Common questions and simple answers on the Maharlika Investment Fund

For the past week, during the debates leading to the approval of the Maharlika Investment Act on third reading, I have been hearing and reading commentaries and opinions on the necessity, viability and profitability of the Maharlika Investment Fund (MIF). Certainly, there are a lot of doubts and I think that some of these proceed from a lack of understanding on what the MIF is and what it can do for our country towards spurring our economic development. However, there are also some fears that are reasonable, and the government wants to work with us to address these concerns – and they have. The bill approved on third reading by the Senate, and which was adopted by the House of Representatives during the pre-bicameral conference, has addressed these concerns. Certainly, there are a lot of questions and I hope that through this column, I may be able to provide simple answers to some common questions that many of us are still asking and struggling with.

The MIF puts together investible funds from the Landbank of the Philippines, the Development Bank of the Philippines (DBP) and the National Government but it will also be open to reputable private domestic and international financial institutions and corporations. The Landbank will contribute P50 billion to the seed money; the DBP, P25 billion and the National Government, P50 billion. The rest of the MIF will be funded by other government instrumentalities, government-owned or controlled corporations,  government financial institutions, as well as reputable private financial institutions and corporations. However, as it is a state-owned fund, no single private sector shareholder shall own more than 5 percent of the capital of the MIF.

None of the funds of the MIF will come from the Social Security System (SSS), Government Service Insurance System (GSIS), Philippine Health Insurance Corporation (PhilHealth), Pag-IBIG Fund, Overseas Workers Welfare Administration and the Philippines Veterans Affairs Office because the bill approved by the Senate and adopted by the House of Representatives has prohibited these agencies from investing in the MIF.

The pooled resources will be used for financial and equity investments as well as for strategic development projects imbued with public interest, including industries that produce basic goods and services. It will be an investment vehicle for funds from both the public and the private sectors, not only in the Philippines but also from everywhere else around the world. The MIF aims to utilize and place strategic investments into sectors that possess substantial potential for growth and job creation.

But, where will the government get the money that will form the seed capital of the MIF, considering that the national budget is in a deficit and the government is heavily indebted? The funds to be used for the creation of the MIF will not come from the national budget, instead it will be sourced from outside the national budget – from investible funds of the Landbank and the DBP. The share of the National Government will come from the declared dividends of the Bangko Sentral ng Pilipinas (BSP), as remitted to the National Government; income from the Philippine Gaming Corporation; income from other gaming operators; income from privatization conducted by the Department of Finance and royalties and other special assessments.

If bulk of the capitalization needed for the MIF will come from the state-owned banks, would it not affect the Landbank’s and DBP’s stability? It will not because the contributions the state-run banks will be making to the seed fund of the MIF will be just a very tiny percentage of its investible funds, more so its total assets, and it will not affect the stability of the banks. Landbank’s total assets amount to about P3.1 trillion and DBP’s is a little over a trillion and, according to a briefer from the House of Representatives, out of the total assets, P1.2 trillion may be invested by Landbank while P890 billion may be invested by the DBP. This means that the P50-billion contribution of the Landbank to the MIF is only 4.4 percent of its investible funds, while the P25-billion seed money from the DBP is only 2 percent of its investible funds.

Some of the other fears associated with the MIF are that it will be misused for corruption and that there will be no transparency in the management of the funds. The bill has several safeguards to protect the public and prevent these fears from happening. The fund will be professionally managed by a corporation – the Maharlika Investment Corporation (MIC) and it will have five independent directors from the private sector whose primary duty is to ensure good governance in the Board’s decisions and actions. It has a Risk Management Committee that will include independent professionals in the field of finance, economics and investments, and an auditor. Only a maximum of 2 percent of the Fund shall be statutorily allowed to be used for administrative expenses.

The MIC’s books of accounts will be subject to examination and audit by the Commission on Audit in accordance with international best practices. And, aside from an internal auditor – independent of the MIC and under the supervision of the Board – the MIC will also be audited by an external auditor, which should be an internationally recognized auditing firm. The audits shall comply with a set of internationally accepted guidelines to promote good governance, accountability, transparency and prudent investment practices. Furthermore, the bill provides that all MIF and MIC documents shall be open to the public and any abuse in the management will be met by heavy penal sanctions.

The MIF would accumulate capital over time, thereby providing a long-term source of investment capital for the government for projects that promote sustainable development. It would provide a diversified source of revenue for the government outside of taxes. With this new source of funding, the government can increase spending on essential infrastructure projects that are necessary to generate jobs and promote economic growth. Based on the projections of the economic team, the MIF will contribute a 350,000 increase in employment generation. It will further help the government manage its budget and mitigate fiscal pressures during economic downturns as it acts as a safety net for the country.

These are just a few frequently asked questions. Let’s keep on asking questions about the MIF and searching for answers. Let’s seek to know and understand so that we can continue to exchange ideas on how we may be able to create economic growth for all our countrymen.