The Maharlika Fund: Last Two Minutes

Congress has only a couple of days to pass the highly controversial Maharlika Investment Fund (MIF) before the Congressional recess. Malacanang has certified the bill as urgent.

The bill is complex and unfathomable to the ordinary citizen and most legislators (the House passed the bill in 7 days which speaks to the quality of its constitutional oversight). Here are some FAQs to simplify the issues:

1. Why the rush to pass the bill? There is no urgency to pass what could be a dangerous and unnecessary legislation. There is no immediate need to spend the money nor opportunities that will be lost. As it is there are hundreds of billions of stranded infra projects. The bill is seemingly being rushed to meet the President’s July SONA as it was rushed in December in the House to meet his World Economic Forum speech (where the MIF was barely mentioned). The Palace, our economic team and legislators cannot wait to get their hands on the money before the 2023/24 budgetary timetable derails their plans.

2. What is the value added of the Fund? – Zero. The DBP and the Landbank have the resources and expertise to finance existing projects. Our economic managers have not offered an economic justification for the Fund other than that “it will accelerate infra spending, attract foreign investments and reduce poverty”. No evidence of any of this has been presented.

3. Is the bill constitutional? – 

• As mentioned by Sen. Escudero the MIF has not proven its economic viability, a legal condition for such a GOCC to be formed; nor has one been presented by our economic team.
• The bill may be questioned as an end run around the budgetary oversight imbedded in our constitutional checks and balances. The MIF can spend at will without Congressional constraints. 
• There is a question whether the bill can mandate the DBP and the LB to invest over 50% of their combined capital in an enterprise over which they have no control and whether their respective Boards can approve the MIF investment without violating their charter and/or existing BSP rules.

4. What assures us the Fund will be profitable?

• Nothing. Investing in infra projects like farm-to-market roads, dams and such do not produce profits and cashflows in the business sense of the word.
• To cover the Government’s cost of money (say 6%) the Fund’s admin expenses (2%) and inflation (say 5%) the Fund would need to yield low double digit returns in nominal terms without a risk premium and high double digit returns when including risk. No Fund can do this without taking dangerous bets. In 2022 the Norwegian Sovereign Fund, the world’s biggest, lost $164 billion. What makes us think we can do better?
• The Philippines has historically mismanaged all concentrated funds – witness the Coconut Levy, the Road Tax, Philhealth, etc.and GOCCs like Napocor and NFA. The MIF will likely go down the same path but now big time.
• Our economic managers have not disclosed who will run the Fund. This is a significant disclosure when raising capital of any kind.

5. What are the dangers of the MIF?

• As pointed out by JPE, Special Presidential Legal Counsel, the MIF by its size, concentration of risk and unconstrained mandate could present a “systemic risk” that could bring down our financial system. When fully formed the MIF will be over P500 billion and growing annually; bigger than the BSP, DBP and LB combined. Our economic managers say the Government will guarantee the latter’s exposures I.e. the taxpayer will have to foot the bill. Our credit rating will be downgraded to junk when this happens.
• The MIF will be the mother of all pork barrels.
• History tells us the MIF will be used for the business purposes of a few e.g. the Coconut Fund.
• The MIF will be financed in perpetuity by PAGCOR and BSP dividends, privatization proceeds and anything else our economic team can carve out of already depleted Government resources.
• The MIF will cannibalize monies badly needed for health, education and human resources. The military should question why its pensions are being reduced for budgetary reasons when money is being spent on an unnecessary, bloated and unconstrained fund. For the same reason, Government employees should question why our economic team is recommending to downsize and lay off their numbers by 300,000.
• The MIF is expensive. Its starting administrative budget is P2 billion when it could be done for less than 10% of that. It is an example of things to come.
• The Fund is essentially an unlimited and uncontrolled bank account for this and future Presidents. Its Board will serve at the pleasure of Malacanang.

6. So why the Fund at all?

• It is way to by pass the budget accountability process by giving this and future Administrations a blank check.
• It will be a platform to dole out political goodies.
• Like the Coconut Fund the MIF will finance the business ambitions of a select few.
• Our economic managers who will “oversee” the Fund will stand to personally benefit from per diems, performance compensation and insider information.

7. Who/what will be most negatively impacted by the Fund?

• The military whose pensions will be cut in favor of the Fund.
• Government employees being laid off in favor of the Fund.
• The legitimate business sector with no political access.
• Our credit rating. A credit downgrade will raise interest rates, weaken the peso, discourage foreign investments and limit access to international credit facilities.
• Our social stability and security.
• The Filipino people.

The Changing Political Landscape

The political ground is shifting.

Last week in a terse motion to an almost empty House GMA was unceremoniously demoted as Senior Deputy Speaker with no objections from House members even those supposedly allied with her. GMA was allegedly unaware this was coming down. It is said she had a big sister relationship with the Speaker. She was Lakas-CMD Chair emeritus, he President of the party. The Senior Deputy Speakership was largely a ceremonial title so ousting and humiliating her in the fashion it was done seemed designed to publicly flex the Speaker’s muscles.

The Speaker’s action was surprising since he is “simpatico” and hard to dislike.

