The Maharlika Investment Fund Act: An Initial Critical Policy Analysis
This is a developing analysis of the Maharlika Investment Fund Act of 2023, or Republic Act No. 11954, prior to the release of the Implementing Rules and Regulations.
Introduction
The railroading of the Maharlika Investment Fund (MIF) Bill has now cemented its place after it was signed into law on July 18, 2023, as the Maharlika Investment Fund Act of 2023, otherwise known as Republic Act No. 11954, six days before President Marcos Jr.’s second State of the Nation Address (SONA) which took place on July 24, 2023. Due to its questionable provisions and the trajectory of the allocated funds, the MIF received clamor from various minority lawmakers, academics, and think tanks. One of the early controversies surrounding the MIF Bill was the inclusion of the Government Service Insurance System (GSIS) and Social Security System (SSS) as the primary fund contributors in the original PhP250 billion initial investment for the MIF Fund, as found in House Bill No. 6398: “(i) GSIS: One-hundred Twenty-Five Billion Pesos (PhP125 Billion); (ii) SSS: Fifty Billion Pesos,” alongside, “(iii) LBP: Fifty Billion Pesos (PhP50 Billion); and (iv) DBP: Twenty-Five Billion Pesos (PhP25 Billion).”
Despite GSIS President and General Manager Arnulfo Veloso’s promise that the investments would be protected and used for nation-building, the inclusion of GSIS and SSS raised concerns regarding the constitutionality of House Bill №6398 as it would essentially take pension funds and social security from GSIS and SSS contributors with neither their full consent nor any promise for just compensation after using these investible funds for the MIF.
After a meeting between House leaders and economic managers on December 7, 2023, the GSIS and SSS were dropped as fund contributors to the MIF, replacing it with the Bangko Sentral ng Pilipinas. However, the controversy remained with Sen. Ronald Dela Rosa’s admission that, even with the addition of Sections 6 and 12, “if the funds [were] placed in another investment company, which would then invest in the [MIF], that is technically and legally sound.” This loophole is only one of the many contentious facts surrounding MIF.
Another pertinent issue regarding the MIF is President Ferdinand R. Marcos Jr.’s certification of the urgency of House Bill 6608 back on December 14, 2023, in a letter to the House of Representatives, and as high-priority Senate Bill 2020 on May 22, 2023, in a letter to Senate President Juan Miguel Zubiri. The issuance of a certification of calamity or emergency for House Bill 6608 is suspect due to the unclear national calamity or emergency that MIF would address. Notably, the Supreme Court rejected the House opposition legislator’s petition against Marcos’ certification of the urgency of the MIF bill.
As for the designation of the urgency of Senate Bill 2020, Marcos justified his decision by citing global economic issues concerning slower growth due to global inflation, unstable prices of crude oil due to the Russo-Ukrainian conflict, and international interest rates hike as reasons for designating the MIF bill as urgent. In his response to Sen. Aquilino “Koko” Pimentel’s interpellation, Sen. Mark Villar argued that poverty may be considered an emergency justifying the urgency of the MIF law. Villar’s claim raises doubts about his interpretation of Section 26, Article VI of the Constitution: “No bill passed by either House shall become a law unless it has passed three readings on separate days, and printed copies thereof in its final form have been distributed to its Members three days before its passage, except when the President certifies to the necessity of its immediate enactment to meet a public calamity or emergency.”
Besides debates concerning the constitutionality of the MIF law, there is also doubt whether the MIF is what the Philippines needs amidst the current economic and socio-political crises it is facing. The Philippines is grappling with the lowest GDP growth since the pandemic recovery, a rising national debt of 14.15 trillion, a 4.7% inflation rate which is still well above the 2–4% target of the Bangko Sentral ng Pilipinas, and a high population of underemployed and unemployed Filipinos, among many other economic issues.
With all these economic issues that our nation is facing, the Philippines faces a critical question: Where should the present administration invest in shaping a sustainable future for the millions of Filipino citizens? To answer this question, it is paramount that the general public is equipped with basic knowledge to engage with the debates surrounding the MIF critically. A survey conducted by the Social Weather Stations showed that a staggering 20% of adult Filipinos have “at least partial but sufficient knowledge” regarding the MIF. As such, in this article, we provide explanatory notes on what exactly is a sovereign wealth fund (SWF) while tackling significant issues surrounding the MIF. By examining the consequences of neglecting these crucial areas, we call for people-centered alternatives to the MIF toward a more inclusive and better future for all Filipinos.
The Maharlika Investment Fund: For Whom?
