Towards an Economic (And Political)) Dictatorship?

“Extreme concentration of economic power inevitably leads to extreme concentration of political power.”

The Filipino is struggling: Inflation continues to hover at 8-9% p.a. driven largely by escalating food prices, interest rates are rising punishing small and large businesses, gas prices have just gone up; and there is rampant smuggling especially in vital food supplies like rice, sugar, onions, etc. all of which are under the watch of a seemingly absent Sec. of Agriculture.  The corruption it is said is in the high ranks of the Administration.

We have a Government by headlines. Whether it be the promise of  P20/kilo rice, several billion dollars of foreign investments from the presidential trips or the Maharlika Investment Fund (MIF); like the Pied Piper, the nation is being enthralled by the promise of gold at the end of the rainbow. Yet the facts tell us otherwise. 

The wholesale price of rice is now P38-40/ kg.; the retail price over P42/kg.

The billions in foreign investment from the presidential trips we now know are public relation fodder. We still have to see the Chinese money that was promised under Duterte.

Despite successive interest rates hikes prices continue to rise. The inflation we are experiencing is perhaps not due to excessive liquidity but to the corruption in the importation of vital food supplies. 

The MIF is in the Senate for review. Government officials called in to bear witness all read from the same script namely that the MIF will help build infrastructure, attract foreign investment and produce returns that are higher and safer than otherwise available in the market. Nobody bothered to walk through the details or the risks.

The MIF is flawed in its essence. It does not know whether it is a non-profit developmental fund that will invest in dams and water irrigation or a hedge fund that will invest in risky private equity deals and the like. If the former it cannot expect financial returns since the benefits say of a dam accrue not to its proponents but to the community at large.

The MIF might invest in infrastructure like toll roads and other Pay-For-Use projects where there is a financial return. However understand that in these instances the Filipino is being taxed twice, once to fund the MIF and twice when it pays the toll fees. There will be a third levy if the MIF investments succumb since the Government will under the proposed law guarantee any losses. The MIF is being coated with smoke and mirrors but the bottom line is still the same: The Filipino taxpayer is, as always, footing the bill.

And then there are the risks. When fully formed the MIF will be bigger than our Central Bank and GFIs combined. It is a systemic risk that could bring down our financial system, crowd out legitimate businesses and downgrade our credit.

The MIF’s concentration of economic power could lead to the downfall of our democracy.

True democracy is founded on the concept of distributed  power and the idea of one person, one vote. If commanded to give up our vote and have these consolidated in a pool that would be controlled by a handful of people in perpetuity; Filipinos would take to the streets. Yet this is exactly what the MIF amounts to. Let me explain.

In the Philippines our democracy is arguably based not on one person, one vote; but on one peso, one vote. We follow the Golden Rule that whoever has the gold rules. The MIF proposes to steer in perpetuity disproportionate sums of taxpayer money into a Fund that will be controlled by a handful of people who will dictate not only the finances of this country but also its politics. The MIF could become the foundation not only of an economic dictatorship but also of a political one.

And yet even our economic managers who have sworn to uphold the Constitution have embraced the model. NEDA Chair and former head of the Philippine Competition Commission Barisacan has endorsed the MIF even if it will drastically change the competitive landscape. Combined with the regulatory, police and fiscal powers of Government the MIF by its size and mandate will be the most formidable player in business, the elephant in the room. It will be able to muscle if not extort the competition.

The MIF will weaken the independence and finances of the BSP and the the stability of our banking system. It will put at risk our GFIs who are mandated to contribute over 50% of their capital to a Fund over which they have no control, has no direction and no effective governance; yet BSP Gov. Medalla is going along with the ride.

The MIF will cannibalize the Budget depriving much of the economy and the people from vital resources for education, social relief and others. Yet DOF Sec. Diokno is the MIF’s biggest enthusiast initially proposing a structure that even the MIF’s political endorsers said was clumsy and ill conceived.

Academe and business organizations have opposed the MIF. To assuage their fears the MIF proponents have gone through several iterations. Yet none of these address its essential flaw namely its extreme concentration of economic power and its public unaccountability. The proposed audits and independent directors are paper safeguards as we have seen time and again in the Coconut Levy, Philhealth, the Road Tax and others.

No, the MIF is not the nation’s silver bullet. It is a financial Frankenstein that once unleashed will never return. The MIF is there for the benefit of its Malacanang and Congressional proponents, their private partners and for the management company with its exorbitant fees. The MIF will be the mother of all milking cows.

Our country is in grave peril of returning to authoritarianism through the back door. The checks and balances in our Constitution are disappearing: The House is severely compromised, the Judiciary is tentative and the Executive is in full control mode. With its formidable war chest the MIF is seemingly the last piece in this consolidation of power. As we slept our leaders have taken advantage of the inertia of business, the quiet of media and the trust of the ordinary man to hoist a monolith that once in place could mean the demise of our economic and political freedoms as we know them.