Romualdez hinted GMA was planning a coup against him. The Speaker sought to diffuse the tension with photo opps of them smiling but the pain to GMA was obvious. Possibly adding insult to injury GMA was replaced by a fellow Pampangeno, Rep. Dong Gonzales.

In an expression of support for GMA VP Sara resigned from the ruling party Lakas-CMD. It is said the President and the Speaker were surprised by the Sara move.

The Marcos/Romualdez cousins have so far walked gingerly lest they be accused of following the foot steps of the old man Marcos. After one year in office they have gained in confidence and are prepared to push the political envelope.

It could be the President and the Speaker saw GMA as an itch on their side. GMA accompanied the President on most of his trips as adviser on foreign affairs. As such she may have over-spoken especially on the Marcos pivot to the U.S advocating instead a more neutral stance with China. The hand of the U.S. and Philippine Ambassador Babes Romualdez in the matter cannot be discounted.

The President and the Speaker may have seen GMA as a political threat. GMA continued to court her fellow Congressmen for example with trips to S. Korea. As a close ally of VP Sara she could derail the Administration’s plans for 2028 when Sara could run for President and win against the alleged budding presidential aspirations of the Speaker. GMA maintains a working relationship with ex-President Duterte who still is vastly popular.

The political maneuverings come at a time of a changing landscape. The economy has still to fully recover from the pandemic. Inflation especially in food continues to remain sticky. Despite assurances from our chief economic manager that our national debt is manageable and can be solved by growth, our debt is now approaching P14 trillion despite a 6% growth in 2022.

The food crisis is exacerbated by the corruption notably in agriculture which remains under the President as Sec. of Agriculture. When he assumed this office it was thought this is how seriously he wanted to reform this sector even if clearly he did not have the time for it. His critics now say he wanted the position to allow carte blanche for the cartels and hoodlums in the importation and distribution of key food supplies. They cite the mess in the importation of sugar.

Our fiscal space has narrowed with little room for the ambitious plans of this Administration. The economic managers are insistent on the establishment of the Maharlika Investment Fund even if this unnecessary and dangerous plan will cannibalize already depleted budgetary resources.

And then there is the matter of the Military Pension Plan. In a move to curry the military the last Administration doubled the salaries of AFP and PNP personnel, the latter would not have to contribute to their pensions unlike SSS and GSIS members, salaries of existing pensioners would be indexed to the current pay of existing rank; all off which will require according to DOF Sec. Ben Diokno an annual budgetary outlay of P850 billion or 16% of our current budget for the next 20 years; P9.6 trillion or about half of our GDP for unfunded pensions and an increase of 25% in our national debt by 2030 (Actually we will get there even without the pension problem). Diokno signed off on this plan as Duterte’s DBM Secretary yet it is he who now reports the pension plan is fiscally disastrous and needs to be walked back. This is creating turmoil among the military which remains the most important constituency of this and any Administration. The Labor Law prohibits the claw back of labor benefits. DND Sec. Galvez has warned about potential repercussions. This puts PBBM in a bind between a fiscal blow out or a discontented military which is the last thing this President needs at this point.

This mess will surely be exploited by those with an ax to grind and there are many.

There is Rodrigo Duterte who has still to fully recover from what he believes was the conspiracy by the Marcos’ to undermine his daughter’s presidential plans. He could well stir the pot knowing his daughter is only one step away from the Presidency. He maintains a strong political base especially among the military. He has a weekly radio broadcast. Some of his Cabinet have been retained notably DND Sec. Galvez. In short PPRD is not going away. The resignation of Sara from the Lakas-CMD could be the start of her political ambitions.

Sen. Imee is and always will be the sister of the President. She has been marginalized from critical decisions and people appointments and has at times railed at the “snakes” in Malacanang. She alledgedly has a strained relationship with the First Lady. Imee may have political ambitions for her son Matthew, Governor of Ilocos del Norte, so she may not want to be associated with the failures of this Government. Following the resignation of Sara there were media reports of increased “chika-chikas” between these two ladies which they have not sought to hide. Imee has in the past collaborated with Sara and GMA notably in the ouster of then Speaker Pantaleon Alvarez. This band of sisters has now re-united but this time with PPRD looking on. Think Charlie and his Angels. This is not a force to be disregarded in the 2025 mid-terms and 2028 presidential elections.

The business sector has remained quiet but there is increasing unease. Many of the big corporates are part of the Private Sector Advisory Council to the President so they are reclused from publicly speaking out. However what they see are the sprouts of crony capitalism so early in the new Government. The designation of three companies to import 440,000 MT of sugar even before the approval of the Government purchase order are signs of the growing power of insiders.

Business is also concerned with the establishment of the Maharlika Fund with its unlimited financial resources to compete with the private sector and buy up the country. The Fund was approved in record time by the House and could be the lynch pin that ties together the political and business plans of certain people in Government.

Speaker Romualdez and family recently bought 20% of EEI, a Yuchengco controlled construction company, possibly in anticipation of an infrastructure boom; and took a 51% stake in a media JV with the Lopez’ ABS-CBN perhaps preparing for the next elections. To his credit these were fully disclosed.

