Maharlika questions linger (2)

Purpose of the Fund. When the idea of setting up a sovereign wealth fund or SWF was first publicly floated, most investment market professionals and observers’ initial reaction was incredulity. How could the Philippines, with no burgeoning surplus to speak of and saddled with significant debt, create a “wealth” fund? After all, countries with SWFs have been primarily resource-rich — with a few exceptions without natural resources, like Singapore, which has significant surpluses.

What could a SWF possibly achieve for the Philippines that other existing platforms couldn’t handle? Indeed, the likes of GSIS, SSS, and even BSP already have a wide array of investments in domestic and foreign currencies in their portfolios.

During the Senate hearings on the draft bill, it became evident that the primary objective is to create a Strategic Investments Fund, a sub-class of SWFs, to promote economic development by attracting foreign equity investments in our various infrastructure projects. With the significant long-term capital required, clearly, the resources of our GFIs and even our local conglomerates would not be sufficient. It is hoped that the Maharlika Investment Fund or MIF will fill this funding gap.

Question of Governance. Another lingering question casting doubt on the prospects of the MIF is governance. More specifically, given the idea of creating a fund that can be used as a platform for attracting much-needed foreign investments into our country, what safeguards are in place to assure good governance of the MIF that can follow through and execute great ideas on paper? After all, isn’t our history littered with the corpses of failed government agencies and interminable bureaucratic roadblocks in other infrastructure projects? So, how do we avoid a repeat of past missteps?

To ensure the highest level of governance standards, a board chaired by the Finance Secretary and composed of the CEOs of LandBank and DBP, a CEO with proven investment management performance, two regular directors, and three independent directors shall oversee the MIF.  In addition, the heads of key government economic agencies — Budget, NEDA, and Bureau of Treasury — will serve as its advisory body to guide development projects to prioritize and pursue.

With the eyes of all Pinoys on the lookout for any stumbles, I believe that the collective responsibilities of these esteemed advisory and board members — and with their reputations on the line — will ensure that the MIF will be managed professionally and to the best of their abilities.

Also noteworthy is the law’s declaration that it will abide by the Santiago Principles. This is an international agreement under the aegis of the IMF among countries with SWFs whose aim is to promote transparent, internationally accepted governance standards of its SWF that employ market-based investment and risk management criteria devoid of political interference.

To promote and operationalize the 24 Generally Accepted Principles and Practices or GAPP of SWFs — which ballooned from 41 in 2008 when the GAPP was formulated to about 85 currently — a permanent member organization, International Forum of Sovereign Wealth Funds, was formed with about 40 participating member countries. A key feature of the forum is the triennial voluntary self-assessment by member countries focused on their adherence to GAPP based on published data.

Essentially, it is a public scorecard of how the SWFs are being managed, which could serve as a venue for attracting global institutional investors and as a deterrent to sloppy, biased misgovernance, possibly leading to expulsion from the organization. No self-respecting nation touting the international governance standards of its SWF would want to stand out as a pariah of the world’s investing community.

Suppose public shaming of the SWF is not enough to ensure the MIF’s good governance. In that case, there are the ultimate consequences for any malfeasance in the very stiff penal provisions of the law of fines of up to P15 million and prison terms of as long as 20 years.

To sum up, I believe the law creating the MIF is, on balance, quite sound, deserves our support, and should be given every opportunity to run its course and fulfill its goal of fast-tracking our country’s economic development.

Until next week… OBF!


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