Finance Secretary Benjamin Diokno has recently expressed support for House Bill No. 6398 or “The Maharlika Wealth Fund (MWF),” saying that the Bangko Sentral ng Pilipinas (BSP) still has too much gross international reserves (GIR) that can be used for this purpose.
According to the secretary, the country’s current GIR is enough for 7.5 months worth of imports, surpassing the preferred 3 months’ worth. “Sobra sobra pa rin ‘yun,” he said in a press statement, noting that the current GIR level is still “too much ammunition.” Diokno added that the idea of a sovereign wealth fund was not new and he had thought of it while he was still serving as the BSP chief.
Latest data from the BSP shows that the GIR — a measure of the country’s ability to settle import payments and service foreign debt — stood at $94.074 billion as of end-October. This is higher than the $93 billion recorded as of the end of September this year but lower than the $107.888 billion in the same month last year.
The Maharlika Wealth Fund explained
Drawing inspiration from the successful sovereign wealth fund of other countries in Asia, such as Singapore and Hong Kong, the proposed Maharlika Wealth Fund would gather P275 billion from government pension funds and banks which will be invested in big-ticket national development projects and other assets.
Its goal is to allow the government to invest surplus reserves or revenues in financial assets and real estate. Unlike sovereign wealth funds in Singapore or Hong Kong, however, the Philippines will not be financing the Maharlika fund from the country’s excess wealth or foreign reserves. It will not also be funded using profits from natural resource extraction, just like how it was done in Kuwait and Norway.
Instead, the fund will have start-up capital of P275 billion to be taken from government financial institutions (GFIs) like the Development Bank of the Philippines (DBP), the Government Service Insurance System (GSIS), Land Bank of the Philippines (LandBank), and the Social Security System (SSS).
There are also expected annual contributions coming from the BSP (50% of annual dividends), the Philippine Amusement and Gaming Corp. (at least 10% of gross gaming revenue streams), the national government (as determined in the annual budget), and other sources.
Proponents of the bill say that contributions coming from GFIs will be backed by the Philippine government. According to analysts’ estimates, the Maharlika fund’s capital may grow to at least P618.3 billion in the second year once all contributions have been factored in.
Safeguards needed to better manage the Maharlika Fund
Some senators, lawmakers, and economists have criticized the Maharlika Fund bill for potentially exposing pensioners to higher risks. They also pointed to the measure not having strong enough safeguards around its management.
For his part, BSP Governor Felipe Medalla said he is wary about the fund’s potential impact on the country’s dollar reserves. He also expressed concern that the plan could adversely affect the central bank’s independence.
“If they say we will take the central bank’s dollars, then what will you use now if your reserves are reduced because they’ve been taken for the wealth fund?” Medalla said in a separate statement.
Medalla also flagged the risk of a repeat of the 1Malaysia Development Berhad (1MDB) that was set up in 2009, which got entangled in a multi-billion dollar scandal. Najib Razak, a former Prime Minister of Malaysia, even ended up being sentenced to 12 years in jail for it.
Sought for comment, Secretary Diokno said that several critics of the measure have yet to read the measure in full. “For one, it (BSP’s independence) will not be affected. So, iniisip lang namin, for example, pwede mong sabihin na siguro x percent ng OFW remittances could be set aside for this kung gusto nila,” he said. Let them decide kung magkano ico-contribute nila sa fund.”
Diokno added that the prescribed amount of investments that GFIs would put into the fund may eventually be removed from the measure as well.