MANILA, Philippines — Senators took turns in examining the Marcos administration’s proposed Maharlika Investment Fund, with concerns about investment gains and governance structure brought to the fore.
Sen. Francis Escudero grilled members of the economic team as Maharlika apparently showed no foreseeable gains for the seed funding proposed to be infused by state-owned banks. The current version of the sovereign wealth fund, as passed by House lawmakers, stated that Land Bank of the Philippines and Development Bank of the Philippines would provide seed capital.
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The LBP would be contributing P50 billion as initial capital for the Maharlika, while the DBP would inject P25 billion.
“When will we reap benefits? We will earn in two to three years if we invest in stocks. LBP and DBP would want their return on investments,” Escudero said.
The House bill version offered scant wording on any whether LBP and DBP would get something, a return on investments of sorts, considering that those state-owned banks would do the heavy lifting of funding. Officials from LBP and DBP, instead, pointed out their returns on equity from their own investment activities.
In 2022, LBP raked in 3.73% return on equity from its P1.3 trillion in investments. The DBP reckoned it scooped up close to a 7% return on equity in the same period.
‘Proportional representation’
That said, the Maharlika proved exposed from that point as the composition of the investment fund’s board of directors took center stage. The House version proposed a board of directors comprised of the Finance Secretary, a chief executive officer, the presidents of the LBP and DBP, six members from the fund’s “regular” contributors, and five independent directors handpicked by an advisory body.
Escudero reasoned that the composition of this board could be more lopsided in more ways.
“Now if you want proper corporate governance, isn’t it right that LBP should have proportional representation on the board so they could protect their investments? The same is true for DBP, Pagcor, for private individuals. In fact, you allocated for private investors but they haven’t even given money. Why will they have one vote similar to LBP which contributed P50 billion, isn’t that unfair?” he said.
For Escudero, the bill’s proponents should consider including more seats on the board depending on their capital infusions.
National Treasurer Rosalia De Leon, who was among the highest-ranking officials present in the hearing, explained that there would be six regular members representing the fund’s contributors.
Likewise, the current iteration of the Maharlika would enjoin members of the private sector and academe to have a presence on the board of directors.
“There must be rhyme and reason on how we’re choosing people to sit there,” Escudero added.
Finance Secretary Benjamin Diokno expects that Maharlika Investment Fund would be passed into law by the middle of 2023.
Exemptions
At the same time, the proposed sovereign wealth fund had a bunch of exemptions that would have been passed into law if the House’s version of the bill is to be enacted. The exemptions range from the absence of paying taxes on Maharlika’s funds, assets and properties, among others.
Maharlika is also exempted from the government’s Procurement law and the Salary Standardization law. The latter would remove ceilings on how much an individual could earn in return for working at Maharlika.
The Marcos Jr. administration rationalized this by explaining that they would need the discretion to be able to hire experts, such as fund managers, to run the investment fund.
Likewise, the fund’s surrounding gains from its investments are exempt from taxes on the local and national level.
As Escudero sees it, Maharlika is akin to a hybrid corporation. In this version, the fund would enjoy the benefits of a government entity, with various exemptions such as taxes. Sen. Risa Hontiveros pointed out the case of Indonesia’s own sovereign wealth fund, Indonesia Investment Authority.
“In the case of INA, the board of directors is composed of five people. Their advisory board is composed of five people as well. Maharlika might be treated as a government entity with a corporate body,” she said.