The President reportedly remains popular but his economic team not. Despite all the claims of a rapid recovery inflation, unemployment, stranded infra projects, agricultural distress, burgeoning debt, high interest rates and widening deficits remain problematic. Our economic team seems more focused on the Maharlika Fund than actually getting things done. They have been politicized to a dangerous degree, more interested in currying to the wishes of Malacanang than the demands of the economy.

Political events are now coming to the fore against a backdrop of economic headwinds and imbedded corruption.The President and the Speaker could well believe a 32 million mandate and an over 90% super majority in Congress gives them the power to do as they wish but there is the danger of over reach, push back and unintended consequences. The economic uncertainty will discourage the private sector investment needed to grow the economy.

We could be in, I am afraid, for a period of turmoil and further hardship for an already beleaguered Filipino.

An (Imagined) Conversation With PBBM

(On Feb. 14, 2022 I conducted an imaginary interview with then Presidential candidate BBM where I predicted his victory. Today I speak with BBM as President.)

HL: Mr. President, wow, the last time we met you were running for office. Now here you are President of 110 million Filipinos. Congratulations. What does it feel like? 

PBBM: Yeah, I am so grateful and honored to be leading this great nation.

HL: Does it feel like a vindication?

PBBM: 36 years ago we left Malacanang rather hurriedly. It is good to be home again. Mom is so excited.

HL: Did VP Leni ever concede the race?  

PBBM: Leni did not Viber but maybe she is on WhatApp. She is a fine woman who was never given the chance to properly serve the country.

HL: The one year ban on Government positions for those who ran in 2022 is soon over. Would you offer Leni a Cabinet post? She may decline but it would be a master political stroke. It means you are truly a unity Government.

PBBM: Hmmm. Let me run it by the First Lady.

HL: Some other Cabinet changes? Gibo Teodoro (DOF, DND, ES)? You could use the new blood.

PBBM: Liza is preparing the memo.

HL: What do you say to “the yellows and pinks”?

PBBM: March with me or be left without me.

HL: You have a mandate from 32 million Filipinos, what have you done or want to do with it?

PBBM: I am aware of the high expectations for my Administration. I am working on it.

HL: Your economic team has been widely praised. What has that dream team accomplished so far?

PBBM: Let me think. The Maharlika Investment Fund?

HL: Why this obsession with the Fund?

PBBM: The Fund allows me to fast track our infrastructure without always having to run to Congress for the money. The Fund will allow me to write my own checks.

HL: Speaking of Cabinet appointments why is DOH still vacant?

PBBM: OMG, I totally forgot. Let me remind Liza.

HL: What about yourself. With all the problems in agriculture do you have time to be both President and DoA Secretary?

 PBBM: I want to show how much I care about agriculture.

HL: You realize you will be accountable for the corruption and inefficiencies in the department?

PBBM: Yes I do.

HL: But nobody can fire you so how does that work?

PBBM: Exactly. That is the privilege of being President.

HL: In your Inaugural Address you promised to hit the ground running. People say you have little to show for it.

PBBM: My Dad always said the best things in life are worth waiting for.

HL: For how long? In the meantime inflation is at a record high, we have a Php 14 trillion debt, over 20 million Filipinos live below the poverty line, we are the last in the world in science, math and comprehension, and then there is the corruption. You promised an economy on steroids.

PBBM: I can understand the frustration but I inherited this situation, not created it. We are working on our problems even if the public does not see it.

HL: Maybe you need to communicate better. All we seem to get from the Palace are Christmas, Valentine and Easter messages of love and kindness. Do you pen these personally or do you use ChatGPT? 

PBBM: Hahaha. You are funny.

HL: The criticism is this Government is all talk, a Government by Power Point.

PBBM: That is unfair. For example NEDA just completed a thousand page 5 Year Development Plan. I still have to read it but I am told it is a cliff hanger.

HL: The perception is your priority is to see the world.

PBBM: You know we live in an inter-connected planet. It is important I have face to face contact with the leaders of other nations in case we need their assistance or co-operation. Plus these foreign trips bring in billions of critical foreign investments.

HL: Yet the BSP announced that foreign investments fell by 23% in 2022 and again this year. 

PBBM: Maybe I should travel more. 

HL: What about the Formula One trip to Singapore?

PBBM: As they say all work and no play makes Jack a dull boy. 

HL: Should you not be promoting Philippine rather than Singapore tourism?

PBBM: My advisers were opposed to that trip but what is the point of being President if one cannot have a little fun? Liza and I deserved a break after a hectic campaign so give that to us.

HL: On foreign policy: You have made a reverse pivot to the U.S. America and its allies are erecting a wall against China stretching from S. Korea to Australia to Taiwan to Japan; anchored by a U.S. military presence in the Philippines. A private equity firm with State Dept. support has bought into Subic for use by the U.S. navy. EDCA has been re-launched in four sites. What are we getting out of all this? You have stated you want us to be neutral in the U.S.-China conflict.

PBBM: Subic was a private sector rescue following the Hanjin bankruptcy so it was a bail out for our banks that had lent money to them. Our military also wants to restore relations with the U.S. and what my generals want my generals get. I repeat, my foreign policy is to be friends with all.

HL: What will you tell Premier Xi when you see him on your next trip?

PBBM: We admittedly have a love-hate relationship with China. Maybe I should focus on the love.