The Maharlika Investment Fund comes from the sovereign wealth fund (SWF) concept. An SWF is an investment fund owned by the central government for projects and initiatives that benefit the country’s economy and constituents. SWFs in other countries are created due to a surplus of income from their trades and Gross Domestic Product (GDP), hence their popularity in countries earning lucrative profits from exports. For example, the Kuwait Investment Authority is the oldest SWF and the fifth highest total assets, approximating around $803,000,000,000. Kuwait recently shared proposals for establishing another sovereign fund — the Ciyada Development Fund — for domestic investments. However, Kuwait’s SWF is only one type of SWF.
Two SWFs are distinguished: (1) commodity SWFs — created from export profits due to the country’s rich natural resources; and (2) non-commodity SWFs — created from government surplus and savings. Sovereign development funds (SDFs) and strategic investment funds (SIFs) fall under the category of non-commodity SWFs, usually established in emerging economies aiming at developmental goals while lacking adequate natural resources windfalls, and government surpluses. In a discussion paper published in the UP School of Economics, economists identified the MIF as a non-commodity SWF, conceivably falling under the subset of an SDF or SIF. Given the present economic and socio-political situation in the Philippines, establishing a sovereign wealth fund comes with many costs, perhaps outweighing the benefits in the long run.
We identify five major risks associated with the MIF, drawing on lessons from other SWFs in the past and present: (1) lack of surplus and capital resources to serve as fiscal buffers, (2) vulnerabilities to corruption, crony capitalist tendencies, and moral hazards, (3) risk of redundancy due to failure to state its clear-cut goals, (4) unclear framework to assess how the fund either will exacerbate or lessen the economy and (5) the negative implications on the efficacy of existing Government Financial Institutions (GFI) that already carry out similar mandates to that proposed by the bill.
The Seed Capital: From Whom?
In the race toward progress, as stated in the recent State of the Nation Address, in the first quarter of this year, our growth has registered at 6.4%, which, in reality, is the slowest pace in almost two years since the 12 percent growth in the second quarter of 2021. While in line with the Medium-Term Fiscal Framework (MTFF), the Philippines boasts a whopping 61% debt-to-GDP ratio, based on March 2023 data, meaning a majority of the GDP still goes to paying the country’s debt. In addition to this, as of June 2023, the Philippines still wrestles with a balance of payments (BOP) deficit of US$606 million, implying that the country is importing more goods, services, and capital than it is exporting. This situation creates an economically unsustainable feedback loop as the country must keep borrowing loans to be able to import goods, hence raising the country’s need to keep up with the exportation of its goods, services, and capital to resolve the deficit.
As we have examined earlier, SWFs in other countries are derived from surplus reserves. However, here in the Philippines, the MIF would derive its seed capital from the Land Bank of the Philippines (Landbank) investing PhP50 billion, the Development Bank of the Philippines (DBP) investing PhP25 billion, and the central government investing PhP50 billion. These funds can be used to support the Filipino people directly through existing government social services rather than investing in an SWF with a projected growth of 6% to 11% over ten years. Additionally, the GSIS and SSS could still invest indirectly in the MWF. Even after the Senate removed SSS and GSIS from the initial capitalization, they could still participate by investing in projects within the Maharlika Investment Fund Law.
The Bangko Sentral ng Pilipinas (BSP) was also asked to contribute 100% of its dividends to the MIF Law in its first two years, which would result in the delayed capital buildup of the bank as former BSP Deputy Governor Diwa C. Guinigundo stated that to replenish the Public Money that would be contributed to the MIF Law then the government would be forced to either increase taxes or borrow money domestically or abroad or they can do both. If the taxes were increased, ordinary workers who earn minimum wage would be overwhelmed by the increasing cost of living in the Philippines.
Given the lack of surplus funds, the MIF could just eat into the country’s national fund. The decision of the government to get the funds for the Maharlika Fund through various sectors of the government as well as the social services which they cut the funds to contribute to the MIF, action would affect the lives of the majority of Filipino citizens dependent on these government services. The MIF also lacked consultation from the public, such as with economists, advocates for economic freedom, and other experts from various sectors. Reiterating one key finding from the aforementioned SWS survey, almost half of their participants barely had any knowledge about the MIF. Due to the lack of awareness programs that the government does every time a crucial bill is passed, the Filipino people might suffer from a bill that might fail without even knowing the details behind this legislative bill.
