Medalla now supports wealth fund, but calls for safeguards

MANILA, Philippines — The proposed establishment of a sovereign wealth fund could help attract foreign direct investments (FDI) into the Philippines, Bangko Sentral ng Pilipinas (BSP) Governor Felipe Medalla said.

“From our point of view, the way it’s done now, the BSP’s ability to maintain price stability will not be negatively affected by the current version. And, therefore, given that our concerns in the central bank have been completely addressed, and the criticism on inclusion of the pension funds has  been addressed as well, I support the passage of the bill,” the BSP chief said.

According to Medalla, who had initially expressed some concerns about the proposal,  the establishment of the Maharlika Investment Fund (MIF) could allow foreign investors to invest more in the Philippines.

“I think in times like this, let’s support the President. There are many things that I think he wants to do. And if this fund can be used to attract foreign investors to invest in the fund, as in Indonesia, it could be good for the country,” Medalla said.

Under the proposal, the BSP could give 50 percent of its dividend to the proposed fund while the other 50 percent would be allocated for the capitalization of the central bank.

“When you look at it, we’re just postponing when we will get the dividends. And right now, our balance sheet is strong enough, more than strong enough not to be affected by the postponement,” Medalla said.

He also welcomed the decision not to include funds from state-run Government Service Insurance Service (GSIS) as well as the Social Security System (SSS).

Both entities were supposed to provide around P175 billion to the proposed P250-billion wealth fund.

“I think removing the pension funds was also a good response,” he said.

Medalla, who earlier expressed opposition to the planned use of the country’s gross international reserves (GIR) or foreign exchange buffer, said the BSP would still be able to maintain its independence.

However,  Medalla said it is important to put  in place safeguards to protect the MIF.

“My own concern is later on, the vigilance is reduced. This is actually in the case of Malaysia, the vigilance is reduced. So my main concern really is what happens in the long run,” he said.

Malaysia’s top court ordered former prime minister Najib Razak to begin a 12-year prison sentence after being convicted on charges related to a multi-billion dollar graft scandal at state fund 1Malaysia Development Berhad (1MDB).

1MDB was a sovereign wealth fund set up in 2009 with the help of Malaysian financier Jho Low to promote economic development.

“And then, I think now that, in a sense, Malaysia has done all of us good service. Everybody is now looking at it. I think you know, one has to be extremely dense to get this fund and abuse this at this point,” he said.

Meanwhile, the Asian Development Bank (ADB) said the creation of a sovereign wealth fund could further strengthen  the domestic capital market,.

In a briefing, ADB Philippines country director Kelly Bird said it is up to the country to decide on the creation of a sovereign wealth fund, when asked if the multilateral lender supports the Philippines’ proposed Maharlika Investment Fund.

He said many countries have established a sovereign wealth fund and this has provided some benefits.

“The benefit of a sovereign wealth fund is that it can help deepen the domestic capital market. It creates a large institutional investor and that allows mobilization of savings within the economy for investments and so on. So it does have very good benefits,” he said.

He said deepening the capital market is important, especially for long term investments on infrastructure.

House Bill 6398 filed by Speaker Martin Romualdez with presidential son Ilocos Norte Rep. Sandro Marcos as co-author, seeks to create the Maharlika Investment Fund.

Under the bill initially filed at the House of Representatives, the Maharlika Investment Fund will have the Social Security System (SSS), Government Service Insurance System (GSIS), as well as state-run financial institutions Land Bank of the Philippines and Development Bank of the Philippines as funding sources.

As critics slammed the proposal for the use of pension funds, proponents of the bill have decided to take out the SSS and GSIS as contributors to the fund.

Instead,  profits of the Bangko Sentral ng Pilipinas (BSP) would be used for the fund, proponents said.

Other amendments to the bill have also been made which include the replacement of the president as chairman of the Maharlika Investment Fund’s board.

President Marcos earlier said the country needs the Maharlika Investment Fund to  provide another way for the country to get additional investments.

Economic managers have expressed support for the proposal as this would help the  country achieve the administration’s economic goals.

Several business groups, however, have opposed the proposed Maharlika Investment Fund as they expressed concerns based on the principles of fiscal prudence, solvency of pension funds, contingent liabilities, BSP’s monetary independence, and transparency.