HL: It does not help that we are hosting POGOs against the wishes of China.

PBBM: POGOs have contributed to our economy but I can understand China’s position. A compromise may be to relocate the POGOs in neutral territory like the Spratleys.

HL: Speaking of the military DOF Sec. Ben Diokno reportedly wants to downsize the pensions of our soldiers approved by President Duterte because it is unaffordable.

PBBM: Aargh. Why is Ben saddling me with this problem knowing how sensitive it is? Why did he not oppose the plan when he was on the Duterte team? He has been assuring me our debt load is manageable so he should go find the money and stop whining.

HL: Change subject because you are clearly upset: Will you be handing President Duterte to the International Criminal Court?

PBBM: The War on Drugs may have been overdone but PPRD meant well. There are other world leaders who are committing worse crimes.

HL: Local politics: People say you are getting set for a multi-generational family dynasty. You seem to already be grooming Sandro. The First Lady has been mentioned as a potential place holder until the kids come of age.

PBBM: You must be crazy if you think Liza wants the job.

HL: Even if she is said to be the power behind the throne?

PBBM: Do not believe those stories. Liza just wants to chill.

HL: What about your nephews or your sister Imee? Will they be given a crack at the Presidency in 2028?

PBBM: Let me talk to Liza.

HL: And Sara? It is said you gave her a graveyard job at the DepEd when she wanted Defense.

PBBM: I cannot speak for the VP but Sara will always have a special place in my heart. Her ROTC idea is brilliant.

HL: The two biggest problems of our country are poverty and corruption yet you rarely allude to them?

PBBM: I want to focus on the positives. 

HL: Is corruption and poverty improving?

PBBM: Let us not go there.

HL: How will you curb corruption?

PBBM: By making everybody happy.

HL: Do you worry about your reputation and legacy?

PBBM: People see others through the prism of their prejudices. Reputation is what people think of you, character is who you are. I am going with character.

HL: After 9 months you, Sir, are still an unknown quantity. Who is BBM?

PBBM: BBM is a man who showed up when 32 million Filipinos wanted him to show up.

HL: What is your message to the nation as we approach your Government’s anniversary?

PBBM: Be kind and love one another.

Questions You Have always Wanted To Ask

With the anniversary of this Administration quickly approaching here are multiple choice answers to questions you may have always wanted to ask:

1. How would you characterize the Marcos Presidency of the last 9 months?

• Well travelled.
• Busy, busy, busy.
• A stealth Government.
• What you hear is not what you see.

2. What is the greatest achievement of this Government so far?

• A 32 million electoral mandate
• A pivot back to the U.S.
• A Presidential couple so in love.
• Let me think.

3. Greatest failure?

• Wasting a 32 million mandate
• Not minding the store.
• Lethargy.
• Corruption.

4. What advise would you give this Administration?

• Stop aiming for home runs, focus on hitting singles.
• Good governance is not about good policy but the execution of good policy.
• Success is 99% perspiration and 1% inspiration. Do the hard and dirty work that goes into building a nation.
• Walk the walk, not talk the talk. Humanize our economic problems as in inflation is not an economic number, it is one less meal a day for many Filipinos.

5. What are the falsehoods of this Government?

• The Maharlika Investment Fund is the silver bullet that will save this nation.
• Presidential trips bring in billions to the country.
• A Php 14 trillion national debt is “manageable”. I estimate the interest on this debt is some 12% of our National Budget, larger than the budget allocations of all departments except possibly DepEd’s; and growing faster.
• Economic growth will wipe out our debt.

6. What are the memorable quotes of this Administration, (more or less)?

• “The Philippines will grow its way out of debt. There is no need to sell Government assets like PAGCOR and NAIA”- DOF Sec. Diokno when he assumed office (In 2022 we grew by 6% but so did our debt by almost Php 1 trillion).
• “The Maharlika Fund is the best thing since sliced bread and it is all the President’s idea.” – Our economic managers.
• “The Maharlika Fund presented by our economic team is a mess.” – Rep. Stella Quimbo, co-author of the revised bill, when presented with the first draft.
• “P20/kg rice is just around the corner.”

7. What have you always wanted to ask but never did?

• How has our economic growth helped the poor?
• What does the President’s Private Sector Advisory Council really think of the Maharlika Fund?
• What does the President do during and after office hours?
• Who is running the country?

8. What is the greatest risk to our nation?

• Climate change and drugs.
• A Presidential family dynasty.
• The Maharlike Investment Fund (MIF).
• The loss of our institutional  checks and balances; the politization of our economic managers.
• An uneducated population.

9. What will the Philippines look like in 2030?

• A nation of over 120 million barely educated, barely healthy Filipinos.
• A sovereign debt approaching P20 trillion equivalent to today’s GDP.
• A country with deadly heat and destructive storms.
• A nation where clean water could cost more than gas.

10. What does the Philippines need most now?

• Much less corruption.
• A more vocal private sector.
• A working leader with an economic strategy.
• A few people to be hung from a lamp post.
• Prayer.

11. What can our young look forward to?

• A call center job.
• A green card.
• Getting drunk on weekends.
• Not much.

