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Establish sovereign wealth fund (SWF) for SMEs, Magsaysay Jr. urges gov’t

MANILA, Philippines – Government must throw caution into the air and take great risks in pushing through with the planned creation of a Sovereign Wealth Fund (SWF) if it is serious in sustaining the country’s strong financial standing, Liberal Party senatorial candidate Ramon Magsaysay Jr. said today.Magsaysay stressed an SWF would not only strengthen the country’s resilient economic growth but expand and boost competition among small and medium enterprises (SMEs).

“In order for us to sustain our economic advances, we must make our entrepreneurs bigger. There are thousands of entrepreneurs and SMEs all over the countryside. Many of them are doing well but they lack necessary financial requirements to further improve their businesses,” Magsaysay said.

Magsaysay lauded the Department of Finance for taking into consideration his proposal for the establishment of an SWF, which is among the economic measures that the former senator is espousing as part of his JOBS advocacy –Justice, Opportunities, Businesses and Security for all.

“It is about time that we get out of our comfort zones and make economic gambles. Singapore has established the Government of Singapore Investment Corp. and Temasek Holdings. It even allows foreigners to come in, give them special visa and give them capital if they have good and worthwhile ideas to pursue. We should look at various financial models so we can widen the playing field for our entrepreneurs,” he said.

An SWF is a state-owned investment fund composed of financial assets such as stocks, bonds, property, precious metals or other financial instruments. Sovereign wealth funds invest globally. It is what countries with a large surplus of foreign reserves establish to deepen and diversify their investment portfolios.

Records from the Bangko Sentral ng Pilipinas show that the Philippines’ Gross International Reserves (GIR) as of February 2013 stood at $84 billion.

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SWFs are either held by a central bank, which accumulates the funds in the course of its management of a nation’s banking system, or are state savings that are invested by numerous entities for purposes of investment return.

Monetary officials, led by Finance Secretary Cesar Purisima, have begun a study on the merits and feasibility of creating an SWF. The review covers the Fund’s feasibility and how best to structure the investment vehicle, including the specific role of the BSP. There are several options on which an SWF can run, including the fund being operated solely by the BSP or national government or as a joint venture between them.

BSP Governor Amado Tetangco has said the government’s high GIR exceed all benchmarks for adequacy, pointing out that the $84 billion foreign reserve is enough to cover the country’s import requirements. It is also equivalent to 6.6 times the combined short-term, foreign currency-denominated debts of private and government entities in the Philippines.

International standards define a country’s GIR adequate if it can cover three to four months’ worth of its import requirements, or if it is equal to the short-term debts to foreign creditors.

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