Bangko Sentral ng Pilipinas (BSP) Governor Felipe M. Medalla clarified that the central bank is not an investor in the Lower House-approved sovereign wealth fund called Maharlika Investment Fund (MIF).
“We are not investing (in MIF),” Medalla told Manila Bulletin. The latest version of House Bill No. 6608, which was approved on third and final reading on Dec. 15, a day after it was tagged as an urgent bill by President Ferdinand R. Marcos Jr., mandates the BSP to hand over its entire dividends in the first two years of the wealth fund.
In saying this, Medalla explained that the BSP profits mandated by the MIF as its contribution to the fund actually belongs to the government because the central bank remits its profits to the government in the form of dividends. This dividend will be used by the government to invest in the MIF. As such, it is the government investing in the MIF, not the BSP. “The latter, not the BSP, is the investor,” he added.
Based on the amended 2019 BSP law, the central bank is authorized to recapitalize to P200 billion, up from the previous P50 billion. However, under Republic Act 11211 or the New Central Bank Act, BSP’s increased capitalization will only be funded solely from the declared dividends of the central bank.
Since 2020, at the onset of the Covid-19 pandemic, the BSP has been remitting its dividends to the government to help in financing the pandemic response even though it was no longer required to do so under its revised charter. With the current version of the MIF, it will take some time until the BSP is able to have its P200 billion capitalization.
The Marcos administration will use the money in the MIF, a sovereign wealth fund, to invest in foreign currencies, metals, and fixed-income instruments. Other allowable investments are local and global corporate bonds and equities, commercial real estate, infrastructure projects, loans and guarantees, and joint ventures or co-investments.
The BSP will pay 100 percent of its dividends to the MIF while other government financial institutions (GFIs) Land Bank of the Philippines and Development Bank of the Philippines (DBP) will contribute P50 billion and P25 billion, respectively.
But while BSP will give over 100 percent of its declared net income, only 10 percent of the gross gaming revenues of Philippine Gaming and Amusement Corp. will be used for the MIF.
The House of Representatives amended the bill filed by House Speaker Martin G. Romualdez and the revisions stated that BSP will initially contribute all of its profits to the wealth fund in the first two years, and then 50 percent thereafter.
Medalla previously communicated his concerns about the earlier version of the wealth fund bill which proposed to tap the country’s gross international reserves (GIR) as part of funding.
He was worried that this will undermine the BSP’s status as an autonomous and independent GFI. In recent months, the BSP withdrew $15 billion from its US dollar reserves to smoothen exchange rate pressures and prevent the peso from depreciating past P60 vis-à-vis the greenback.
Medalla was not alone in his apprehension as private sector groups, economists and former BSP officials issued criticisms of the proposed bill as well.
As of end-September, the BSP’s unaudited net income totalled P94.58 billion. This amount was 61.89 percent higher compared to same period last year of P58.42 billion due to revenues and gains from foreign exchange rate fluctuations.
The BSP’s foreign exchange gains surged to P65.64 billion in the first nine months from just P7.05 billion in 2021. Foreign exchange gains are realized gains from fluctuations in foreign exchange rates arising from BSP’s foreign currency-denominated transactions.
BSP’s total assets as of end-September was at P7.338 trillion and bulk of these assets are its international reserves. The US dollar stock is currently at the $94-billion level, still way below from end-2021 GIR of $108 billion.
The BSP’s net worth has also dropped to P109.64 billion, or 28.48 percent lower from last year’s P153.30 billion due to reduced surplus and capital reserves. Its surplus or reserves also incurred a huge loss of 42.26 percent to P59.64 billion compared to P103.30 billion same time in 2021. As explained by the central bank, the surplus is mainly composed of BSP’s unrestricted retained earnings as well as capital reserves or the funds set aside for various contingencies. It also includes unrealized gains or losses on its investments in government securities, stocks and other securities.
The BSP, despite only having P50 billion as capitalization, is still expected to serve its function of maintaining the country’s price stability as well as financial stability. The BSP will have to bail out problematic banks, such as Landbank and DBP, in case they end up in trouble with a combined P75 billion of their funds in MIF.
The government deposits are also in the two state-owned banks. Landbank is where government workers source their salaries and the conditional cash transfer or 4Ps assistance to the low-income group.