12. What do we tell our children?

• Suck it up
• Choose your leaders well, be engaged.
• Care for your countrymen.
• Good luck

What Does the Silicon Valley Bank Have To Do With Us?

In March three medium sized U.S. banks got into trouble – Silicon Valley Bank (SVB), Signature Bank and First Republic Bank – sending financial ripples through the U.S. banking system and financial markets worldwide. These were followed by the overnight collapse of Credit Suisse, the 167 year old iconic Swiss bank. 

Fortunately the aforementioned banks were bailed out by their central banks through liquidation or shot gun marriages with stronger financial institutions. Unlike the 2008 crisis this one was quickly nipped in the bud and further failures should be contained.

There are some key take-aways from the U.S. mini crisis. One, unlike in 2008 when the collapse was due to bad mortgage credits, this one was precipitated by a liquidity crunch and failure by the banks’ management and regulators to spot the interest rate or duration risks on the bank balance sheets. The assets of SVB consisted mainly of excellent quality U.S. Treasuries and Mortgage Backed Securities (MBS). The problem was these were long duration securities whose value plummeted when interest rates rose. In SVB’s case the markdown was $1.8 billion which pretty much wiped out the bank’s capital. SVB was funding long term assets with short term deposits.

Two, the deposits of the three U.S. banks were chunky with many exceeding the FDIC insurable deposit of $500,000 so it did not take many depositors to flee to create a run on the banks. The Fed regulators failed to spot the risks in concentrated deposits particularly when coupled with the banks’ asset/liability mismatch.

Three, because the assets of the failed U.S. banks were below $250 billion, the banks were not subjected to the Fed’s stress test conducted on the bigger money center banks like JP Morgan, Bank of America and Citigroup. The stress tests are supposed to signal risks under various credit, market, duration, and interest rate scenarios.

Four, unlike years ago when bank runs would unfold over several days and even weeks, this one occurred literally within hours. SVB and Credit Suisse lost $40 billion and $10 billion respectively in deposits in one day alone. The chunkiness of the deposits was a factor in the rapid flight of money but with social media, the speed of information and easy mobile transfers, bank runs can happen even before management and regulators have time to step in. In the case of Credit Suisse all it took were two words from the Chairman of its biggest shareholder the Saudi National Bank (“Absolutely not” when asked if they would inject more money into CS) to cause panic withdrawals.

Five, unlike in 2008, the large private banks helped the FDIC contain the problem. A consortium of banks led by JP Morgan immediately deposited $30 billion into the First Republic Bank to shore up the latter’s liquidity and show the market they had confidence in the institution. UBS with the prodding of the Swiss National Bank salvaged Credit Swiss under duress preventing what looked to be a messy situation.

Six, the crisis highlighted the role of smaller regional and community banks in financing small businesses and commercial real estate. The fall of SVB & Co. will lead to a contraction of credit in these sectors and slow the economy deterring the Fed from further raising interest rates aggressively.

What is the impact of this last U.S. bank crisis on the Philippines?

The answer is almost none partly because by and large Philippine banks are strong and partly because the worldwide contagion was quickly snuffed by the rapid actions of the regulators. When they occur Philippine bank failures have been mostly among our rural and small development banks which are under-supervised.

However the U.S. crisis has some lessons for us:

One, it highlights the dangers of contagion and systemic risk in an economy. It is therefore relevant that Congress is poised to legislate the Maharlika Investment Fund which by its size, unconstrained mandate and lack of effective governance and accountability poses an existential danger to our economy and our banking system. When fully formed, the Fund will be larger than the Bangko Sentral, the PDIC, the Landbank and the DBP together. Should the Fund fail there is no lender of last resort big enough to contain the fall out. It will be a bunch of sailboats trying to rescue an aircraft carrier.

Two, the U.S. and Swiss crisis emphasized the importance of a robust central bank. Yet the Makarlika Fund is defanging the BSP by channeling funds originally allocated for the BSP’s capital; into a Fund that is left to its own economic and political devises.

Three, high interest rates have unintended consequences. We need to review the efficacy of raising the cost of money to contain inflation. The BSP just hiked its benchmark rate to 6.25% with Gov. Philip Medalla intimating that further hikes are in the offing. Despite over 400 basis points increase in interest rates in the last year prices continue to be elevated (when in other countries they are falling) suggesting our inflation is not principally due to excessive demand and liquidity but to factors like corruption and cartels in our food supply chain and housing shortages. In the meantime the escalating interest rates are hurting businesses and consumers slowing our economic recovery. Perhaps the BSP should consider options other than interest rates like decreasing the money supply through quantitative tightening where the collateral damage is more distributed and delayed.

Four, the BSP and the Treasury need the private sector in the event of a major Philippine financial crisis. The Government alone is unlikely to cope with a catastrophe given its limited fiscal space and borrowing capacity. Speaking of the latter despite DOF Sec. Diokno’s assurances that our sovereign debt is manageable and will organically decline with economic growth, our borrowings increased by almost a trillion pesos to P14 trillion in the last year even with a 6% GDP growth. 

Five, we need to examine the P500,000 limit on insured deposits. The latter is over 20 years old and has not kept up with inflation and the economy. It is equivalent to 2% of the U.S. limit of $500,000. The premium for the PDIC insurance is paid by the banking industry which will be the first to oppose any rise in the premium rate even as it will be the first to run to the PDIC when things get hairy.

