The MIF: What If Everybody Else Is Right?

The reaction of the public, business, labor, farmer groups, civil society and the academe was not only universal, it was, shall we say, glacial.

I am referring to House Bill 6839 creating the Maharlika Investment Fund, a wanna-be P250 billion sovereign wealth fund (SWF) that would among other superlatives “reinvigorate the economy and create jobs”. The MIF would be funded by the GFIs – GSIS, SSS, Landbank, DBP; annual allocations from the National  Budget and BSP dividends. This drop dead idea was apparently so hot every political animal in our economic team, the House Speaker, the economic whiz kids in Congress, and the son of the President sought to claim credit for what is, if one is to believe the press releases, the silver bullet we need.

The proponents were therefore surprised at the blowback to what they assumed was a slam dunk.

There are many deficiencies in the bill the main one being its claims are often contradictory or cannot be supported.

We are told what the MIF will supposedly do for the country but we are not told how and at what cost. 

We are not told that the MIF fails in its basic premise. The MIF is supposed to be a “rainy day” fund which we can access in an emergency. Its funding must therefore come from natural savings and organic surpluses from either trade, services or commodities. Of the top 11 SWFs in the world 6 are from oil producing nations (Norway and 5 Middle East countries) and 4 from China with its trade surpluses. The Philippines does not have such surpluses. We are not a trust fund baby who can live off God-given oil reserves and make mistakes. We are a deficit, import dependent nation with P13.5 trillion in debt and over 20 million Filipinos in poverty; whose scarce resources must be spent carefully because they are all borrowed. To ask our country to put away money for a rainy day is like asking an indigent family in Tondo to establish a college fund for its children even if it means dispensing with three meals a day to do so. 

We are not told every P250 billion that goes to the MIF is P250 billion less for education and social amelioration.

We are not told how the dots are connected, how a law that would authorize the MIF to buy TESLA shares in Wall Street benefits a Filipino farmer. 

We are not told what is the MIF’s added value. We are not told, for example, why the Landbank and the DBP cannot directly invest in the TESLA shares.

We are not told of the MIF’s investment program. Even a P20 million IPO is required by the SEC and the PSE to produce a multi-page prospectus disclosing its governance, how and where funds will be invested, the expected returns and the risks. Yet here we are legislating a P250 billion fund with no such material information. The only thing we are assured of is the MIF will produce extraordinary returns with minimal risk. That, as every money manager will tell you, does not work that way. Extraordinary returns require extraordinary risks. I have seen better presentations from multi-level marketers.

We are not told that the MIF can lose money and if it does the Filipino taxpayer will have to shoulder the bill.  Norway’s SWF, the largest in the world, lost $40 billion in the quarter just ended.

In the latest development the GSIS and SSS will no longer invest in the MIF because it may be too risky for their pensioners. We are not told why something that is too risky for our pensioners is not too risky for the DBP, the Landbank and their depositors.

We are not told that the DBP and Landbank’s combined contribution to the MIF of P150 billion is more than their combined paid-up capital and possibly the single borrowers’ limit of these two institutions.

The MIF proponents say the investments are riskless because the National Government will guaranty all contributions from the GFIs. We are not told the money for this will eventually come from the taxpayer.

We are not told why the MIF funds are being invested abroad when we are begging foreigners to invest in the Philippines.

We are not told the MIF needs to consistently earn over 6% p.a. in risk free investments to cover the Government’s marginal cost of borrowings. We are not told such an investment does not exist and if it does why not let us all in on it?

We are not told that the P200 billion contribution from the GFIs and the BSP to the MIF is P200 billion that will not be available for agriculture, commerce and industry, healthcare and better classrooms.

We are not told that investing the BSP dividends in MIF is according to ex-CJ Tony Carpio constitutionally doubtful. We are not told the BSP will henceforth be pressured to declare big dividends thereby jeopardizing its independence and the credit rating of the Philippines.

Notwithstanding the universal opposition our economic managers are digging in. We are not told what our economic managers will do if they are wrong and everybody else is right.

The widespread and unprecedented opposition to the MIF bill prompted the authors of the MIF bill to finger point: A Congresswoman co-author blamed our economic managers for not consulting with the stakeholders on a half-cooked proposal (Lady, you signed off on it.) The heads of the SSS and GSIS said they are out. Even BSP Gov. Medalla expressed his reservations but subsequently recanted after being allegedly accused by some of his colleagues of not being a team player. What happened to the oath to the Constitution and not to your buddies? Even their UP economist colleagues were aghast.

The MIF bill is so full of holes it is scary. If our “best and brightest” can produce a legislation so flawed in concept, in design and in motive and believe they can pull the wool over our eyes; should we be concerned? One wonders what is next?

The MIF proponents are now suggesting ways to defang the monster they created: One, the GSIS and the SSS will no longer fund the proposal. Two, the MIF Board will be populated by independent directors. Three, the annual budgetary allocations will not be automatic. Four, the BSP will take the proposal under advisement. The fund has been downsized to P125 billion or half the original size. Unfortunately making the MIF only half pregnant does not help. A bad proposal however big or small is still a bad proposal.

Political skeptics wonder how much of the proposed legislation came from the President. PBBM was reportedly impressed with the Singapore and Indonesian experience when he was last there. The fact that his son, Sandro, is a co-author of the bill suggests the matter must have been discussed at the family dinner. Sen. Imee apparently did not receive the memo since she has reportedly voiced her opposition to the idea. The Senator, I always thought, has the best political instincts in the family.

Imee must have figured the timing, if nothing else, was awful. Our economy is still not out of the woods. The MIF brings to mind all the terrible things that have been said of the family not least of which is the controversial Coconut Levy Fund to which the MIF has several parallels. The MIF is now being hoisted by the Marcos critics as evidence the family is already on to its evil ways less than 6 months in office.

The MIF is politically toxic. The economic managers are doubling down on their sentiment but it is not they who will suffer the political fall-out, it is the President who will. No, fighting the public, business and everybody else on something as fundamentally flawed as the MIF is, in my opinion, not a good use of the President’s political capital.