200-billion level at present,” Herrera noted.
“So the only way a contribution to the MWF can happen is either the BSP will have enough profits in 2021-2022 to reach the P200 billion, and anything above that can go to the MWF, as Senior Vice Chairperson Congresswoman Quimbo said. The second scenario is that they will divert the profits immediately even without reaching the P200-billion requirement, by making amendments to the law,” she further explained.
Herrera said the 2021 balance sheet shows an equity of P136 billion, way below the P200-billion level. Given this, the Partylist lawmaker suggested that the next step should be to determine exactly how much BSP’s current capital is, and whether or not it will be realistic to expect excess funds on top of the P200 billion requirement.
“I hope that my observations are not misconstrued—I am definitely not opposed to the concept of a Sovereign Wealth Fund, and I am sure that the intentions behind establishing one for our country are good and beneficent. Since this is a big step, however, we must take it very cautiously and carefully. Doing it right is always better than doing it quickly,” she said.
For his part, BSP Deputy Governor Francis Dakila also pointed out that the MWF would help advance economic growth, accelerate job creation, expand infrastructure, strengthen connectivity, as well as achieve energy and food security.
Meanwhile, Dakila said the BSP could contribute 100 percent of its annual dividends until the amount needed to start up the fund is reached.
Also on Friday, Finance Assistant Secretary Jun Bernabe expressed support for the measure, saying that it would promote economic growth by helping government financial institutions preserve and optimize the use of their finances.
Amendments
Meanwhile, the House decided to remove the Philippine president as chairman of the board of directors of the Maharlika Wealth Fund Corp. to be created under the bill.
The bill creates the Maharlika Wealth Fund Corp. (MWFC), an independent corporate body, that shall act as vehicle for the purpose of mobilizing and utilizing the MIF for investments in transactions that will enable the fund to reap returns on investments while contributing to the overall goal of reinvigorating job creation and poverty reduction by steering the economy back to its high-growth path.
“With regards to the chairman, we basically amended the proposal by our author to remove the president as chairman and to replace it with the Secretary of Finance,” said House Committee on Banks and Financial Intermediaries Chairman Irwin Tieng.
On the 15-man board’s composition, Tieng said that there will now be four independent directors, not just two.
Under the bill, the Maharlika Wealth Fund, an independent fund, adheres to the principles of good governance, transparency and accountability. The fund shall be sourced from the investible funds of the country’s top performing GFIs, the Treasury of the Philippines and Bangko Sentral ng Pilipinas.
The bill said the fund shall be used to invest on a strategic and commercial basis in a manner designed to promote fiscal stability for economic development, and strengthen the top-performing GFIs through additional investment platforms that will help attain the national government’s priority plan.
The establishment of the Maharlika Wealth Fund was patterned after the sovereign wealth fund of other countries, to maximize the profitability of investible government assets.