Six, it is time to reassess the Philippine bank model. Banks are a unique industry in that, protected by a franchise, they are allowed to leverage themselves 10-15 times their capital mainly through deposits. This leverage has resulted in banks having some of the highest return on investment to shareholders compared to other businesses; while neglecting their role as intermediaries to the credit starved small businesses and agriculture. 

The U.S. crisis highlighted the role of regional banks in supporting small businesses. In the Philippines banks openly discourage small depositors for being unprofitable. Small accounts are charged disproportionate fees for deposits, foreign exchange and remittances. Recently my bank (which is among the top tier) offered to pay me 1.75% p.a. on a dollar time deposit even when others were offering 4-5%. When challenged, the bank agreed to double the rate. This example of banks taking advantage of unsuspecting depositors and borrowers is not unusual and they should be called out on it. Regulators and legislators should prescribe equal opportunity rules for small bank clients.

The growing distrust of bankers has spawned fintech settlement systems like GCash and PayMaya in the Philippines, Alipay in China and PayPal, Venmo and Square in the U.S.; which now offer shadow banking services like deposits, remittances, payments and loans to small clients. These alternative banking platforms are a growing threat to traditional financial institutions. The question is whether these fintechs should be subject to the same capital, reserve and liquidity requirements and BSP supervision as banks. In China shadow banking has become a problem.

The Government is set to merge the Landbank and the DBP to strengthen the combined finances and save on fixed costs with LBP the surviving entity. Yet the same Government is about to carve out over 50% of their capital or P75 billion to finance the Maharlika Fund. What the Government giveth it takes away. The merger will also muddle the mission of these two institutions – the LBP was originally mandated to support agriculture, the DBP industrialization. Legislators may want to review the merger in terms of its confusing mission, the consequent layoffs and the quality of their respective management. I recall a time when the LBP was said to have one of the worst management and balance sheets and was kept afloat largely by Government deposits. Is this a case of shoring up the LBP? We do not know but legislators may want to inquire.

The Philippine banking system is safe but this does not mean it is doing its job where most needed i.e. to intermediate monies fairly across economic sectors and classes. Like airlines serving mercenary routes, the banks should give back to the community.

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.

 

2022 Sovereign Wealth Fund Losses

To those claiming the Maharlika Investment Fund is our economic savior, read up:

The MIF: A Weapon Of Mass Destruction?

The President is expected to trot out the Maharlika Investment Fund (MIF or the Fund) to the world investment community in Davos this coming week. From what was to be a full blown affair the presentation has allegedly been downgraded to “a soft launch” in case the international reception is not quite as rousing as expected.

The Philippines wants its very own Sovereign Wealth Fund even if we neither deserve it, can afford it nor know what to do with it. It is hoped a SWF will, by osmosis, propel us to the ranks of rich countries like Norway, Singapore and the M. Eastern oil nations; even if we are a deficit country which to finance the Fund will need either to borrow or re-allocate resources better devoted to economic progress like education, healthcare and agriculture.

The business sector and the academe have opposed the concept even in its cosmetically altered form; but the House and the technocrats are forging ahead in the belief that foreign institutions will pile into a program that is ill-conceived, ill-advised and possibly ill-intentioned.

Here is why the Fund is flawed:

1. The Fund assumes institutional investors are stupid. It assumes they do not care about investment fundamentals like purpose, ownership dilution, management control, track record, expenses and governance. The Fund will effectively be controlled at all times by the National Government (NG) The Fund is expected to start with a GFI ante of P75 billion to be followed by annual mandated contributions from BSP dividends, PAGCOR profits, privatization proceeds and anything else that can be carved out without budgetary oversight. By the end of this Administration the Fund will I estimate have a capitalization in excess of the combined one of the GFIs and our Central Bank. Outside investors in the Fund who do not keep up with their share of the fund raising could well be diluted by a factor of 8-10 times within 5 years i.e. if they invested 10% in the initial round of funding, that stake will be reduced to less than 2% ownership and that is before the leakages.

2. The Fund does not have a clear mandate. The MIFs stated purpose is to make the most profit with the least risk while fulfilling long-term developmental goals; never mind that these goals are contradictory. The MIF may invest in risky hedge funds to boost its performance. For the record last year hedge funds lost on average about 15% of their investments, the worse since the disaster of 2008. If MIF had been in existence then we would be in that pile up today with the Filipino taxpayer picking up the tab.

A leading author of the MIF has suggested the Fund be used as a regulatory tool. He has reportedly advocated the Fund buy into utilities like power companies and force them to reduce electricity rates. What he does not say is this will lead to a mass sell off of these companies with consequent losses for the Fund. We have seen this before: It is called Privatization or worse, Political Capitalism, or worse Communism where the State takes over the economy’s basic means of production. When politicians and our economic leaders believe they are smarter than market forces, when they feel Government can manage companies better than the private sector, you know we are in trouble. Foreign investors will head for the exits.

3. The Fund has no added value. The Fund’s purposes are already being served well enough by existing Government Financial Institutions (GFIs).

