Administration Allies in Congress Propose Philippine Sovereign Wealth Fund, Amid Criticism from Business Groups and Economists

House leadership filed bill 6358 this week, proposing to create a sovereign wealth fund for the Philippines to be known as the “Maharlika Investment Fund.” The funding for the proposal would be sourced from government pension funds, state-owned banks, PAGCOR, and the central bank. The following government financial institutions would invest the following initial sums (based upon the bill as filed on November 2, available here as a PDF)  

• Government Service Insurance System (GSIS) – PHP 125 billion (USD 2.23 billion)
• Social Security System (SSS) – PHP 50 billion (USD 894.64 million)
• Lank Bank of the Philippines – PHP 50 billion (USD 894.64 million)
• Development Bank of the Philippines – PHP 25 billion (USD 447.32 million)

In addition, annual contributions to the fund will come from: 

• Bangko Sentral ng Pilipinas: foreign currency (FCY) equivalent of 10 percent of the remittances from the Overseas Filipino Workers (OFWs); 10 percent coming from the annual contribution of the Business Processing Outsourcing (BPO) sector; 
• Philippine Amusement and Gaming Corporation (PAGCOR): 10 percent from its gaming proceeds; 
• General Appropriations Act or Supplemental Appropriations; and 
• Other sources (e.g. special assessments on natural resources, public borrowings, and the like). 

The bill is sponsored by six representatives, including the President’s cousin House Speaker Martin Romauldez, and the President’s son, Senior Deputy Majority Leader “Sandro” Marcos.  

The proposal has drawn criticism from across the ideological spectrum: 

• IBON foundation, a left wing economic think tank, steeped heavy criticism on the proposal Ibon criticized the exemptions sought from various laws such as the Government Owned and Control Corporations Act, Government Procurement Reform Act, and Competition Law, the size of the funding sought for the fund’s creation, and possibility that the fund could actually divert capital away from the Philippines to overseas through the fund’s foreign investments. Ibon called the proposal “a brazen attempt to exploit the government’s legitimate need for resources to justify giving control over hundreds of billions in public funds to a shady politicized cabal.” 
• A coalition of business associations and economic policy groups, some of whom associated with the country’s biggest businesses, issued a statement of concern. They questioned the fiscal prudence of the proposal when the Philippines has neither commodity-based surpluses nor surpluses from external trade and state-owned enterprises. The groups argue that there was no missing institution for the proposed function of the fund, the functions were already preformed by existing government institutions just not in a pooled or centralized fashion. They argue that the use of Government Service Insurance System (GSIS) and Social Security System (SSS) funds goes against the purpose of these pension funds, which is to preserve the wealth of its members, and exposed the funds to more risk. They see the provision requiring the country’s central bank as problematic and a threat to the independence of the institution. They see the fund as a means by which the government would more directly intervene in the economy, rather than favoring market-based approaches to the economy. 

The most important government official to voice his concerns is likely BSP Governor Felipe Medalla. Medalla asked if the next President, five years from now, could create a 1MDB type scenario, referring to the corruption scandal in a Malaysia sovereign wealth fund.

The bill is likely to quickly pass through the House, due to House leadership drafting the bill, but will be subject to more scrutiny in the Senate. Several Senators, including members of the President’s coalition, have expressed reservations. Most interestingly, the President’s Sister, Senator Imee Marcos, has very publicly voiced her concerns. The Senate moves much slower than the house, and it may even sit on controversial measures until the end of the current Congress.