Decorative

The GSIS and the SSS are now spared from making contributions to the proposed Maharlika Wealth Fund (MWF). That brings down by over half the proposed capital for the fund.

Addressing other points of opposition to the proposal, its legislative advocates also changed the chairmanship of the fund from the President of the Republic to the Secretary of Finance. They hope this will discourage further comparison with the ill-fated 1MDB that was chaired by then Malaysian prime minister Najib – now in jail for looting the fund.

As things stand, the MWF will have an initial capitalization of P120 billion from the two government banks and the inaccurately described “windfall profits” of the BSP. At that size, the fund will only be as about as large as the assets under management of the trust services of any of our mid-sized private banks.

We cannot expect much profitability from such meager capitalization – unless the MWF indulges in speculative investments such as those in failed cryptocurrency investment houses that blew large holes in other sovereign wealth funds. As a general rule in finance, profitability is directly proportional to risk appetite.

Nothing in the immediate outlook for the global financial system, beset by looming recession, will bring in any returns that will alter the trajectory of our nation’s development. This is especially so since some of our more influential economic legislators such as Rep. Ralph Recto promise to build into the law a strict provision that the MWF only be invested in the country. We will then have to forego scouring the global markets for more profitable investment opportunities.

Our legislators are not very clear themselves on whether this is a national development fund or a sovereign wealth fund. The latter ought to be freed to seek the most profitable returns anywhere in the world.

Unfortunately, we do not have a constituency for investing our funds in foreign markets that bring in better returns. Recall how the BSP was condemned for “treason” when it decided to invest part of our gross international reserves in US treasuries – which are the most secure investments on the planet.

One suspects the MWF was conceived merely as a vanity project. We are setting it up only to show everyone else we are a country with enough funds to invest in an inter-generational fund.

Our level-headed monetary authorities managed to stay out of once-fashionable investments in cryptocurrencies. Such investments blew large holes in several other sovereign wealth and pension funds.

If this is so, the MWF will be nothing more than decorative. This accoutrement of an institution will not really bring in hefty returns unless, long into the future, we somehow find enough funds to engorge it and provide it some investment clout.

At any rate, the rush to legislate the MWF at the House of Representatives is probably dead in the water. There is no equivalent bill introduced in the Senate. None of the sitting senators have so far indicated any willingness to step into the line of fire by sponsoring a counterpart bill in the Upper House.

This situation somehow restores some of our faith in the virtues of a bicameral legislature.

Infra bank

Instead of charging into the Valley of Death, our legislators at the House of Representatives might consider introducing amendments to the charters of the two existing government banks — the LBP and the DBP. Omnibus legislation to strengthen our public financial institutions might also be considered.

During the time I served with the DBP, there were two proposals percolating to improve the profitability and utility for national development of the two government banks.

The first proposal was to merge LBP and DBP into a single bank. This would give our policy banking institutions a better chance of competing toe-to-toe with the large private banks. In the world of banking, size matters. This is why mergers and acquisitions have been a continuing trend among banks worldwide.

The second proposal as to convert the DBP into an infrastructure bank. This will enable this strong financial institution to focus on longer-term investments addressing the country’s crying need for infra modernization.This proposal should likewise address the avowed goal of the MWF: to assist in modernizing the country’s lackadaisical infra backbone.

A bill strengthening our government financial institutions might have better chances of getting through our highly politicized legislative mill.

The bill establishing the MWF is dead in the water. Our most prominent economist, Raul Fabella, described the MWF idea as “beyond repair.” The faulty institutional design, all the moral hazards it poses and all the diminished revenues it implies for the existing institutions forced to contribute to this fund doom the proposal.

There is little practical sense trying to roll this irremediable rock up a steep hill.Standing by this irreparable proposal will not only deplete existing investible funds (and the dividends they pay the Treasury). It will deplete the political capital of this administration.

I am looking for Rep. Joey Salceda to lead in the move to junk MWF and initiate a more feasible piece of legislation strengthening our government financial institutions.

Rep. Salceda is a practical thinker with sharply honed political instincts. He should know the MWF is a rapidly sinking ship. All the concessions being yielded to quell public criticism will render the MWF entirely useless.

He can change his mind midstream. He has done this many times before.

Changing his mind now will redound to the nation’s benefit.