Railroading Maharlika

The House bill creating the P275-billion Maharlika sovereign wealth fund continues to evolve – or mutate, like SARS-CoV-2.

Which makes you wonder: if the mechanics of this complex financial instrument are still vague and in a state of flux, why is the super majority in the House of Representatives all agog in railroading its approval?

Is it another case of because we want it, and because we can? Ah basta? That was the explanation given, in so many words, by a HOR member when asked why lawmakers were pushing for yet another postponement of the barangay and Sangguniang Kabataan elections, when even the Commission on Elections itself was saying it would cost taxpayers P18 billion to hold it next year instead of just P8 billion if it had pushed through this month.

And sure enough, the HOR approved the postponement, with the docile Senate also dutifully falling into line to thank all the grassroots political leaders who helped them in last May’s elections.

So when the HOR members say the Maharlika bill will be passed this month, although with amendments, you better believe it.

On Wednesday night, the HOR’s Maharlika proponents deployed arguably the most credible among them, economist Stella Quimbo of Marikina, to announce that they would be heeding the public outcry and would drop pension funds and foreign reserves from the financing mix of Maharlika. Never mind if they probably believe, in their heart of hearts, that the opponents are mostly comprehension-challenged folks who flunked economics.

So what’s left in the Maharlika financing mix? The Land Bank of the Philippines and the Development Bank of the Philippines, which are already financing development programs as part of their mandate, would still be required to contribute P50 billion and P25 billion, respectively. Then there are the profits of the Bangko Sentral ng Pilipinas.

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BSP Governor Felipe Medalla stood firm on his stand against the use of the gross international reserves for Maharlika, saying the GIR is needed for currency stabilization. Economists have noted that by yearend, the country’s public and private debt stock could exceed the GIR for the first time in 11 years.

So we don’t know what Medalla thinks about using BSP profits to partly finance Maharlika. BSP profits were tapped for the COVID pandemic response – an undertaking that buried the country in debt. Pharmally Pharmaceutical Corp. is undoubtedly grateful for the availability of funds, regardless of whether the government had to beg, steal or borrow the money.

From his pronouncements on Maharlika, it looks like Medalla is not interested in getting reappointed after he completes in July next year the unexpired term of Benjamin Diokno, now the finance secretary and big defender of the sovereign wealth fund.

Among the BSP funds being eyed in the mutating HOR bill are remittances of overseas Filipino workers and earnings of business process outsourcing employees. These are private savings and not state funds, however, and the owners can be expected to react the way SSS and GSIS members did to the Maharlika proposal.

Successful sovereign wealth funds, built on surplus wealth lying idle, are meant not just to help finance priority projects but also to grow the wealth – meaning some profit can be made.

At some point in our national life (although probably not within my lifetime), the Philippines could accumulate such surplus wealth.

Apart from lacking a significant wealth surplus, there is the problem of where to invest the money in this period of global economic instability, with a possible recession seen next year.

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Quimbo said the amended House Bill 6398 or the Maharlika Investments Fund Act would also remove the mandatory P25 billion contribution from the national budget. Maharlika, she said, is meant as an investment instrument for high returns.

Where these high returns might be generated in this period of global economic headwinds is unclear. High-yield investment instruments also tend to be high risk.

Even the sovereign wealth funds touted as models in sound management – those of Singapore and Norway – have suffered serious investment losses this year.

To allay fears of losses in high-risk foreign instruments, the HOR proponents want to limit Maharlika investments to domestic instruments, projects and programs.

But unlike the investments of government financing institutions, the Maharlika will be exempted from laws and regulations on public procurement, regular auditing, taxation and accountability.

So the HOR financial geniuses can forgive the economics-challenged folks if Maharlika looks like an effort to short-circuit good governance rules, all on the pretext of speeding up development projects without burying the country deeper in debt.

Under such circumstances, what happens if the fund fails? Can we go after those who squander public money? It took four decades for the coconut levy controversy to be settled in favor of coconut farmers. The Philippine Health Insurance Corp. has been hounded by multibillion-peso corruption allegations.

Countries with enormous excess wealth – Singapore, France, the oil exporters including Norway – can afford to top up  their sovereign wealth funds in case of significant investment losses.

In countries like ours, what do we have for topping up? Some quarters are warning that if our financial situation is mismanaged, we could go the way of Sri Lanka, whose economy collapsed this year. Maharlika defenders say this scenario is farfetched for the Philippines.

Even with pension funds now deleted from the Maharlika equation, the original call remains: just shelve the proposal.

What President Marcos can do is steer the country in the direction of financial stability, healthy enough to perhaps create a sovereign wealth fund. Attaining this level of financial health, however, might have to wait until the next administration.

It’s a process that can’t be rushed, or rammed down our throats – not in six years, and certainly not within just the first six months of Marcos 2.0.