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Questions only the Maharlika Investment Fund has the answer to

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It is well and good for some members of the Lower House to talk about the role of the Maharlika Investment Fund (MIF) in mobilizing savings to finance “big-ticket infrastructure works and other priority development programs of the government” if — and this is a big if — indeed the idea could produce new money to mitigate what some of them described as limited fiscal space.

Perhaps it would be useful to know that there are no public savings to speak of in the first place. The Philippines is not a recipient of windfall profits from asset sales or privatization. No royalties are remitted to the national treasury from oil or gold or diamonds the way regular sovereign wealth funds derive support from their governments. What we have is chronic fiscal deficit and burgeoning public debt. Our external payments position due to unfavorable merchandise trade and financial accounts remains in big, big deficit.

The original proponents in the Lower House must have realized this because they attempted at first to source the funding from the pension funds of both the GSIS and the SSS (Government Service Insurance System and Social Security System), something that the Supreme Court in previous rulings considered to be unconstitutional because private property is to be deployed for public use without just compensation. There was also an attempt to include as source the gross international reserves of the Bangko Sentral ng Pilipinas (BSP), an action which runs counter to the Constitution and the central bank’s own charter which both grant it autonomy and independence, and mandate it to promote the stability of consumer prices, the financial system, and the exchange rate. Both features of the original House version of the bill were subsequently dropped.

Why the Lower House opted to continue with this idea is perplexing.

As approved by 279 representatives with only six objecting, House Bill 6608 sustained the view that there are savings to invest. For the Lower House, requiring both the Land Bank and the Development Bank of the Philippines (DBP), both government financial institutions (GFIs), to contribute some P75 billion and mandating the dividends of the BSP, PAGCOR (Philippine Amusement and Gaming Corp.) and other government-owned gambling enterprises will allegedly result in additionality of public savings. But under the one-fund concept pursuant to Presidential Decree 1177, all these dividends are already part of government revenues that must accrue to the General Fund for financing the budget.

Assigning by law their future dividends to the Maharlika Investment Fund will not only violate the Dividend Law of 1993 and undermine their ability to deliver on their mandates, but it will also force the government to borrow to compensate for the loss of dividend income.

What is it in the Maharlika fund that has suddenly made it a “complementary vehicle,” following the endorsement of National Economic and Development Authority (NEDA) chief Arsi Balisacan, to support the Philippines’ economic growth trajectory. He hopes more foreign investments will be encouraged to invest locally, augment domestic resources, and finance various social problems including poverty. “Solving poverty… requires a lot of investment, and that’s what we are trying to do.”

We are not sure which version would produce such a “complementary vehicle” to rally foreign investments.

The Senate version is the mirror image of House Bill 6608 — to be introduced reportedly by Senator Mark Villar — which provides for public funding, future special tax assessments on natural resources, and possible borrowings by the MIF. Public funding from the GFIs, BSP, and gambling institutions are not new money. Special tax assessments on natural resources are dependent on the actual mining output which may take time. Borrowings will simply make the whole concept untenable because MIF is supposed to generate and invest surplus funds.

Yes, more sounds better but in infrastructure alone, the government is already looking at spending P1.248 trillion for 2023. It is important for the executing agencies for infrastructure and social services to have the absorptive capacity to undertake all these ambitious spending program. What the MIF effectively does is to increase the budget deficit and motivates higher borrowings. How then can the government achieve its fiscal sustainability targets in terms of lower fiscal deficit to GDP ratio and public debt to GDP ratio?

This could be a drag to economic growth.

What is it in the Maharlika fund that made it timely for the NEDA chief who also recognized the challenges of “global recession and high interest rates?”

True, any period, whether tumultuous or calm, is a time to invest as long as there is something to place in fixed-income securities, equities, or even in speculative plays in commodities and metals. Unfortunately, we have none of such surplus funds. And since running the Maharlika will force the government to borrow in a high-interest rate environment, it is best to avoid exposure to highly volatile and uncertain capital markets.

What is it in the Maharlika fund that all of a sudden, some parties in government saw in it the possibility of doing something “beyond business as usual, that we need to be ambitious compared to what we have been doing for the past four decades?”

We should recall that the Philippine Development Plan 2023-2028 laid down our roadmap for sustainable and inclusive economic growth at between 6-7% in 2023 and 6.5-8% for 2024 through 2028 and reduce unemployment to a low 4-5% in the last few years of the Marcos administration. Yes, there are new elements most obvious in the country’s latest Development Plan including learning from the lessons of the past few years of the pandemic, addressing the economic scars, building on, yes, “tried and tested” strategies, and pursuing “unfinished business” while being mindful of the emerging global and regional trends. The whole plan aims at economic and social transformation for a prosperous, inclusive, and resilient society.

The new plan targets these lofty goals, and we all share them, with great confidence — but without a Maharlika fund.

Clearly, MIF does not seem to be necessary as it hardly meets any social demand as enunciated in the plan and its narrative is quite flawed in several respects. GFIs and the BSP have been investing all these years using their own treasuries and traders. Foreign investors can very well leverage on existing PPP (public-private partnerships) or BOT (build operate transfer) schemes to engage in infrastructure development in the Philippines. Serving as a big brother who knows the Philippines as an investment ground is the job of both the Board of Investments and Philippine Export Processing Zone. The Department of Trade and Industry should also be helpful here.

What new things the Maharlika fund will contribute escape us.

There is a term to explain our common failing to discern what we are seeing today: strategic misrepresentation. What is not being said is more important than what we hear being trumpeted around town.

Diwa C. Guinigundo is the former deputy governor for the Monetary and Economics Sector, the Bangko Sentral ng Pilipinas (BSP). He served the BSP for 41 years. In 2001-2003, he was alternate executive director at the International Monetary Fund in Washington, DC. He is the senior pastor of the Fullness of Christ International Ministries in Mandaluyong.

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