Hilaw

The first Senate hearing on the Maharlika sovereign wealth fund showed it was an idea that has not been sufficiently thought out. Kulang sa staff work. It didn’t take much for a few senators to punch it full of holes.

When a senator commented that the Maharlika proposal has so many questionable provisions, Finance Secretary Ben Diokno said something to the effect that kaya nga daw pinaguusapan sa hearing at bahala na ang mga senador to amend the bill passed by the House.

That sounds like an admission of poor staff work on Diokno’s part because he worked with Representatives Joey Salceda and Stella Quimbo on that version.

Probably, Maharlika is a case of inggit... wanting to have what the neighbors have. The Indonesians, the Singaporeans, the Malaysians and even the Vietnamese have one. Bakit tayo wala?

They asked The Milken Institute to produce a paper, but Milken only reiterated what we already know about SWFs. The important issues were left as blanks to be filled in by our government.

As I listened to the hearing, I wondered what happened to my idols, Representatives Joey and Teacher Stella. How did their normally sharp minds allow this half-baked measure to get their approval?

Senators Escudero, Hontiveros, and Gatchalian, who do not even claim to be economists unlike Salceda and Quimbo, asked very basic questions. And the representatives of the economic managers either didn’t know how to respond or didn’t believe what they were saying.

Even BSP Governor Philip Medalla looked so relieved when he was through reading his statement and asked to be excused from the hearing. Philip’s body language clearly indicated he has his “rathers,” but is trying to be a team player as best as he can.

The hearing made it clear we still do not know what kind of a beast the Maharlika Fund is.

Is it government controlled? Is it just government inspired, but essentially private sector? Is it an easy way to augment the funds for the national budget? Or is it another variation of the PPP concept where government and private sector work together to finance development projects?

In bold red letters, the Milken report urged the administration to clarify the fund’s objective and strategies. Apparently, the think tank didn’t get it from the briefing the economic managers gave them.

“In most design work, form follows function,” Milken explained. “The fund’s purpose will determine its structure, governance, and capital allocations. As such, the first step is determining its objectives.”

The Milken report suggested that “the government could align the fund’s development objectives with the goals of the Department of Trade and Industry, which recently announced it would target growth in three key export sectors: manufacturing and transport, technology/communications and health life sciences.”

The Indonesian SWF clearly identifies development projects they want the fund to finance. The bill approved by our congressmen does not do that.

The Indonesian government made it clear they want their SWF to attract foreign investments in transportation, supply chains, logistics, digital infrastructure, the green economy, healthcare services, the financial sector, technology and tourism.

More specifically, the Indonesians want investments in airports, seaports, fiber optics, data centers, and the develoment of their new capital city.

In our case, we don’t know what we want in specific terms. Basta lang. Maybe PPP infrastructure projects. Maybe some of the things the Indonesians also want. We don’t have anything beyond concepts and words that sound good in a speech and a press release.

This is why Sen. Chiz very easily got the representatives of the economic managers scrambling for words when he asked questions about funding and governance.

Is Maharlika to be treated as an ordinary corporation? Or a super GOCC with a whole bunch of exemptions that seem unfair.

Indeed, what is the proper funding of Maharlika? Right now, the approved bill only talks of forced contributions from GOCCs.

If so, the proposed capitalization of about P100 billion is just about $1.8 billion.

Diokno cited the subway as an example of a project to be funded. But the cost of that one project is in the neighborhood of P350 billion. And no one can beat the JICA interest rate of 0.10 percent per year, to be repaid within 40 years, inclusive of a 12-year grace period.

The Maharlika Fund must have a modest list of projects to initially take on. Avoid the mistake of having something like the 11 big industrial projects of Marcos Senior that all turned out to be expensive white elephants. Work on visible and quickly deliverable projects that will generate cash flows and create confidence we can do this thing.

That’s why I was saying the President should “convince” the top 50 taipans to contribute P1 billion each for starters. That’s new money and not recirculated money from various government coffers.

The final Maharlika bill should define the fund as a private-public partnership, with the government only contributing seed capital, as in Indonesia. The bill should make it clear that it will be private sector driven and that will be reflected in its Board of Directors.

Maharlika requires credibility for investors to buy-in. That’s why the taipans putting personal funds at risk in Maharlika tell foreign investors they have confidence in this fund. Let Sabin Aboitiz, who chairs the President’s Private Sector Advisory Council, set the example by investing in the fund’s first P1 billion.

We cannot just say basta. We have to know what we want and how we want to get it done. That’s how to attract investors, local or foreign. The folks they talked to at Davos who expressed interest were mostly just being polite.

Maybe we don’t need Maharlika. We only have to re-energize NDC, that moribund company under DTI, to spearhead some of the things they want Maharlika to do.

But if they think Maharlika can quickly deliver profits to help close the fiscal gap, they will be disappointed. In fact, Maharlika can lose money. Many SWFs are losing money now, as Sen. Gatchalian pointed out.

The Senate is making it obvious Maharlika as a concept is not ready for prime time. In plain language, it is still very much hilaw.

Boo Chanco’s email address is [email protected]. Follow him on Twitter @boochanco. Follow me on twitter @boochanco,