The Cronyist Spectres of the Coco Levy Fund (CLF) and the Priority Development Assistance Fund (PDAF)
In an interview with the Institute for Nationalist Studies, Dr. Michael David San Juan, Associate Professor at the Philippine Studies Department of De La Salle University, argued that in securing the MIF, the government might later claim that experienced finance professionals would run the Maharlika Investment Corporation. However, competence alone is not enough; integrity is equally crucial. The board should have democratic accountability with representatives from various sectors to ensure informed investment decisions. External fund managers may be hired, but they will take a significant percentage or kickback, similar to what the corporation’s employees could do. There is also concern about the prevalence of stock market investments benefiting exploitative and well-connected companies rather than those that do good and contribute to a “financialization of the economy,” encouraging speculation. This, in turn, could lead to instability and incentivize risky behavior by firms, as seen in the 2008 financial crisis.
While the Maharlika Investment Corporation would manage the MIF Law, the President would handpick its members. The Board of Directors of the MIC would be the following: nine members presided by the Secretary of Finance, other members like the Chief Executive Officer (CEO) of the Maharlika Investment Corporation, the President and CEO of the Land Bank of the Philippines, the President and CEO of the Development Bank of the Philippines (DBP), two (2) Regular Directors, and three (3) Independent Directors from the private sector. We need only look at the case of the Coco Levy Fund (CLF) which was embezzled by its management, possibly a similar case to the Maharlika Investment Fund given its present lack of transparency and clarity in its provisions.
The handling of public funds in the Philippines has a disreputable history. We see that the Maharlika Investment Fund Law has similarities to the Coco Levy Fund, which was established in the 1970s. The fund was generated through taxes imposed on coconut farmers and was supposed to support the coconut farmers in the Philippines and Develop the Coconut Industry, In contrast, the MIF Law was generated through contributions from government agencies and government-owned and controlled corporations. It is also supposed to receive investments from the private sector and other sources, which could increase the risk of oligarchy by giant capitalists in the Philippines. Both funds also share similarities in their management. The Coconut Industry Investment Fund (CIIF) and the United Coconut Planters Bank (UCPB) were created to govern the Coco Levy Fund. These entities were supposed to utilize the funds to develop the coconut industry, but allegations of corruption and embezzlement sparked. Subsequent administrations and legal actions have attempted to correct the misappropriation and return the Coco Levy Fund to its rightful beneficiaries, the coconut farmers. These mishandlings are now remembered as the infamous Coco Levy Fund Scam.
We should also remember that these are similar to the Pork Barrel Scam, composed of the Priority Development Assistance Fund, also known as PDAF, which faced controversies in the early 2010s. Both programs were created for Economic Development but with also lack of mechanisms for transparency, it was easier for corrupt government officials to infiltrate the PDAF. In terms of Political Involvement, both of these programs consist of private company owners, economists, and government officials. The similarity of the Maharlika Fund to the previous Development Funds in the Philippines is disturbing. The PDAF was misused by allegedly funneling public funds for development projects to fake NGOs (Non-Governmental Organizations) in exchange for kickbacks and personal gain. The issues mentioned in the previous funds that were similar to the Maharlika Fund are disturbing since they might also be mismanaged and would fail like the Coco Levy Fund and the PDAF Scam.
Senator Risa Hontiveros said that the penalty for Maharlika Fund Violators was “‘ridiculously’ low.”: The penalty for the violators ranges from PhP10,000 to 5,000,000 and imprisonment of six (6) to twenty (20) years. The MIF is also vulnerable to cronyism due to the lack of sectoral representation. The risk management unit of the MIF Law lacks sufficient independence from the Board of the Maharlika Investment Corporation, so it would be hard to assess and manage the risk for the fund properly. Without proper checks and balances, the MIF could face the risks of mismanagement and improper use of funds, as seen in the case of Malaysia’s 1MDB, where billions of dollars were stolen due to its weak governance and oversight. So we ask: for whom is the MIF law if certain stakeholders are not even properly represented in the decision-making process? We know already from our country’s experience that the general public will not take lightly any financially sketchy schemes that go against the interest of development for all.
Precarious Origins, Unclear Directions
The failure of the Maharlika Investment Fund Law to state its goals clearly shows significant risks to the efficiency and effectiveness of the law. The legislation must articulate specific and measurable objectives to ensure the fund’s success and positive impact on the country’s development. It is unfortunate that the MIF Act was already enacted into law with these loopholes still inside. Clear goals would provide direction, accountability, and transparency, enhancing the law’s ability to contribute meaningfully to infrastructure, economic growth, and developmental projects for various sectors in the Philippines.
