We, the Economic Managers of the Administration, reaffirm our support for the establishment of the Maharlika Investment Fund (MIF) as a vehicle for economic growth for the following reasons:
This is evident in the following provisions:
Section 2: “the State shall establish a [MIF] by investing national funds, and coordinating and strengthening the investment activities of the country’s top-performing [GFIs] to promote economic growth and social development”
Section 12: “that the [MIF] shall be used to invest on a strategic and commercial basis in a manner designed to promote fiscal stability for economic development, and strengthen the top-performing GFIs through additional investment platforms that will help attain the National Government’s priority plans”
Section 13 which echoes the objective of the MIF to promote socio-economic development “by making strategic and profitable investments in key sectors to preserve and enhance the long-term value of the Fund; to obtain the optimal absolute return and achievable financial gains on its investments; and to satisfy the requirements of liquidity, safety/security, and yield in order to ensure profitability.”
The purpose of the MIC’s investments is to generate high returns so that national wealth is expanded and profitable socio-economic projects are financed and implemented. These include investments in financial instruments, real property, and both physical and digital infrastructure.
It must also be noted that “unlike public capital Specialized Investments Funds (SIFs), mixed capital SIFs are typically insulated from macrofiscal interdependence, especially when their anchor is a quasi-sovereign entity, because they are not considered part of the sovereign balance sheet and are usually not directly responsible for economic policy” (Divakaran et al., 2022).
Envisioned to allow the government to execute and sustain high-impact and long-term economic development programs and projects without imposing new taxes, Senate Bill
No. 2020 allows for profitable investment development projects while also ensuring that there is flexibility in the market activities of the MIC/MIF. By pooling the investible funds of select government financial institutions (GFIs) and channeling them into diversified financial assets and development projects, the MIF aims to obtain the optimal absolute return and achievable financial gains on its investments, preserve and enhance the long-term value of the Fund, and promote economic development.
Hence, while other development institutions such as the National Development Company have the mandate of pursuing commercial, industrial, and agricultural mining ventures to assist the private sector in undertaking vital projects, the MIC is created for the optimization of government financial assets and the promotion of intergenerational wealth, through investments and other wealth creation measures. The MIC does not overlap with the mandate of NDC, which is “to pursue commercial, industrial,
agricultural or mining ventures in order to give the necessary impetus to national economic development. NDC, 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 to lack of funds/resources.”
As an additional vehicle for financing, the MIF is expected to widen the fiscal space in the near- to medium -term as it reduces heavy reliance on local funds and development assistance as the main financing mechanisms for infrastructure projects. By providing an alternative source to public infrastructure spending, there would be a bigger budgetary allowance for other priority expenditures.
Further, the MIC may invest in capital markets (with an emphasis on generating financial returns) or sectoral investments (with an emphasis on generating economic returns) as a matter of investment strategy and policy that the lawmakers wisely afforded to the MIF Board. In principle, even if the MIC initially focuses on capital market investments which emphasize financial returns, this still has a tangible benefit through generation of financial income to the National Government which would ultimately redound to the benefit of the nation’s future socio-economic agenda.
The public can remain confident in the stability of the LBP and the DBP even given their investment in the MIC. Limitations have also been established, i.e. investments should not exceed 25% of their net worth.
Relatedly, as the achievement of upper-middle income status – a goal under the MTFF – will render the country ineligible to avail of the low-interest loans and grants that are offered to low-income and lower-middle-income economies, the MIF can serve as an alternative funding source to relieve the country from relatively higher interest rates imposed by alternative sources of financing.
7.1. Adherence to the Santiago Principles. Section 44 of the Bill states that the “audits required … include an assessment of the implementation of the Santiago Principles and recommendations to improve compliance with such principles”. The Santiago Principles are defined in Section 3 as “the twenty-four (24) Generally Accepted Principles and Practices (GAPP) voluntarily endorsed by the International Forum of Sovereign Wealth Funds (IFSWF) members …designed as guidelines that assign best practices for the operations of SWFs … that promote stability in the global financial system, set proper controls on investment risks, and implement sound governance structure”.
7.2. Risk Management Committee. Art. V Section 26 of the bill provides that the Board shall organize a Risk Management Committee which shall ensure that the MIC is taking the appropriate measures to achieve a prudent balance between risk and reward in both ongoing and new business activities, taking careful consideration of risk identification, measurement, assessment, mitigation, reporting and monitoring.
7.3. Accountability Measures. The qualifications of the Board were made more stringent in that a person who has pending cases relating to fraud, plunder, corrupt practices, money laundering, tax evasion, or any crimes involving misuse of money or breach of trust would be disqualified from being appointed to the
Board. Further, Board members shall be bonded for the faithful performance of their duties and accounting of all funds and public properties in his/her custody. Relative to this, Board members shall secure a fidelity bond in the amount of Php 10 Million. The penalties for offenses were also increased to ensure that the same is commensurate with the gravity of the offense. Hence, the amended bill imposes imprisonment as a penalty for certain offenses.
7.4. Oversight. An Advisory Body which shall assist the Board of Directors in the formulation of general policies related to investment and risk management. It is composed of the Secretary of Budget and Management, the Secretary of the National Economic and Development Authority, and the Treasurer of the Philippines. Meanwhile, there is a Joint Congressional Oversight Committee tasked to oversee, monitor, and evaluate the implementation of the Maharlika Investment Fund Act. It shall be composed of seven (7) members each from the House of Representatives and the Senate.
7.5. Transparency Measures. The investment policies to be formulated shall include disclosure and transparency mechanisms. Further, approved investment policies of the MIC shall be posted on its website which shall be immediately updated and made accessible to the public. In the same vein, investment and risk management plans, strategies, and activities of the MIC, involving the MIF, shall be disclosed and published on its website for public consumption.
7.6. Publication. To ensure transparency and accountability, the MIC shall regularly publish on its website the terms and conditions of the arrangement with co-investors/joint-venture partners, as well as all financial statements and reports relative to the operations of the co-investment/joint venture.
7.7. NEDA. The NEDA Board, chaired by the President of the Philippines, will continue to be “responsible for formulating continuing, coordinated and fully integrated social and economic policies, plans and programs.” Note that this mandate includes investment programming.
The national government contribution only pertains to the seed fund and the contributions of the national government to the MIC shall not be taken from any of the programmed or even unprogrammed appropriations in the national budget.
Let it be clear that the Administration remains focused and committed to the vital and urgent national agenda, with the MIF being one of the strategies towards this overarching goal of national development.
Let us proceed and continue to pursue our economic transformation as set out in our Medium-Term Fiscal Framework, 8-Point Socioeconomic Agenda, and Philippine Development Plan 2023-2028, so that we may sooner achieve upper-middle-income status, single-digit poverty levels, and all the other goals in our Agenda for Prosperity.
© Maharlika Fund 2023