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:
- 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.
- 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.