Trust me
It was suddenly announced after the Nov. 30 (Bonifacio Day) holiday that House Bill No. 6398 establishing the Maharlika Wealth Fund (MWF) of the new government financial institution, the Maharlika Wealth Fund Corp. (MWFC) was filed on Nov. 28. It was speedily approved by the House banks committee on Dec. 1. Lawmakers were pushing to have the bill approved by the House of representatives by Dec. 12. The news roused a concerned and anxious citizenry. What’s this? Why the rush?
“The proposed MWF is controversial in that it will get funds from these four government agencies: the Government Service Insurance System (GSIS), P125 billion; the Social Security System (SSS), P50 billion; Land Bank of the Philippines (LBP), P50 billion; and Development Bank of the Philippines (DBP), P25 billion. The initial investment totals P250 billion. Then it will get P25 billion from the National Government, plus foreign currency reserves from the Bangko Sentral ng Pilipinas (BSP) equivalent to 10% of OFW remittances and 10% of contributions from the Business Processing Outsourcing (BPO) sector,” Bienvenido Oplas, Jr. said in his BusinessWorld column of Dec. 5.
Retired Supreme Court Justice Antonio Carpio pointed out that the funds of both the SSS and GSIS are personal contributions of their respective members, along with the counterparts from their employers. “Thus, the income of SSS and GSIS investible funds must benefit only their respective members. The income of the Maharlika Sovereign Wealth Fund is for the benefit of all Filipinos, including non-SSS and non-GSIS members,” he said. “The law cannot give the income from SSS and GSIS funds to non-members who did not contribute to the funds. This is taking of private property for a public purpose without just compensation, which is unconstitutional,” he added (gmanetwork.com, Dec. 5).
Prominent business and nationalist groups — the Foundation for Economic Freedom, the Competitive Currency Forum, Filipina CEO Circle, the Financial Executives Institute of the Philippines, the Institute of Corporate Directors, Integrity Initiative, Inc., the Makati Business Club, the Management Association of the Philippines, the Movement for Good Governance, the Philippine Women’s Economic Network, the UP School of Economics Alumni Association, and the Women’s Business Council Philippines, Inc. — issued a collective statement against the creation of the MWF:
“There is at present no gap nor ‘missing institution’ in the economy that needs to be solved by the creation of an SWF (sovereign wealth fund). The country does not have a bonanza of commodity surpluses that need to be deployed,” the group said. “Instead of leaving a legacy of surplus funds to be managed for future generations, the current generation is leaving a legacy of heavy indebtedness which future generations need to pay or refinance,” it added (pdi.com, Dec. 5).
The public outcry was effective — partly. One week after news broke about the MWF bill, Marikina Rep. Stella Quimbo, one of the bill’s authors and vice-chairperson of the House appropriations committee, announced that the MWF bill would be amended to remove the major pension funds as funding sources. She said the proposed sovereign wealth fund will utilize profits of the BSP instead of sourcing funds from the SSS and GSIS (cnnphilippines.com, Dec. 7).
But wasn’t BSP Governor Felipe M. Medalla among the first to speak out against the MWF?
“Mr. Medalla, in an interview with Bloomberg TV, said a key concern for him would be how the fund (MWF) would be managed and by whom, and to what extent it would affect the independence of the central bank, Bangko Sentral ng Pilipinas” (bworldonline, Dec. 2). “He cited how the state fund 1Malaysia Development Berhad (1MDB) raised billions of dollars in bonds, ostensibly for investment projects and joint ventures, between 2009 and 2013… Malaysian authorities, however, believe more than $4.5 billion were allegedly misappropriated from the fund by high-level officials and their associates in an elaborate globe-spanning criminal scheme” (Ibid.). Malaysian Prime Minister Najib Razak was tried, found guilty and imprisoned for heading and leading, and benefitting the most from the 1MDB anomalies — one of the biggest financial scandals that shook the world (washingtonpost.com, Aug. 24).
The principal authors of the MWF bill are House Speaker Ferdinand Martin G. Romualdez, a cousin of President Ferdinand R. Marcos, Jr., and Deputy Majority Leader Ferdinand Alexander “Sandro” Marcos, President Marcos, Jr.’s eldest son, also a member of the lower house representing his home province, Ilocos Norte. Other proponents are Representatives Yedda Marie Romualdez (wife of House Speaker Ferdinand Martin Romualdez), Manuel Jose Dalipe, Stella Luz Quimbo, and Jude Acidre. President Marcos Jr. would be the chairman of the board that will oversee the Maharlika Wealth Fund (rappler.com, Dec. 1).
