Maharlika Investment  Fund: Too risky?

Last October, we were caught by surprise by the suspension of the implementation of the first-ever sovereign wealth fund of the country. Intriguingly though, that a major contributor wasn’t part of its (suspension) discussion brought nothing but billions of question marks. Yes, as BSP Governor Eli Remolona Jr. confirmed to reporters, he was never included in the discussion for its suspension. So unusual as the Bangko Sentral ng Pilipinas (BSP) (which he heads) is not just one of the major contributors but, supposedly, the monetary authority and primary financial system supervisor or overseer of the country.

Last week, those billions of question marks found just one answer, the report from the Asean+3 Macroeconomic Research Office (Amro). In its report, this Singapore-based think tank “raised red flags on the controversial Maharlika Investment Fund (MIF) due to the risk of its potential misuse of funds and lack of accountability.” Released on  November 27 (on a mission spanning from August 29 to September 8), said report pointed out that “Maharlika has not clearly defined its role in infrastructure development” which could “lead to misuse of funds” despite having a “strong legal framework” and a “potential to be successfully managed.”

Are these observations brought about by our inexperience? First and foremost, there is nothing new about sovereign wealth funds. Therefore, even if its new to us, we can always learn from other countries’ experiences. Actually, according to Global SWF’s 2022 report, at the start of that year, “there were 161, managing more than $10 trillion in assets.” In fact, it further reported that there are “many countries that have more than one fund.” The truth is, according to IE University in Spain, no less than “70 countries had at least one sovereign wealth fund.” The largest of which is the China Investment Corporation in Beijing, according to Sovereign Wealth Fund Institute rankings. It has US$1.35 trillion in assets. Norway, through its Government Pension Fund Global, is not far behind in second place.

Among ASEAN member states, “two of the largest funds are in Singapore.” In fact, our lawmakers must have been encouraged by this country’s performance as, reportedly, their good “money management allows it to use investment profits to cover up to 20% of their national budget.” Timor Leste has its own as well. Likewise, Malaysia has one and Indonesia just had its sovereign wealth fund launched in 2021.

Notably, however, while other countries contribute their surpluses to the fund, in us, it isn’t. Initially, in fact, GSIS and SSS should have contributed to it had members didn’t raise a howl against it. We can’t blame them. With history of near bankruptcies of both pension funds, the apprehensions were normal.

Yes, some countries benefited a lot from their sovereign funds. Countries like Norway or even Timor Leste are funding them with revenues from natural resources (such as, natural gases, oil or coal). Or, talking about Singapore, from its huge current account surplus.

More importantly though, we need to know that not all countries have rosy or healthy experiences with respect to maintaining sovereign funds. Malaysia has one of the worsts. The Malaysian sovereign wealth fund had to contend with a corruption case in 2015. Such scandal resulted in the imprisonment of its then prime minister, Najib Razak. Reportedly, about “$4.5 billion was looted from the investment fund, with hundreds of millions of public dollars allegedly transferred to his personal bank accounts.”

Also, having no politicians in the board doesn’t automatically mean better decision making. Temasek Holdings Limited, or simply Temasek, one of Singapore’s wealth funds had “a write-down of US$275 million after cryptocurrency exchange FTX went bankrupt in November.” Apparently, a consequence of a bad investment decision.

Simply put, with these challenges, the MIF, if, indeed, a go, may not be a sure-fire undertaking at all. However, our authorities should seriously consider the suggestions of Amro. That “at the operational level, it is essential for them to closely monitor the MIF and its management body, the Maharlika Investment Corp., to ensure that the objectives are achieved, the country’s long-term development needs are met, and the governing law is strictly adhered to.”

That the “authorities should clearly define its role in infrastructure investment with appropriate governance stipulated to avoid misuse of funds.” More importantly, it emphasized that “the MIF should be run by professionals and the board should comprise independent directors.”