Bangko Sentral ng Pilipinas (BSP) Governor Felipe M. Medalla is not too keen on the central bank investing in the proposed Maharlika Wealth Fund as its risky endeavor may also affect the independence of the central bank if the law includes the use of the country’s US dollar reserves.
He cited as example what happened with Malaysia’s 1MDB or 1Malaysia Development Berhad which diverted its assets and became insolvent due to corruption.
“To me the experience of 1MDB Malaysia is the biggest risk, right? Even if the current guys are OK, will the guys five years from now will still be OK?” Medalla told Bloomberg TV on Friday, Dec. 2.
“It’s a governance issue. The other one is the extent it could affect the independence of the central bank,” said Medalla.
When asked if the BSP will allow the use of foreign currency buffers for the wealth fund, Medalla said he would rather not. “My personal view is, unless we’re compelled, we should not. But I’m a law abiding person, if the law says we will, we will,” he said.
Medalla still expressed his apprehension of a possible diversion of the gross international reserves (GIR), currently already depleted at $94 billion due to weeks of curbing exchange rate pressures after the peso hit its weakest rate of P59 last Sept. 29.
“For instance, if they say we’ll take the central bank’s (US) dollars, then what we’ll we use if the reserves are reduced because they’ve been taken to the sovereign wealth fund? We’ll have less ammunition the next time there is an international volatility that is related to the peso and the dollar,” he said.
Proposed House Bill No. 6398 which contained the wealth fund specifics, has already received an approval from the House Committee on Banks and Financial Intermediaries. The bill authors are President Marcos’ son, Ferdinand Alexander Marcos III, as well as his cousin Ferdinand Martin Romualdez, currently the house deputy majority leader and speaker, respectively.
The 1MDB scandal erupted in 2015 after it was revealed that the sovereign fund had almost $12 billion in debts.
By 2020, the stolen money had reached $4.5 billion, based on news accounts. Former Malaysian Prime Minister Najib Razak, who set up the fund in 2009, was convicted for corruption based on 42 criminal charges.