THE Senate hearings into the proposed establishment of the Maharlika Investment Fund (MIF) are turning into “very expensive public brainstorming” sessions, Senate minority leader Aquilino “Koko” Pimentel III yesterday said as he slammed the unpreparedness of the measure’s proponents to defend the proposed legislation.
“From the point of view of the minority, we have observed the majority aligned with the administration and we see what you do — you’re conducting a very expensive public brainstorming. ‘Yan ang ginagawa niyo eh (That’s what you are doing). In terms of resources and in time, you should have done that months before actually making the proposal,” Pimentel said during the second hearing held by the Senate committee on banks, financial institutions and currencies on Wednesday.
The MIF bill is one of the Marcos administration’s priority measures as agreed upon during this week’s Legislative-Executive Development Advisory Council (LEDAC) meeting.
During the hearing, Pimentel complained that economic managers have still not submitted clear figures as to earnings that the government is expecting from targeted investments.
He likewise noted how National Treasurer Rosalia de Leon has been “sending instructions” to Land Bank of the Philippines president and chief executive officer Cecilia Borromeo to “tone down” the 14 percent rate on return on investments (ROIs).
He also said that while De Leon has given a list of “allowable investments” for the MIF, a scrutiny of the measure showed it has a provision which will allow “all other investments as may be decided by the Board.”
“Sino naglolokohan dito, ‘di ba? You make it appear to Japanese investors that we are very strict pero sa dulo may lusot. There is (also) a cap on administrative and operation expenses, but there is a Section 17 which allows additional expenses na walang cap! (Who are we fooling here? You made it appear to Japanese investors that we are very strict, but in the end, we will allow other investments [other than what is on your list]. There is also a cap on administrative and operation expenses, but there is Section 17 which allows additional expenses with no cap),” he said.
He said the proposed bill lacks the mechanisms on investments and distribution of profits, aside from the provision that the Maharlika Investment Corporation, which will be created to manage the MIF, will be allowed to give financial assistance to the poorest of the poor, thus replicating the function of the Department of Social Welfare and Development (DSWD).
“Where is the mechanism in the current bill? How do they invest? Wala din doon sa mechanism sa distribution of profits. Hindi yata na-envision ang distribution of profit to a third-party participating investor. Wala doon eh. Tapos this Maharlika Investment Corporation can directly give ayuda to be distributed to the poorest of the poor, may tarpaulin sa likod na MIC? What is happening? What is the real purpose of this proposal?
(Where is the mechanism in the current bill? How do they invest? The distribution of profits is also not there in the mechanism. I think the distribution of profit to a third-party participating investor was not envisioned because it is not there. Then this Maharlika Investment Corporation can directly give financial assistance to be distributed to the poorest of the poor. Will it have a tarpaulin which states Maharlika Investment Corporation?
What is happening? What is the real purpose of this proposal?),” he added.
Proponents of the MIF, Pimentel stressed, should have discussed and threshed out all the technical details of the proposed sovereign wealth fund “months ago before actually making the proposal” to save time and not convert the committee hearings as a venue for their brainstorming.
Pimentel also hit the abrupt shift in the form of the proposed measure, saying the new version of the House of Representatives “no longer mentions wealth fund” in the explanatory note but mentions the Santiago principle in the body which he said is all about the sovereign wealth fund.
He said the MIF will be similar to the setup of the National Development Company (NDC), which is under the Department of Trade and Industry.
“We gave NDC by law P10B in 1979, pero di pa siya ganon ka-sikat, and I see the purpose of the MIF parang ganon lang din sa NDC (We gave NDC by law P10B in 1979 but this is not a so popular [government-owned and controlled corporation. I see the purpose of the MIF is just like the NDC),” he added.
According to the website www.ndc.gov.ph, the NDC is the Philippines’ leading state-owned enterprise that invests in diverse industries, serving as an effective catalyst for inclusive growth. Its “mission” is to enable industry development to spur local economies.
“We are committed to fulfill NDC’s vital role in the overall economic development of the country. We advocate excellence, teamwork, and accountability to advance the interests of our stakeholders. We will invest in our human capital as it is our most valuable resource,” it said in its Corporate Philosophy.
The website said the NDC is one of the oldest companies in the Philippines, which was established on March 10, 1919 via Legislative Act 1248. Its first name was “Compania de Fomento Nacional.”
It is mandated to “pursue commercial, industrial, agricultural or mining ventures” in a bid to give the necessary impetus to national economic development. It may, on its own or, in joint venture with the private sector, undertake vital projects when necessary or when the private sector is not willing or able to undertake such projects due to high risks or lack of funds/resources.
Pimentel said the committee should invite the NDC when it conducts its next hearing “so they can talk about the history, their funding, their achievements.”
“Well the Senate should not allow this to pass in its current form. It’s very disappointing to be an administration measure, ang assumption kasi (because the assumption is) if it is an administration measure, (it is) backed up by all the best lawyers and bill drafters of the administration. And yet ito ang resulta (And yet, this is the result),” Pimentel said.
“So, we’re just here to test the validity of the proposal. So, all the way from what is the real reason, why we are entertaining this proposal, where would the funds come from, what would be the role of this corporation. Yung mga safeguards nandyan (The safeguards are there). All the way to the name. At the plenary level we will ask even about the name of the corporation,” he said.
FUNDING SOURCE
The economic advocacy group Federation for Economic Freedom (FEF) and the Management Association of the Philippines (MAP) said the proposed funding source of the MIF is “problematic” as it is unclear if the equity cash “investment” of the Land Bank of the Philippines and Development Bank of the Philippines are guaranteed by the National Government.
Calixto Chikiamco, FEF president, said during the committee hearing that the P50 billion of LBP and P25 billion from the DBP represent 25 percent and 33 percent, respectively, of the banks’ finances.
“What is guaranteed? The principal? Income? There’s no such thing as guaranteed equity.
Will the non-GFI (government financial institution) debt holders be junior in security to the equity holder? Will other shareholders be disadvantaged vis-í -vis DBP and LBP?” Chikiamco asked.
He said assuming that the fund sources are “guaranteed,” this will, however, create a “giant moral hazard” which he said will promote financial crises just like what happened during the Asian Financial Crisis in 1997 “when companies assumed Central Banks will protect the exchange rate and therefore borrowed heavily” and the US Financial Crisis in 2008 “when big banks assumed they were too big to fail.”
“With its ability to access guaranteed loans from the GFIs and perpetual funding from the BSP (Bangko Sentral ng Pilipinas), the MIF will become ‘too big to fail’ and pose systemic risk to the economy,” he added.
Chikiamco said other issues they see in using government-run money to fund the MIF is that the money supposed to be loaned to farmers will be diverted to the MIF which will erode the “moral standing” of the BSP.
Also, he said, the proposed measure “degrades the BSP as an institution” due to the delays in increased capitalization.
“The BSP’s balance sheet has been weakening (from a net worth of P145 billion in December 2019 to P85.35 billion in October 2022). We need a strong BSP in an era of economic and geopolitical uncertainty,” he said.
“The MIF will likely produce international debt, rather than intergenerational wealth,” he added.
He said the MIF will not level the playing field as it will give tax-free privileges to its investors which will be unfair to other competitors in the private sector like in PPP projects.
“We do not object to the creation of a developmental financial institution but the BSP and GFIs should be removed as funding sources. The primary objective of the MIF should be clarified; conflicts of interest should not arise. The level playing field should not be tilted in favor of the MIF,” Chikiamco said.