 4. The Philippines has no track record in managing concentrated pools of funds without getting the country into trouble witness the Coconut Levy Fund, the Road Tax, Philhealth, etc.

5. The Fund will have more money than it has ideas. We have no absorptive capacity as evidenced by the billions of pesos in stranded infra projects. This will leave billions of dollars sitting in the MIF checking account ready to be pounced upon by politicians, fund managers and favored corporate interests.

6. The Fund’s expenses are bloated. To give you an idea how bloated the Maharlika Investment Co. (MIC), the MIF’s management arm, will be charging the Fund a start up fee of P1.0-1.5 billion for salaries and administration to hire a few dozen professionals in less than 1,000 s.m. of office space; or over 10 times what it would cost the private sector to do. That will be followed by a management fee of 2% p.a. Remuneration of directors and officers will fall outside of Government statutory limits. The Fund will essentially be a leaking faucet.

6. Investors want governance. As we have seen elsewhere no number of oversight committees, majority of Boards nor auditors can prevent the abuses once the politicians and the vultures get their hands on the money. Private sector representatives will want in on the perks and the inside information; politicians on the pork barrel; fund managers on the fees; and technocrats on the expense accounts. The Palace, present and future, will be the sole voice of the Fund, unaccountable to no one.

7. The Fund represents a systemic risk. This has been highlighted by Presidential Special Legal Counsel, JPE, who knows something about law, power and human behavior. When fully formed the Fund will be bigger than its counterpart GFIs and the BSP. This could be the mother of all heists.

8. The Fund puts at risk our credit rating. Through its funding mechanism MIF compromises the independence of the BSP. It is a run around transparency, accountability and risk management. It diverts monies from economic development to financial profit. The Fund will likely be used for political purposes. The credit agencies will see right through all of that.

9. The Fund represents a clear and present danger to the Republic. It will crowd out the private sector. It will be used as a regulatory tool. It will be used to acquire companies for favored parties. It will be a fountain of corruption and political wrong doing.

The Fund is a dangerous economic and political adventure yet it has been embraced by our economic team. The latter is now drinking the same Kool Aid as the Fund proponents which is what makes the whole thing scary. The Philippines has had its share of economic problems but our economic managers were always respected by the world investment community for their integrity and professionalism. They were our last safety valve against abuses by the Palace and politicians. They were the adults in the room. That I am afraid looks to be changing. Our economic managers have convinced the President that foreign investors will buy into the MIF’s smoke and mirrors even as no SWFs in the world have outside investors for reasons I explained above. They have told him the MIF is the silver bullet that will save the economy when that is clearly not so. Has our economic team sold its soul to the company store?

President Bongbong will be unveiling in Davos a plan that he is told will wow the international investment  community. Davos will listen out of respect to a sovereign leader but understand, one, in the global scheme the Philippines is but a speck and, two, the audience is unlikely to sign on to an idea that is not new, that is at best naïve and at worst dangerous. It will remind them of the sins of his father. That would leave our President standing in the world stage alone, unaware he has no clothes,

The MIF 2.0: An Economic and Political Behemoth In The Making

“If it walks like a duck and talks like a duck it must be a duck.”

In record time the House is passing HB6608. The bill will create the Maharlika Investment Fund (MIF) and Maharlika Investment Company (MIC). The former will house the money, the latter will manage it. The management fee is 2% of the Fund plus possible performance bonuses. The President certified the bill as urgent so he may showcase this brainchild on his upcoming foreign trips notably to the World Economic Forum in Davaos early next year.

The first version of the bill was met with suspicion from business, the public, academe, workers and farmer groups. Even some of our economic managers expressed reservations but have since recanted in the face of pressure from their colleagues and presumably the Palace. HB6608 represents the revised version which has then to go to the Senate for approval.

The MIF proponents liken the Fund to the Sovereign Wealth Funds of Norway, Singapore, China, and Middle East oil producers; even if is not. The essence of a SWF is the seed money is derived from organic surpluses like commodities or trade. Looking at the money trail our MIF is funded ultimately from borrowings making it more like a Sovereign Poverty Fund.

The MIF per se does not add to economic development. It simply replaces roles already performed by the GFIs without the hefty management fees to an outside Fund manager and without the dangers of fund concentration. Once fully formed the MIF could represent an institution “too big to fail”, a systemic risk to our financial (and our political) foundation but more on these later.

The MIF brings to mind failed financial adventures of the last 40 years – the Coconut Levy Fund, the Oil Stabilization Fund, the National Development Co., the Road Tax, Philhealth – confirming what happens when a Government agency is gifted with a concentration of financial resources that bypass established rules of governance and risk.

The purposes of the MIF are the usual odes “to promote growth and social development, to make profitable investments, to obtain the optimal absolute return and satisfy the requirements of safety and yield” i.e. everything one looks for in an investment but rarely finds.

The MIF will “establish a diversified portfolio of investments in the local and global markets. It will prioritize PH infra projects to promote economic development”. These two investment goals could not be further apart. The former are risky opportunistic plays; the latter 7-10 year project finance exercises with no liquidity. The better model would be to divide the MIF into dedicated platforms with their own sub-specialties e.g. a MIF Infra Fund and say a MIF Absolute Return Fund; just like mutual funds offer Tech funds, Commodity Funds, Consumer funds.