“‘Officers and employees of the sovereign fund would also be exempted from Republic Act No. 6758 or the Salary Standardization Act, as well as succeeding laws on salary standardization. Instead, the [Maharlika Wealth Fund Corp.] would have the power to set its own compensation guidelines, based on an objective classification consistent with international standards for compensating investment management professionals managing global assets,’ the bill’s authors said in their explanatory note. Internationally, top fund managers routinely take home multimillion-dollar compensation packages” (Ibid.).
BusinessWorld columnist Filomeno Sta. Ana III warns that “The entity being set up violates the cardinal rules of good governance, risk management, and prudential care,” citing that “the regulatory restrictions on GFIs (government financial institutions) with respect to the asset class, type, term, and allocation of their investments shall not apply to funds invested in the MWF; MWFC and MWF shall be exempt from local and national taxes, direct and indirect, that may be imposed under the Local Government Code of 1991, and the National Internal Revenue Code of 1997; the MWF Investments’ transactions, as well as the necessary connected or related transactions, shall be exempt from the provisions of Republic Act No. 9184, otherwise known as the ‘Government Procurement Reform Act,’ and Republic Act No. 10667, otherwise known as the ‘Philippine Competition Act,’ and their respective IRRs [Implementing Rules and Regulations], aside from the unique position of the President of the Philippines being Chairman and CEO of the MWF” (bworldonline.com, Dec. 4).
Former President and now Senior Deputy Speaker and Pampanga Rep. Gloria Macapagal-Arroyo strongly defended the proposed MWF from its critics, saying, “President Ferdinand Marcos, Jr. was ultimately responsible for managing the country’s first sovereign wealth fund.
“This is a powerful statement that the highest official of the land will hold himself as ultimately accountable to the Filipino people for the performance of the Fund,” she declared (manilastandard.net, Dec. 6).
Albay Representative Joey Salceda, a vocal endorser of the MWF, said that one of the Malaysian fund’s flaws was that their country’s top official did not oversee the fund. According to Salceda, placing our President at the head of the MWFC would prevent a scenario like the 1MDB scandal (rappler.com, Dec. 3). Salceda specified that the Maharlika fund was created at the President’s request. He stated that Marcos wanted a fund to invest in big projects that are usually scrapped from the national budget after passing through Congress (rappler.com, Dec. 5).
At the hearing of the House of Representatives’ Committee on Appropriations on Friday, Dec. 9, Rep. Stella Quimbo proposed to remove the President (Marcos Jr.) as chairman and replace him with the Secretary of Finance (Benjamin Diokno).
At the 183rd Development Budget Coordination Committee (DBCC) meeting held on Dec. 5, Mr. Diokno, Budget Secretary Amenah Pangandaman, Socioeconomic Planning Undersecretary Rosemarie Edillon, Monetary Board Member V. Bruce Tolentino, and GSIS President and General Manager Jose Arnulfo “Wick” Veloso had reiterated their stand to institutionalize the proposed MWF. Diokno noted that the country should have had the Sovereign Wealth Fund a long time ago to set aside funds for the future generations (dbm.gov.ph, Dec. 5).
The National Government’s (NG) budget deficit stood at P1.11 trillion in the January-to-October period, accounting for 67% of the P1.7-trillion deficit program for the full year. The government borrows from local and external sources to help fund a budget deficit. The NG’s outstanding debt hit a record P13.52 trillion as of end-September, bringing the debt-to-GDP ratio to a 17-year high of 63.7%. (bworldonline.com, Dec. 5`).
“Economist and National Scientist Raul Fabella said no amount of tweaking could repair the [MWF] bill because its flaws were fundamental: the moral hazard arising from unnecessary state intervention and the unjustified economic backdrop. At the heart of the bill, he said, was the consolidation of resources under one umbrella which would be wielded by a group of people who did not own them” (Philippine Daily Inquirer, Dec. 10).
The tagline of the MWF and its proponents seems to be, “Trust me.”
God help our country!
Amelia H. C. Ylagan is a doctor of Business Administration from the University of the Philippines.
