BSP chief joins concerned groups on Maharlika Fund

CONCERNED Filipinos are adding their voices to economists and Philippine officials, who have expressed their opposition to the proposed legislation, which seeks to create a P250-billion sovereign wealth fund, now being rushed for approval in the House of Representatives. 

A petition on Change.org titled, “Hands off our SSS and GSIS contributions, NO TO House Bill 6398!” already picked up 20,000 signatures as of Dec 5, exceeding its initial target of 15,000. The petition is picking up steam as it tries to reach a new goal of 25,000 signatories.

This developed as Bangko Sentral ng Pilipinas (BSP) Gov. Felipe Medalla was cool to the idea of creating the Maharlika Wealth Fund (MWF), as proposed in House Bill 6398, warning of the dangers of another 1MDB scandal in the making. The fund’s creation has been supported by Finance Secretary Benjamin Diokno, a former central bank governor, who curiously, even backed the use of gross international reserves (GIR) and overseas Filipino worker remittances as seed money for said fund.

On Friday, 2nd district  Albay Rep. Joey Salceda, chair of the technical working group refining HB6398, released revised provisions in the proposed legislation meant to allay concerns of the public, economists, and fellow lawmakers. Primarily pushed by House Speaker Rep. Martin Romualdez and Deputy Majority Leader Sandro Marcos, HB 6398 proposes to use pension funds under the Social Security System (SSS) and Government Service Insurance System (GSIS), as well as funds of state-owned Land Bank of the Philippines and Development Bank of the Philippines, as seed capital for the MWF. 

Other co-authors of the controversial bill include Reps. Jose “Mannix” Dalipe, Stella Luz A. Quimbo, Yedda Marie K. Romualdez, and Jude A. Acidre.

No to GIR use

In an interview with Bloomberg TV, Medalla said, “To me, the experience of 1MDB of Malaysia is the biggest risk. Even if the current guys are okay, will the guys five years from now still be okay? It’s a governance issue.” Under a revised  provision of HB6398, the President of the Philippines, now Ferdinand Marcos Jr., “shall sit as chairperson” of the Maharlika Wealth Fund Corp., the fund’s administrator. Salceda said  in a interview with GMA’s 24 Oras, it was President Marcos who “ordered” the creation of the sovereign wealth fund.

The 1Malaysia Development Bernard (1MDB) scandal refers to the embezzlement of Malaysia’s sovereign wealth fund, of which some $700 million ended up in the personal accounts of then Prime Minister Najib Razak. 

Medalla also took exception to the use of the GIR for the fund, which “could affect the independence of the central bank. For instance, if they say they will take the central bank’s dollars, then what will we use if the reserves are reduced because they have been taken by the sovereign wealth fund? We’ll have less ammunition the next time there is international volatility that is related to the people and the dollar.” The GIR is the sum of all foreign exchange inflows into the country, and are held by the Bangko Sentral to cushion the economy in case of market shocks,  like a steep weakening of the local currency. 

Meanwhile, economists such as Calixto Chikiamco and former Finance Undersecretary Romeo Bernardo have expressed concern as well over HB6398, underscoring the timeliness of the fund’s creation and the inherent risks in investing it.

Gov’t has no excess funds

In an interview over Teleradyo, Chikiamco described it in Filipino as a “good idea, at the right time. But today is not the right time. Why? Because the right time is when the government is flush with a lot of money but right now, the government’s budget deficit is 6 percent of GDP (gross domestic product). When government has a lot of money, we can set aside excess funds for the sovereign wealth fund.”

Bernardo, an analyst of the New York-based Global Source Partners, said the proposed bill “will add to Philippine financial risks. The proposal is poorly-timed, with external balances under stress and government debt and borrowings elevated, and it raises the specter of Malaysia’s 1MDB scandal traced ultimately to poor governance.”

Meanwhile, the Change.org petition opposing the use of government pension funds as seed money for the MWF said, “The bill allows investments on ‘Financial derivatives’. THESE ARE HIGH-RISK INVESTMENTS! Have they forgotten 2008?” The global economic crisis that year was precipitated by financial derivatives invested in subprime mortgage assets. 

The petition, created by De La Salle University associate professor David Michael San Juan, who is also the third nominee of the ACT Partylist, added, “The bill has no mechanism to directly give profits to citizens (especially SSS and GSIS). Profits would instead be channeled to the government financial institutions. And the profits are not even guaranteed ha.”

Less aid for MSMEs  

It added the use of LandBank and DBP funds to capitalize MWF “would drastically limit the funds which the said government banks could lend to MSMEs (the backbone of our economy, in terms of jobs creation) and ordinary citizens.” MSMEs refer to micro, small, and medium enterprises which account for over 90 of the companies in the Philippines. 

The petition warned, “As the bill allows the fund to draw from the annual General Appropriations Act or supplemental appropriations, this can possibly reduce available funds for vital social services such as healthcare, education, housing etc.”

Among the revised provisions HB6398 released by Rep. Salceda on Friday, included the removal of the GIR as seed capital for the MWF, but the BSP will still be  required to contribute “50 percent of its annual dividends,” while the National Government’s annual contribution to the said fund is “subject to the recommendation of the Secretary of Finance.”

The equity contributed by state pension funds and GFIs will be “in the form of common or preferred shares, convertible securities, and other forms, as may be determined by the Board of Directors; provided, that preferred shares and convertible debt instruments issued by the MWFC to the government financial institutions shall be guaranteed by the National Government.”

Not covered by GCG law and OGCC review

The revised bill also provides, “The head of the GFI with the most capital contribution shall sit as vice chair and the chair of the executive committee in charge of the management of the MWFC;  11 regular members representing the Fund’s shareholders, in proportion of their corresponding shares or equity investments; and two independent directors from the private sector who may come from the Philippine Stock Exchange, Bankers Association of the Philippines, and the academe.”

Section 27 of HB6398 exempts MWFC from the GOCC Governance Act of 2011, which means its officers can hold longer terms than the one-year apointment for Chief Operating Officers of other state agencies. 

The bill also exempts “transactions and assets of the MWFC and MWF” from direct and indirect local and national taxes.

Likewise, the bill exempts the contracts entered into by the MWFC from review by the Office of the Government Corporate Counsel.