Maharlika wealth fund invites public scrutiny

This Week in Media (December 5 to 11, 2022)

ANYONE CLOSELY watching the media since December began would not have missed the Maharlika Wealth Fund (MWF) proposed by the House of Representatives and backed by the government’s economic team. No other bill filed under the new Marcos administration has invited as much public scrutiny and criticism from individuals and groups across the socio-political spectrum., TV5 and ONE News were among the first news organizations to produce explainers on the subject. Others such as the Philippine Daily Inquirer, GMA-7 and VERA Files posted similar accounts later. Simply put, House Bill (HB) 6398 proposed to pool funds from government financial institutions (GFIs) such as the Land Bank of the Philippines (LBP), the Development Bank of the Philippines (DBP), the Government Service Insurance System (GSIS) and the Social Security System (SSS) that will serve as the country’s seed money for investment in assets and projects yet to be identified. The bill said the four institutions would make an initial contribution of PHP 250 billion. Other institutions such as the Bangko Sentral ng Pilipinas (BSP) and the Philippine Amusement and Gaming Corporation (PAGCOR) are also expected to pitch in.

The explanatory reports did note that in pushing for the bill, the authors patterned it after the sovereign wealth funds (SWFs) of other countries such as Norway and Singapore, which mostly rely on surplus funds or excess earning. The news accounts said the Philippines does not have this kind of money. The sovereign wealth fund of Malaysia, as well as its failure due to bad governance and corruption, was cited as background information. The reports added that other countries whose wealth funds were handled properly still incurred losses due to global crises.

Media pointed to the apparent railroading of this measure, as well as to its proponents, which include President Marcos’ son Sandro and cousin Martin Romualdez. Albay Rep. Joey Salceda claimed the establishment of the investment fund was ordered by Marcos, but Sen. Joel Villanueva said the fund was not in the president’s priority legislative agenda. 

Drawing criticism

The Maharlika Wealth Fund quickly drew backlash, despite the assurances of Finance Secretary Benjamin Diokno and the representatives of the four GFIs mentioned that it is feasible and necessary. The President’s own sister, Sen. Imee Marcos, was surprisingly among the first to raise her concerns, citing the Malaysia experience and the inappropriate timing of the proposal as the country is now PHP 13 trillion in debt. Felipe Medalla, BSP Governor, also pointed to concerns about governance and the possible effect of the Maharlika fund on the BSP’s independence.

Print, TV and online media conducted interviews with economists, progressive groups, academics and policy groups, former and current government officials who all shared concerns about possible corruption and mismanagement, the current conditions of huge debt and inflation, and the poor track record of GFIs in handling their contributors’ money. Opinion pieces from various sources who shared the same criticism also made it to print almost on a daily basis. Letters to editors poured in from private citizens who were concerned about their contributions to GSIS and SSS.

Among other problematic points, the use of pension funds for the Maharlika fund stood out for critics. Lawyer Chel Diokno and former Supreme Court (SC) Justice Antonio Carpio said using GSIS and SSS funds for purposes other than pension members to fund non-members is against the law, while Rappler reported SC rulings that said the same. 

The strongest collective statement against the Maharlika fund came from 12 groups of economists, business leaders and policy groups, whose main concern was that the fund lacks any justification. The groups said the Philippines has neither commodity-based surpluses nor surpluses from external trade and state-owned enterprises, which are the usual sources of other countries’ SWF. The statement also took issue with using pension funds and the MWF’s “assault” on the BSP’s independence.

In a separate analysis in Rappler, Carpio pointed out that “The MWF that is being established under House Bill No. 6398 is not a true sovereign wealth fund because there are no surplus funds in the MWF. The MWF is simply an ordinary government investment vehicle granted generous tax and other exemptions. The MWF is just masquerading as a sovereign wealth fund, which means the Philippines is a poor country pretending to be rich.” BusinessWorld published a statement of former Cabinet members, academics and civil society sharing the same point: “HB 6398 distorts the core concept of a sovereign wealth fund, and it is an ineffective measure to address the bill’s stated intentions. The MWF is a warped version of what the SWF should be.”

Senators who spoke to the media were also lukewarm towards the bill, proposing further study. The Philippine Chamber of Commerce and Industry also withdrew its support for the Maharlika fund days after giving it, urging a rethinking of the measure.

Economic managers insistent

Those who were supportive of the proposal included Rep. Salceda, Sec. Diokno, heads of the GFIs, the Bureau of Treasury, former president and current Pampanga Rep. Gloria Macapagal Arroyo and Marikina Rep. Stella Quimbo, co-author of the bill who made herself available to the media. Curiously, Romualdez was nowhere in news coverage to defend the bill. As for Sandro Marcos, media reported his complaint that the fund was being “politicized.” The younger Marcos and Arroyo pointed to a similar bill that former Sen. Bam Aquino filed in 2016, but was not questioned in the same way. Aquino clarified that the funding provisions in his bill were different and excluded the GSIS and SSS, adding that economic conditions were much better at the time.

Salceda, the Bureau of Treasury and the Development Budget Coordination Committee were cited in reports saying the Maharlika fund has enough safeguards as it would abide by the Santiago Principles of the International Working Group of Sovereign Wealth Funds. But Rey Gamboa, columnist for The Philippine Star, said this does not guarantee good governance as “majority of SWFs sworn to the Santiago Principles are delinquent in reporting or fully disclosing their activities, often exhibiting problems too late.”

CMFR observed that the Manila Standard, which is owned by Romualdez, gave more news space to those in support of the Maharlika fund, providing less critical coverage. Meanwhile, the Daily Tribune ran editorials throughout the week complaining about the critics of the fund. Although a pro-administration paper, The Manila Times differed by expressing as early as December 3 its belief that the idea is “bad for the country” as it is poised to be another “bloated government institution.” 

The House backtracked on December 7, with Quimbo announcing in a press briefing that following consultation with economic managers, the proponents of the Maharlika fund in the House have decided to exclude SSS and GSIS as sources of capital. Quimbo admitted that the House “started on the wrong foot.” The government’s economic managers came out with a statement on December 9 that strongly supported the creation of the now renamed Maharlika Investment Fund (MIF).

Critics were not satisfied, and still called for scrapping the proposal entirely. BusinessWorld cited economists saying the other problematic provisions remain, and that the intentions of the bill remain unclear. Raul Fabella, an economist and National Scientist, told the Inquirer that no amount of rephrasing would save the bill: “The fact is that under the weak rule of law, the MIF bill is wrong in principle and is thus beyond repair.”

Media must keep this issue under close watch, especially since the House intends to pass it at the plenary level before going on Christmas break.