The MIF was to be initially capitalized at P250 billion but was subsequently reduced to P75 billion when the public’s jaw dropped: P50 billion from the LBP (equivalent to 25% of its capital) and P25 billion from the DBP (equivalent to 36% of its capital). As a context the Aquino Administration injected P53 billion into these two GFIs a few years back to shore up their finances. The MIF bill will now carve out 1 1/2 times that sum intended for farmers and SMEs; and reallocate the money to a Fund with no track record, no disclosed management and an unconstrained playing field. Is this our new way of helping agriculture and manufacturing?

The DBP and the LBP are BSP regulated bank charters with their own boards and developmental missions. What added value is there in obliging these two banks to contribute 28% of their combined capital to a Fund which will simply replicate their duties and so many unknowns? Are there constitutional impediments to the funding mechanisms of the MIF? Does the BSP agree to this use of GFI money? To overcome  possible BSP objections the MIF bill states that the National Government will guarantee the GFIs’ exposures. Should these claims be called upon the Filipino taxpayer will once again be stuck with the bill. Will the National Budget provide for such contingencies?

Once the Fund is established every year the BSP is mandated to allocate 50-100% of its dividends (my estimate: P30-75 billion) to the MIF for at least its first 5 years and possibly in perpetuity thereafter. PAGCOR will chip in annually at least 10% of its Gross Gaming Revenues: The latter was P76 billion in 2019 prior to the pandemic so the MIF gets P7.6 billion. The MIF is still looking for other funding sources like privatization proceeds.

When in full flight the MIF can expect to receive close to P100 billion a year in mandated contributions. In this structure the DBP and the Landbank will in due course be diluted to minority investors with only a 2/15 representation on the MIF Board and no effective say on where and how their contributions will be deployed. Worse, since under the proposed law the MIF cannot take majority positions in any investment, these GFIs will now have an even less input in the final decision making; leaving them with not one but two degrees of separation from their money. There is a 5 year lock up on MIF contributions so the next time the GFIs will see their money is by the end of this administration.

This dilution will similarly impact any third party investors in the Fund who will see their percentage ownership eroded unless they are prepared to match the Government’s yearly capital raising, an unlikely proposition. If only for this institutionals in my opinion may co-invest “with” but not “in” the Fund.

As we are reminded by Malaysia’s 1MDB fiasco, there are also the governance issues.The MIF bill provides for a Board of Directors with one third independent, an Advisory Council, internal and external auditors and COA, and legislative oversight. Nearly all our failed enterprises had similar controls to no avail. Historically our economic managers have either been too busy or too obedient to oversee corporate governance. Technocrats provide the optics but rarely the safeguards.

The outside Advisory Board is powerless. When the President recently solicited comments on the MIF I am told no Private Sector Advisory member raised their hand. As for legislative oversight I would not hold my breath. It is interesting that withstanding all the protection clauses in the bill, the MIF was not considered a safe enough investment outlet for the GSIS and the SSS but are safe enough for the GFIs.

The truth is the MIF will operate at the will of the President whether this one or the next.

 To conclude the MIF does not add economic value to the country. On the contrary if it follows the way of all our prior failed experiments the MIF could be a systemic risk to the country by its sheer size and its undefined and unconstrained investment mandate. Through its obligatory Government contributions MIF’s capital could in the next 5 years exceed the combined net worth of the GFIs and the BSP, more so if the Fund decides to leverage itself. The Senate version should prohibit the MIF from any form of borrowings that will dangerously make it bigger than it already will be.

The MIF bill calls for an immidiate capital raise (and a P1 billion check for start up expenses!) even if we do not have the absorptive capacity. There are reported billions of stranded infra projects. The flood of MIF money could in the meantime be better used for education and healthcare rather than burn a hole in the MIF pocket and tempt politicians with dangerous uses for the money.

HB 6680 has a political dimension. The Maharlika Investment Company will be exempted from income taxes but must instead allocate the equivalent for social amelioration (read vote gathering and pork barrel) projects. It is not small money. On a P250 billion fund the management fee is P5 billion.

The MIF will be the Mother of All Funds. It will be an economic state within a state, a disguised political action committee and an unconstrained investment pool rolled into one. It will be the personal sandbox of whoever sits in the Palace much as 1MDB became the ATM for the Malaysian PM and family. Once the genie is out of the bottle there is no putting it back in.

The business sector should beware. The Coconut Levy Fund started as a means to help the coconut farmers. It ultimately became a Trojan horse for the largest corporate takeover in the country. The MIF will have the country’s largest war chest in history to do as it pleases including hostile take overs with favored partners or driving political business groups out of existence. If the MIF had been in existence then it might have anchored a buy out of ABS-CBN or Manila Water on the cheap. The combination of regulatory powers, a willing Congress, judicial complacency, 31 million in political capital, an unsuspecting public, willing cronies and a financial behemoth growing in perpetuity with allegiance principally to political sponsors; is a scary thought.

In the MIF the House has presented PBBM and all incoming Presidents with the best Christmas gift they could wish for. If only the House could, in equally immediate form, now do the same for the Filipino people.

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.