Safeguards sought for Maharlika fund

By Kyle Aristophere T. Atienza, Reporter

PHILIPPINE President Ferdinand R. Marcos, Jr. should carefully weigh the risks posed by the country’s first sovereign wealth fund to the top two state lenders, economists said on Wednesday.

This after Mr. Marcos ordered the suspension of the implementing rules and regulations (IRR) of the law that created the Maharlika Investment Fund (MIF).

Executive Secretary Lucas P. Bersamin said in a statement that Mr. Marcos had wanted to carefully study the IRR “to ensure that the purpose of the fund will be realized for the country’s development with safeguards in place for transparency and accountability.”

The Oct. 12 memorandum ordering the suspension of the law’s IRR was addressed to the Bureau of the Treasury as well as the heads of the Land Bank of the Philippines (LANDBANK) and the Development Bank of the Philippines (DBP).

The LANDBANK and DBP have already remitted P50 billion and P25 billion, respectively, for the initial funding of the sovereign wealth fund as required under the law.

Concerns over the financial stability of the two state banks swirled after they sought regulatory relief from capitalization requirements after remitting their contributions.

BSP Governor Eli M. Remolona, Jr. said there will be no special treatment for LANDBANK and DBP’s requests.

“We will evaluate the request as we do for any other requests by banks, and then we will carry out the usual regulations that we carry out so (LANDBANK and DBP) will not be treated in a special way. They will be regulated like we always regulate banks,” Mr. Remolona told reporters on Wednesday.

Meanwhile, GlobalSource Partners Country Analyst Diwa C. Guinigundo said it would be “most welcome” if the law is repealed “if it is found to be fundamentally flawed,” citing the law’s negative impact on the financial stability of the LANDBANK and DBP.

“[There are] financial stability consequences if the two government financial institutions fail to comply with BSP’s regulatory capital requirements,” he said in a Viber message.

Mr. Guinigundo said he supports the suspension of the IRR if this is part of due diligence before the sovereign wealth fund starts operations.

“[The suspension] will not correct the issues of having the MIF in the first place when we have no surplus fund, sourcing its seed fund from two GFIs which may risk noncompliance with BSP requirements, allowing nearly unlimited range of allowable financial activities including borrowing for investment, providing guarantees to loans, etc.,” the former BSP deputy governor said.

Enrico P. Villanueva, a senior lecturer at the University of the Philippines Los Baños, also fears that the suspension of the IRR may be aimed at allowing the President to have greater say on the choice of the Maharlika Investment Corp.’s top executives, “like choosing someone outside of the pre-screened applicants.” 

“Political influence on sovereign wealth fund (SWF) affairs runs contrary to Santiago Principles governing SWFs,” he said via Messenger chat. 

Mr. Villanueva also noted that the law’s IRR lacks guidance on how foreign or local private investors can participate or invest in the fund.

Malacañang may also be studying “some possible legal and operational loopholes of MIF to ensure that the possible benefits of the law will be achieved,” according to Gary Ador Dionisio, dean of the De La Salle – College of Saint Benilde School of Diplomacy and Governance.

ACT Teachers Party-List Representative and Deputy House Minority leader France L. Castro said the suspension of the IRR proves that the law is “flawed in so many levels.”

“It would be better if (Mr. Marcos) just scrapped the whole Maharlika law rather than just suspend it,” she said in a statement, noting that the fiscal health of the LANDBANK and DBP are in “jeopardy because of the administration’s obsession with MIF.”

The creation of the Philippines’ first sovereign wealth fund has been criticized by economists, who warned that using BSP’s dividends as seed capital for the MIF would further delay the central bank’s capital buildup.

The National Government is sourcing its P50-billion contribution to the MIF from 100% of the BSP dividends for the first two years.

Mr. Remolona said the BSP’s contribution to the MIF should not be affected by the suspension of the IRR.

“We already did, so it doesn’t affect that… It’s a suspension of the IRR. It’s not a cancellation of the fund,” he said.

House Ways and Means Chair and Albay Rep. Jose Maria Clemente S. Salceda, one of the law’s authors, said that despite the IRR’s suspension, “we are still on track to get the ball rolling by the end of this year.”

“Don’t overthink this. It’s the Executive Branch working things among themselves, as is proper at this stage of the law’s implementation,” he said in a statement. 

He noted it would be better if the issues related to the law’s IRR would be resolved before the fund gets off the ground.