Maharlika: Fears Raised Over Depletion Of Funds

The timing may not be right for the proposed P250-billion wealth fund being pushed by allies of President Marcos despite tight fiscal space and the seeming lack of rule of law, as this would likely endanger state pension funds managed by the Government Service Insurance System (GSIS) and the Social Security System (SSS).

Economists have raised the warning, saying the establishment of the Maharlika Wealth Fund (MWF) mainly from pooled resources of various government financial institutions for investment in different channels can further weaken the pension system in the country.

House Bill 6398, filed on Nov. 28 by Speaker Martin Romualdez and co-authored by Rep. Sandro Marcos – cousin and son of the President, respectively – will require the GSIS and the SSS to invest in the fund.

Likewise, the Land Bank of the Philippines and the Development Bank of the Philippines, as well as the Bangko Sentral ng Pilipinas and the Philippine Amusement and Gaming Corp., will also be required to inject resources into the fund.

SSS president and CEO Michael Regino clarified, however, that funds placed in MWF would have ample protection, as they would be subject to four audits: risk committee within the SSS, an internal audit, an external audit by the Commission on Audit and congressional oversight.

Regino also maintained that SSS has sovereign guaranty on the initial P250 billion.

“For protection, we can start withdrawing from it if we need funds starting 2028 or just six years from now,” Regino said.

“The fund will be beneficial to SSS as we can now directly invest in projects with higher returns as determined by the fund. All the four GFIs will be very watchful of what projects to invest on,” he said.

While experts admitted to The Philippine STAR/OneNews.ph that having a sovereign wealth fund is a necessity for a growing economy like the Philippines, its creation requires proper timing, especially in view of the challenges the country is facing.

It also comes at a point when government funds seem to be dwindling as evidenced by the low growth rate of government expenditures in the third quarter.

Sovereign funds set up by other countries for different purposes were usually drawn from excess reserves or from a steady and consistent stream of revenue.

Foundation for Economic Freedom president Calixto Chikiamco argued that the right time for such fund is when the government is flush with money, which is not exactly the case for the Philippines at the moment.

“Our fiscal position is very tight given the expenditures during the pandemic. Even SSS faces a shorter actuarial life due to the increased pension benefits during the Duterte administration,” Chikiamco said.

“Second, the country still has weak institutions and lacks a rule of law to ensure that the fund managers will behave,” he said.

Malaysia experience

Chikiamco warned that there is heightened risk of the MWF ending up like the sovereign wealth fund of Malaysia, which was pillaged by the ruling party.

University of the Philippines professor emeritus and Freedom from Debt Coalition president Rene Ofreneo is also wary of the proposed wealth fund, given its unclear development framework especially as part of it would come from Filipino workers.

Ofreneo added that the volatile global situation would likely make it difficult for the economy next year to expand amid rising commodity prices, food crisis and climate woes.

“As many would say, the worst is yet to come and you plan to launch this kind of project. There should be caution on the part of the government,” he said.

Leonardo Lanzona, economist and professor at the Ateneo de Manila University, emphasized that given the current economic slowdown, it is likely that such funds would only be used for short-term concerns such as loan repayments.

“In a way, we are being misguided. The program has been sugarcoated to hide the fact that government funds are diminishing,” Lanzona said.

Economists likewise warned that the wealth fund is putting greater risk on SSS and GSIS.

It is still unclear what the value added of the MWF is since the SSS and GSIS are already making investment decisions on their own.

Union Bank of the Philippines chief economist Ruben Carlo Asuncion noted that SSS and GSIS activities should be hands-off because pension investment management is precisely their expertise.

“Establishing a new sovereign wealth fund should include other surpluses by Filipinos and for Filipinos. Timing and transparency is key in the establishment of this,” Asuncion said.

The latest Mercer’s Global Pension Index revealed that the Philippines is still the second worst among 44 economies in terms of retirement income system.

Mercer’s index showed the continued shortcomings of the pension system in the country and the need to provide more adequate and sustainable retirement benefits.

Mercer said there is a need to increase the minimum level of support for the poorest aged individuals, as well as improve coverage of employees in occupational pension schemes, thereby increasing the level of contributions and assets.

Chikiamco argued that SSS funds are for the private sector, specifically for the pensions of its members.

Political cost

He also cautioned the Marcos administration that there may be a political cost to the impression that the pension funds of salaried employees and wage workers would be used for the MWF.

“They view these funds as their funds set aside for their retirement, not government funds from taxes. It may be an unpopular move among the SSS and GSIS members if their funds are going to be made to contribute to the Maharlika Fund with the risk that it could be lost either due to corruption or mismanagement,” Chikiamco said.

Senators wary

Senators are also wary of the proposed sovereign fund.

Senate President Juan Miguel Zubiri is forming a select group of senators, including Sonny Angara, Sherwin Gatchalian, Grace Poe, Mark Villar and Alan Peter Cayetano, who are chair-persons of the committees of finance; ways and means; economic affairs; banks and financial institutions and government corporations to carefully study the Maharlika Investment Fund bill.

“We must first ensure the sovereign wealth fund is necessary and if so, we need to ensure that it is managed properly and the safeguards are in place so that it would not be misused or prone to corruption,” Zubiri told reporters.

Senate Majority Leader Joel Villanueva said that while he believes the intention of the measure was noble, there must be available funds to invest and there should be enough safeguards against corruption.

Sen. Francis Escudero said, in principle, he has no objections to the measure, citing as good example Temasek Holdings of Singapore, which was incorporated in 1974 and 1Malaysia Development Berhad put up in 2008 as “bad example.”

“Many questions have to be answered. Where will the seed money of the sovereign wealth fund come from? Who will manage? What is their incentive in managing this fund well, etc.,” Senate Minority Leader Aquilino Pimentel III told reporters partly in Filipino

Sen. Imee Marcos, the elder sister of President Marcos, opposed the creation of the sovereign fund, saying the government has yet to fund arrears to health care workers, senior citizens and retired uniformed personnel.

Sen. Sherwin Gatchalian said he was open to the proposal but such should include stringent safeguards, including congressional oversight.

Sen. Risa Hontiveros said she got the “heebie-jeebies” when she learned of the term of “Maharlika” in the House bill that evokes memories of the attempts of the late strongman to create a myth that the country was once ruled by a royal family.

“I’m worried that the funds that will be mobilized for the sovereign wealth fund are the monies of the members of the SSS, GSIS and Pag-IBIG. So, hold on, let’s discuss that properly and think about it because the pension funds are owned by members…that cannot just be used by the state. They are state funds, yes, but held in trust by government for the members,” she told “The Chiefs” aired on One News.

Albay Rep. Joey Salceda, for his part, assured critics of the bill that funds from GSIS and SSS pensioners invested in the system are “guaranteed” by the government.

Salceda said the same goes for the depositors of Landbank and the DBP. – With additional reports from Paolo Romero, Sheila Crisostomo and Rhodina Villanueva