SENATORS were expected to mount an inquiry into the proposed use and safeguards for the P275-billion Maharlika Wealth Fund bill, which their counterparts in the House of Representatives are rushing, amid mounting concern over the use of workers’ pension funds to seed the facility.
At the weekend, Sen. Jinggoy Estrada joined the chorus of cautious reminders from his peers, and stressed the need for the country’s first sovereign wealth fund to be “scrutinized and debated extensively.”
Earlier calls for more thorough deliberations of the proposal, championed by Speaker Martin G. Romualdez reportedly at the instance of President Ferdinand R. Marcos Jr. himself, were aired last week by Minority senators Koko Pimentel and Risa Hontiveros, and even by the President’s sister, Sen. Imee Marcos, who noted Malaysia’s tragic experience with its sovereign wealth fund, and who wants caution in using pension funds. A former Malaysian prime minister and his wife are in jail for the misuse of nearly $1 billion from that country’s sovereign wealth fund.
Estrada affirmed the lawmakers’ duty to protect public funds, underscoring the need to “iron out kinks and hold public debates on the proposed P275-billion sovereign wealth fund.”
Estrada clarified at the outset he is not against approval of the proposed Maharlika Wealth Fund (MWF), but added, “we still have to see the need for it.”
Estrada wondered “why are proponents rushing the approval of the proposed P275-billion sovereign wealth fund when senators have yet to iron out kinks and hold public debates to discuss the matter?”
The senator also clarified in a separate interview that while he is “not against” approval of the MWF that will draw resources primarily from contributions from state pension funds and state-owned lenders, “we still have to see the need for it.”
Moreover, Estrada added: “We have to scrutinize it. We have to debate it extensively, and I personally, I have many questions regarding that MWF.”
Estrada expects “a lot of questions” can be raised. “First of all, where will they get the money? Second, is it safe or is it risky? If they’re going to get it from GSIS, SSS, are we going to risk the pensions of our pensioners? Why are we rushing to approve this before we go on vacation [Christmas break], when we still have lots of questions on that Maharlika Wealth Fund,” he added, partly in Filipino.
The lawmaker urged colleagues to “exercise caution given the case of Malaysia when its state-owned investment fund 1MDB, which was supposed to promote development, was channeled into the personal bank account of former Prime Minister Najib Razak.”
Estrada, however, clarified that “I am not saying that the same thing will happen in the Philippines. But maybe we should put in place additional safety nets or safeguards if we are to approve this MWF,” he added.
At the same time, he reminded that “with only two weeks left before Congress goes on Christmas break and numerous questions that have to be answered,” he was not optimistic the bill can be approved by the Senate.
“We only have two weeks to go and this entails a lot of funds, this amounts to P275 billion. It took us three weeks to go over the national budget, what more this P275 billion?,” he said, adding, “I think that can wait.”
Earlier, Estrada backed Senate President Juan Miguel Zubiri’s position to have the matter studied carefully by a select group of senators and provide the upper chamber feedback on the essence of the MWF.
Such study, he said, “will determine the pros and cons of MWF and if the Senate President assigns the senators concerned, maybe it’s good to set a timetable on when they can finish studying the MWF.”
Assurances
As the House is expected to conduct a public consultation on the proposed Maharlika Wealth Fund Act, economist-lawmakers have assured the public that investments of four government financial institutions (GFIs) to set up the Fund will not affect the benefits provided by these institutions.
House Committee on Appropriations Senior Vice Chairperson Stella Luz Quimbo, principal author of the MWF bill, said the initial investment of the GFIs to start up the fund will not have any negative impact on the delivery of services or benefits to the stakeholders of these institutions.
“Their investible funds are separate from the funds earmarked for benefit payments,” Quimbo said.
The House Committee on Banks and Financial Intermediaries is set to conduct a public consultation on Monday (December 5) on the proposed creation of MWF.
Under House Bill 6398, Government Service Insurance System (GSIS), Social Security System, Land Bank of the Philippines, 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 will provide an initial investment of P125 billion, P50 billion will come each from 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.
GSIS President and General Manager Jose Veloso, SSS President and CEO Michael Regino, and Land Bank of the Philippines President and CEO Cecilia Borromeo assured the public that they have enough investible funds to invest in the Fund.
Earlier, DBP President Emmanuel Herbosa also informed the committee that DBP supports the proposed MWF.
Speaker Martin Romualdez has explained that the creation of MWF will provide an “opportunity to ensure their respective funds’ optimal asset allocation as well as ensure that resources are efficiently channeled to investments that will provide the most value not only to the participating GFIs but also to the country.”
Safeguards
For his part, House Committee on Ways and Means Chairman Joey Sarte Salceda, chairman of the TWG that hammered out provisions of the bill, said they introduced sufficient safeguards to ensure that the fund will be governed properly, and will yield returns to pension funds and government banks.
Last week, Bangko Sentral ng Pilipinas (BSP) Governor Felipe Medalla and Senator Imee Marcos expressed concern on the creation of MWF—the Philippines’s version of 1Malaysia Development Berhad (1MDB).
“I introduced that provision instead of the more maximalist initial provision that the BSP be required to infuse an equivalent of 10 percent of foreign currency earnings from the BPO and OFW sectors every year. Investing portions of the BSP’s bottom line also ensures that its operations are fully independent. The bottom line is also peso-denominated, so investing portions of it shouldn’t affect BSP’s F/X operations,” he said.
Under the bill, as a subsequent annual contribution to the fund, the BSP shall provide 50 percent of its annual dividends while Pagcor shall contribute at least 10 percent of gross gaming revenue streams created after the effectivity of this proposal.
“The TWG also ensured that the BSP’s operations, rule-making, and enforcement power was not, in any way, curtailed,” said Salceda.
“Regarding his concern about the continued willingness of GFIs to invest, I introduced a withdrawal provision that allows them to pull-out after 2028 if they so desire, subject to board policies, which they also compose anyway. So, that issue has also been settled,” he added.
As for the risk of a 1MDB repeat, Salceda said the BSP has more powers over this fund than Malaysia’s monetary authorities had over 1MDB.
“The BSP can sanction both the GFIs and the Fund itself, and even order the unwinding of the involved financial institutions themselves as the BSP’s Supervisory Enforcement Policy allows,” he added.
According to Salceda, the Malaysian central bank had warned the Central Government about the risks 1MDB was taking as early as 2014.
“It couldn’t do much on its own. In sharp contrast, the BSP does not need to warn the government. The BSP can conduct enforcement action on its own. I am also open to an amendment that spells out that the Fund will remain a BSP-Supervised Financial Institution (BSFI), just to ensure that BSP oversight will continue to apply,” he said.
On Senator Marcos’s concern about hhastily touching pension funds, Salceda said the bill will still go through deliberations in both Houses and the Senate.
“We can discuss the mix of assets that the fund will invest in, but some allocation for foreign securities is necessary. It diversifies the portfolio and allows the Fund to take positions in potentially higher-return investments. A fund that grows faster due to some exposure to high-return foreign investments is better than a smaller and severely constrained Fund exclusively investing in domestic investments,” he said.
“That said, I would welcome a proposal to ensure that a certain percentage, at the minimum, of the Fund should be invested in domestic investments,” he added.
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.