Gains and Losses: Media review foreign SWF practices

CHEERS TO GMA-7’s 24 Oras, VERA Files, and Rappler for reports that reviewed how other countries manage their respective Sovereign Wealth Funds (SWF). While the media correctly produced explainers on the issue and interviewed experts who provided the public more information and opinion, the three news accounts stood out for reviewing in detail the actual practices of other countries. Their accounts provided significant points of comparison with the House-proposed Maharlika Investment Fund.

In Rappler’s December 13 report, Lance Spencer Yu explained that an SWF operates on similar concepts of a mutual fund or unit investment trust fund (UITF), but it is implemented at the state level. “Like these other investment funds, it also gathers a big pool of capital from different investors and becomes a way to earn interest on what would otherwise become idle savings,” the report said.

Yu proceeded to differentiate how various countries use SWFs: for profit, for social returns, or for infrastructure. In particular, Norway and Singapore use profits from their excess funds to finance their national budgets; Quebec in Canada uses SWF to invest in renewable energy start-ups and local businesses as a social return; while Timor-Leste uses the unspent funds retained by the SWF for infrastructure. 

But while there are certainly successful SWFs, Rappler cited the World Bank which noted instances when funds “have served as channels for corruption and patronage.” Yu cited as an example Angola’s SWF that became embroiled in scandal after the fund’s manager invested hundreds of millions of dollars in projects in which he and the fund’s chairman had an interest. $1.2 billion in derivatives investments were also put into Libya’s SWF, and lost $1.18 billion. Malaysian ex-prime minister Najib Razak also managed to exert his influence on Malaysia’s SWF even without being designated as the head of the fund, “siphoning away as much as $1 billion for himself.”

Going back to the question of whether SWF is worth trying here in the Philippines, Yu explained that most SWFs are financed using the budget surplus of their governments, such as in the case of Norway, Qatar and Saudi Arabia. Some countries with low or declining public debt levels have also set up their own funds, such as Botswana and Russia. 

But the Philippines has neither a budget surplus nor low public debt levels, putting it in “a bad situation to start such a fund.” Experts also pointed to the country’s history of fund mismanagement and scandals such as the Coco Levy, PhilHealth, and SSS fund scandals.

On December 7, GMA-7’s Chino Gaston explained that 88 countries have already established the said fund, including first world and developing countries like Australia, New Zealand, the US, Angola and Uganda. Products like oil, instead of hiding them as reserves, are invested to gain more, Gaston said in Filipino. But if history is to be reviewed, Norway and Singapore, for example, faced losses instead of gains because of financial and economic crises. Norway lost $174 B due to the Russian-Ukraine war and COVID-19 pandemic while Singapore also incurred losses when it invested in US real estate markets and banks that closed down due to the financial crisis. Gaston also cited the case of Malaysia and its ex-prime minister’s corruption scandal.

Meanwhile, VERA Files on December 9 focused on Norway, Kiribati and Malaysia. The report noted that Norway established its SWF after discovering oil in the North Sea in 1969, only spending the expected return of the fund to ensure the longevity of the fund. Further, Kiribati established its SWF with proceeds from guano, a fertilizer from the excrement of bats and seabirds. Although Kiribati’s reserves were depleted in 1979, the report noted that the SWF helped especially amid the COVID-19 pandemic. Finally, Malaysia’s SWF was created in 2009 and was a part of Razak’s plan to alleviate poverty. However, as mentioned by the aforementioned reports, Razak was found guilty of transferring a huge amount of dollars to his personal bank account.

These three accounts correctly pieced together information that the Philippine government should look into. These reports also help the public know more about the SWF so they can have informed opinions on whether they are willing to put their own money into this questionable fund.