As a case in point, the failure of the “Build, Build, Build” of the Duterte administration delivered an anti-climatic blow to what was supposedly the centerpiece of his legacy, with only about 20 of the 119 projected infrastructure items for the infrastructure development program. Following this, Marcos Jr. repackaged this debt-driven underperforming program and motioned forward his “Build Better, More” agenda. Based on the IBON Foundation’s report, infrastructure projects alone do not solve the low productivity of the agricultural sector. The creation of an investment fund that prioritizes infrastructure projects must be distinct from the realities faced by everyday Filipinos. The potential risks associated with such ventures–increased debt and potential tax burdens–highlight the importance of involving citizens in decision-making processes. After all, the citizens themselves would bear the consequences of any losses incurred by the investment fund.
Since the Maharlika Investment Fund would not come from the economy’s surplus output, there will be prospective budget cuts out of our government agencies and banks which could destabilize these institutions and create risks for taxpayers and depositors. Now, due to some confusion with the provisions of the law, the goal of the said investment fund needed to be clarified if it would be used for general development. Or would it be used for specific projects? Another area for clarification that the MIF brings is if it is needed since government agencies like the National Economic Development Authority (NEDA) are already focusing on developmental projects. Would the MIF Act bring anything new to the table?
The backbone of a thriving nation lies in its workforce. It is imperative to improve wages and promote fair labor practices. By ensuring decent work conditions, we uplift the lives of Filipino workers and reduce poverty. A well-compensated workforce drives consumption, fuels economic activity, and fosters a vibrant and sustainable market.
Currently, The Philippines has the second-highest unemployment rate in Southeast Asia. Despite the employment rate rising to 95.7%, Filipino workers remain victims of a labor crisis. Over 38% of those employed lie in the vulnerable employment category, and 2 out of 5 workers lack social protection. The current campaign for a just minimum wage in NCR and regional areas was met with a P40 increase that will bring P610 daily wage effectively this upcoming July 16, 2023. Arguably, this increase remains meager in the face of poverty, but financial institutions unjustly pin the burden of inflation on the backs of the already huckle-backed sector.
By addressing income inequality and poverty, we empower individuals, especially the labor sector, to break free from the cycle of deprivation, social exclusion, marginalization, and poverty to become active contributors to our society and economic actors that would shape economic growth and nation-building.
The future of the Filipino people hinges on our ability to strike a harmonious balance between physical progress and social well-being. It is time for the government to reassess its investment priorities, placing a stronger emphasis on social infrastructure, education, wage improvements, and amelioration programs. The argument remains that there are already institutions and government departments with existing mechanisms as mandated by the law that will address the social ills that called for the creation of the fund. Funds allocated to the MIF would mean funds taken away from public services.
As we navigate the complexities of a rapidly evolving society, we must remember that actual progress goes beyond concrete and steel. The path to a sustainable Filipino future lies in investing in the people, and in the youth, empowering the marginalized, nurturing fair labor practices and a national livable wage, and addressing economic challenges. Through these endeavors, we build a resilient society where every Filipino can thrive and contribute to a prosperous nation we can all be proud of.
Conclusion
The Maharlika Investment Fund Law, which would establish a sovereign wealth fund (SWF) in the Philippines, shall serve as Marcos Jr.’s signature economic policy. Critically, prioritizing the empowerment of disadvantaged populations and support for national industrialization is a better alternative to the Maharlika Investment Fund, which raises concerns about the alarming control of billions of public funds by the dubious Maharlika Investment Corporation.
It is essential then to approach investment funds and policy-making cautiously, ensuring that the interests and well-being of the people are at the core. Rushing the process without due consideration can lead to missed opportunities, ineffective implementation, and unintended consequences. To ensure inclusivity, policymakers must actively seek the input of diverse stakeholders. Public consultations, community dialogues, and partnerships with civil society organizations are crucial avenues for soliciting feedback and insights. By actively empowering citizens to shape investment policies, we foster a collective responsibility and a sense of a shared future.
What then might the government do to address the initial lapses of the sovereign wealth fund? By investing in people-centered developmental projects, the national government affirms its commitment to the welfare of the Filipino people. We must strengthen social welfare programs to provide a safety net for the most vulnerable members of society. This ensures access to food, quality healthcare, affordable housing, and sufficient. Moreover, comprehensively reworking present tax politics to push forward progressive tax remains a viable option for the MIF’s source funds. Lastly, the MIF fund may focus on developing mechanisms for people-centered wealth creation and distribution plans to ensure that it is the general Filipino public that would be the primary beneficiary of the MIF.
In the final analysis, people-centered investment lies at the heart of unleashing the transformative potential of the People’s Fund. By actively engaging the public in policy-making directed toward prioritizing investments in social infrastructure and human development, and establishing robust accountability mechanisms, we can create a nation where every Filipino has the opportunity to thrive and actively contribute to nation-building.
