Congress and the Executive branch are excited over their latest brainchild: The House is about to approve in record time the creation of the Maharlika Investment Fund, a Government vehicle that will invest in local and foreign private and public enterprises. The MF will be chaired by the President or his designate, with the head of the GSIS as Vice-Chair and other Government officials as Directors.
The stated mission of the MIF is “to reinvigorate job creation and reduce poverty”. The Maharlika Fund (MIF) is said to parallel sovereign wealth funds in among others Saudi Arabia, Norway, China and Singapore. The MIF will start with a P250 billion kitty to which the Budget will contribute P25 billion annually, GSIS P100 billion, SSS P50 billion, DBP P50 billion; with PAGCOR (10% of its gross gaming revenues) and BSP (50% of its dividends) to follow. The investments by the GFIs in the MIF shall be guaranteed by the National Government.
The Maharlika Fund is, with all due respects, a really bad idea. Here is why:
1.The MIF will not help the economy; in fact it will do the opposite – The MIF will be allowed to invest in foreign entities as part of its mandate. In effect the MIF will divert scarce Philippines savings to buy foreign stocks and bonds. To tell you how crazy that is President Marcos is flying around the world courting foreign investors to invest in our country yet here we are mandating our Treasury and GFIs to invest offshore.
2. The MIF has no added value – The MIF will be duplicating functions already being done by our GFIs without any assurance it will do a better job. The MIF is a cross between what Wall Street calls a Special Purpose Acquisition Company (SPAC), a publicly listed vehicle with no plans and no purpose other than a promise of riches; and a hedge fund with an unconstrained mandate. Most of the SPACS have collapsed including one involving Donald Trump. Over 80% of hedge funds under perform the market. Why will the MIF do better?
3. The Philippines has no savings to reinvest – Countries with sovereign wealth funds like Saudi Arabia, Qatar, Kuwait and Norway have petro-dollars that need to be re-cycled. The Philippines has no such surpluses. In fact we will be borrowing to finance the Government’s contribution to the MIF at a time of limited fiscal space. The annual contribution of the Treasury of P25 billion could be better spent on education and social amelioration.
4. Our Government has a dismal record in managing money – Our economic landscape is littered with the carcasses of Government funds that promised everything and delivered nothing. In 1971 Ferdinand Marcos legislated the infamous Coconut Investment Fund by imposing a P0.55 levy for every 100 kg of copra. The money was to support coconut farmers but ended up allegedly financing the take over of San Miguel Corp. by one of the cronies. The ownership of the Cocofund is today still being disputed in court.
The Coconut Fund also financed the United Coconut Planters Bank. UCPB got into trouble and had to be rescued by a merger with LandBank.
The National Development Co. (NDC) was another funding vehicle established by the first Marcos Government to support investments. The NDC is now a skeleton of itself with a sprinkling of real estate holdings. The NDC is so moribund its website does not even list a General Manager.
Then there was the Government managed Road Fund, a levy on private motor vehicles to support our infrastructure. This tax is the third largest source of Government revenue after the BIR and Customs. In 2009 Sen. Miriam Santiago exposed P61 billion in anomalies in the Road Fund. God only knows what has become of that disaster since.
Philhealth was established to finance universal care in the Philippines. In 2020 Philhealth was discovered to be some P200 billion in the hole from massive corruption. None of its officials were jailed.
The Maharlika Fund will I believe suffer the same fate as the others. Only this time the victims will be the SSS and GSIS pensioners, the Landbank, the DBP and the Filipino taxpayer. The authors of the proposed MIF bill claim there will layers upon layers of Government oversight but the same was said of the other funds that collapsed. With the President as its Chair who will dare challenge the governance of the MF? There will be independent directors in the MIF and an external auditor to protect the public interest but we all know how that works.
5. The MIF is fraught with risks – Congressional authors of the MIF bill claim the GFIs will have “zero risk” because their investment will be guaranteed by the National Government. What they do not tell us is any claim on the Government guarantee will ultimately have to be paid by taxpayers.
6. The Landbank, the DBP and the BSP have no business investing in the MIF – The Land Bank is supposed to support the agricultural sector, the DBP the commercial and industrial sector. How does their investment in the MIF help further their mission?
The BSP is an independent body established to protect our financial system. Why should 50% of their dividends be plowed into a fund over which they have no say? When asked if the BSP would contribute to the MIF, Gov. Felipe Medalla said he will do so only under duress or words to that effect. He was concerned about possible anomalies in the Fund: “The experience of 1MDB in Malaysia is the biggest risk”. Finally, a man who speaks to the truth .
7. The MIF will not attract foreign money managers as its sponsors claim – Foreign managers will not invest in a vehicle that simply replicates what they do especially given our country’s record in that space.
The truth is the Maharlika Fund is likely to be yet another political slush fund to support the new cronies just like the Coconut Fund was used to support the old cronies. But this time it is the pensioners and the ordinary taxpayer who will take the hit. The MIF will fly under the scrutiny of regulators, the media and the public. Under the proposed draft bill that I saw the control mechanisms on GFIs and GOCCs will not apply to the MIF. Employees of the Fund will not be subject to Government Salary Standardization limits so its officers and directors can be paid enormous benefits. The MIF will be excluded from Government Procurement protocols.
Filipino taxpayers and pensioners will end up footing the bill, writing a P250 billion check to an entity with no investment program, no track record and no mission other than motherhood statements like “to reinvigorate job creation and reduce poverty”. No one has explained how making investments abroad through the MIF will do that.
The MIF looks to me like a fattened cow waiting to be milked. We have seen it elsewhere: 1MDB, the Malaysian Sovereign Wealth Fund, was scammed of four billion dollars by the then Prime Minister and his wife aided by a prominent U.S. investment bank.
If the bill becomes law the Maharlika Fund could well become the mother of all heists.