‘Address problems first before wealth fund’

MANILA, Philippines — The Philippines has more serious problems that require immediate solutions rather than focusing on the establishment of a wealth fund that could be a potential source of corruption, according to economic analysts.

The proposed P275-billion Maharlika Wealth Fund has been getting the buzz, both positive and negative, as the House of Representatives scrambles to pass its version before Christmas.

For University of Santo Tomas Political Science Department chair and professor Dennis Coronacion, the general idea of a wealth fund is noble, but it will be faced with issues moving forward especially with the current state of the economy.

“There are more urgent problems that require our lawmakers’ creativity,” he told The STAR.

“They should instead focus on measures that can mitigate the impact of inflation and economic showdown brought about by the pandemic,” he said.

Inflation in the country remains on an uptrend, picking up pace at 7.7 percent in October, the highest in 14 years.

The central bank already said inflation may have breached eight percent in November, as price shocks continue and as an effect of the recent typhoons that hit the country.

Likewise, banks and multilateral lenders have noted that economic growth may slow by 2023 even after a quite surprising third-quarter performance, as commodity prices will remain elevated and as the country will feel the pinch of the consecutive rate hikes here and abroad.

The proposed wealth fund involves pooling massive amounts of public and private funds, with a combined P175 billion eyed from state-run pension funds Government Service Insurance System (GSIS) and the Social Security System (SSS).

The Land Bank of the Philippines is also being eyed to infuse P50 billion, while the Development Bank of the Philippines and the Bureau of the Treasury will contribute P25 billion each.

There will be future annual infusions from the national budget, Bangko Sentral ng Pilipinas and the Philippine Amusement and Gaming Corp.

Research and advocacy group IBON Foundation’s interpretation of the latest version of the bill showed that the fund could grow up to P618 billion following the addition of a portion of overseas remittances, business process outsourcing revenues and gaming revenues.

IBON executive director Sonny Africa argued that the Philippines continues to face a myriad of problems, including high poverty, unemployment and inflation.

“It is a wealth fund for a country that is not by any means wealthy,” Africa said.

He added that if the government really has excess fiscal and foreign exchange resources, these are much better spent on more urgent matters, such as financial assistance, wage subsidies and social services.

“These will give more concrete and immediate social benefit than an explicitly profit- and return-seeking investment fund. These returns are actually even uncertain, especially amid current domestic and global economic conditions,” Africa said.

On the matter that could hurt state pension funds SSS and GSIS, another financial economist who requested anonymity emphasized that pension fund managers by nature tend to be more conservative to ensure that the wealth built up by plan holders is preserved with some slight potential gain.

The economist said there might be a mismatch as pensions might be best protected by more conservative investment strategies, while a sovereign wealth fund’s objective would be for profit maximization.

Coronacion, for his part, said SSS and GSIS have experienced serious financial issues and the wealth fund proposal can worsen the situation.

Africa concurred, saying that removing regulatory restrictions on pension funds clearly exposes them to unnecessary peril as the proposal in effect lifts restrictions on putting pension funds in riskier investments.

“Most of the country’s millions of Filipino pensioners do not come from well-off families. Their well-being should be protected and not be made subject to the vagaries of financial adventurism seeking ‘the best absolute return’,” Africa said.

“This is also prone to corruption. Our lawmakers should see to it that there are safeguards to ensure that this will not be abused by certain officials once implemented,” Coronacion said.

The Governance Commission for GOCCs (GCG), for its part, said it would be closely monitoring the progress of the Maharlika Wealth Fund as it involves four major GOCCs.

“It is premature to comment on its effect or danger as it is not yet in its final form,” GCG commissioner Gideon Mortel told The STAR.

Data showed that there are currently over 100 sovereign wealth funds worldwide of around 65 governments worth some $10 trillion.

By number and by value, most of these are financed from natural resource earnings – especially of energy commodities like oil, coal and natural gas but also minerals – followed by pension funds.

In Southeast Asia, there are five countries with six wealth funds. The two biggest are from Singapore which accumulated massive foreign exchange reserves from being a major financial and commercial center.

Others are Brunei, Timor-Leste, Indonesia and Vietnam.