‘Too many loopholes’: Senators grill state economic managers, proponents on Maharlika fund bill

Senators on Wednesday, February 1 took turns grilling members of President Ferdinand “Bongbong” Marcos Jr.’s economic team who are pushing hard for the passage of the Maharlika Investment Fund (MIF) bill as they sought for answers about the purpose and vision of the measure which was envisioned to be a sovereign investment fund to stimulate growth and stability of the Philippine economy.

Sen. Francis “Chiz” Escudero said his initial assesment of the measure, which emanated from the House of Representatives, is that it is “shaky at best” and “not well-studied.”

“I'm not against the establishment of a sovereign fund, but we need to study this first. The bill has been going through the process in the last two months, but there are still so many loopholes,” Escudero said in an interview after the Senate Committee on Banks, Financial Institutions and Currencies’ initial hearing on the bill.

“Simply comparing it to other countries’ sovereign fund is not the way to go because other nations have their own differences. We must choose something that is suitale and sufficient for our needs. Let’s not compare and just look at our own needs,” said Escudero, who was chairman of the Senate banks committee during previous Congress.

Escudero said he is inclined to thumb down the measure if proponents of the bill will insist on passing the original version as it is.

Nevertheless, he said, there is a huge possibility that the Senate will come up with a version of the proposed sovereign wealth fund that is vastly different from its counterpart from the House.

“There’s a big chance it will be different. There is great chance that the Senate’s version is not the same. And that there is going to be a big difference, and that's the only way I think it can pass here,” Escudero said.

“It is shaky at best. They are comparing it to Indonesia (Investment Authority), they are comparing it to Temasek (Holdings, Singapore). If I’m not mistaken Temasek was established in the late 70s. They have been doing it for a long time, and they've been through a lot and if we think that it will make money in six (6) years, there’s no certainty that the economic managers can guarantee that,” the senator further pointed out.

Among the questions Escudero posed at executive officials during the hearing was the purpose and vision of the MIF bill, where the investible funds would be sourced from, the rate of the return of investments (ROI) of those who will contribute to the MIF, what kind of projects will the proposed Maharlika Investment Corporation (MIC) will be invested in; where the income of the MIF will be spent.

Escudero, likewise, grilled economic managers, particularly the Department of Finance (DOF) on the possible effect of the MIF in the event of a projected global recession.

Senators also questioned the composition of the 15-member Board of Directors and possible tax exemptions.

Sen. Risa Hontiveros, Senate deputy minority leader, warned the MIF may instead become a “liability fund” that will balloon the nation’s already enormous foreign debt and make life more difficult for the present and future generations of taxpayers.

Hontiveros said it is possible that Filipinos will have to take on bigger foreign debts to establish the MIF, since no new source of funds for the project - which are not already dedicated to debt servicing or financing the annual budget - have been identified.

“There is also no assurance that the cost of borrowing will be lower than the yield to be generated by the sovereign wealth fund (SWF),” Hontiveros said.

“The Philippines already has a high level of debt to finance government programs and no new sources of funds have come into consideration since the MIF discussions started. Instead of paying our debts, we are putting up an SWF, the effect of which is, the Philippines is borrowing more money for the SWF,” she added.

Under the current version of the MIF, the LandBank of the Philippines (LandBank) and Development Bank of the Philippines (DBP) would provide seed capital, with LandBank contributing an initial capital of P50-billion and DBP injecting P25-billion.

National Treasurer Rosalia De Leon, during the hearing, said that the government intends to attract more equities so that offshore and domestic investors, including those from the private sector, will have long-term placements in the MIF and share in the risks of the fund.

De Leon said that the additional funding in the form of equities will later on reduce the fiscal pressure on government and eventually lower the country’s debt matrix.

However, Hontiveros pointed out that LandBank and the DBP are already able to use their investible funds as equity for investments aligned with national priorities, even without the MIF.

“Why weaken Land Bank and DBP by de-capitalizing them in favor of the MIF? I see no additional service by the Maharlika Investment Fund that DBP and Land Bank cannot render,” Hontiveros asked.

She also said the MIF will surely drastically expand the Philippine’s outstanding debt, which has surged to P13.644-trillion by end of November 2022 due to the government spending over the years that is outpacing revenue collections.

The additional foreign debt burden to be created by the proposed MIF also contradicts the Marcos administration’s plan to lower the nation’s outstanding debt-GDP ratio from 63.7 percent down to 55 percent by the end of 2028.

“We would be better off strengthening existing economic and financial institutions and fulfilling our developmental aspirations,” Hontiveros pointed out.

Sen. Sherwin Gatchalian also questioned why the current version of the MIF bill seems to be inflating state profits with so many tax exemptions for investors who would put their money in the SWF.

“With this (MIF) fund, number one, they don’t pay any taxes and then, number two, aren’t we skewing the returns also? Because a normal fund would pay all these taxes—income tax, document stamps, and so on. So we now have the MIF which is highly attractive because it is not paying taxes, it is attracting private funds and you have another set of funds which perform the same functions but pay a lot of taxes,” Gatchalian pointed out.