Credit where credit is due, meh

In December 2022, UP Los Baños economist Enrico Villanueva publicly raised concerns about how the Maharlika Investment Fund would affect the Land Bank of the Philippines and the Development Bank of the Philippines — the two state banks mandated by law to put in P50 billion and P25 billion, respectively, in initial capital to fund the MIF.

Villanueva spent time assiduously analyzing the MIF and after making some incisive computations, concluded that the two state banks’ capital adequacy and leverage ratios would be gravely compromised if they were to put in — upfront — the amounts the government was asking them to sink into the Fund.

Likewise, global investment banker Stephen Cuunjieng, in early June of this year, expressed over broadcast media his misgivings about the two state banks plunking down a total of P75 billion between them in one fell swoop into the Fund.

“Regardless of how the banks will fund it, whether they sell securities or bonds, the amounts they’ll put in the MIF will be charged to their equity; the amounts they contribute to the Fund is the use of their equity. And that’s very critical,” Cuunjieng pointed out.

He explained, “Banks normally have about 10 percent Tier 1 capital. What does that mean? P1 of equity supports P10 of loans. Banks have leverage — they have deposits, for instance, among other things —but basically, they have 10% Tier 1 equity, and if Landbank is going to put in P50 billion and DBP P25 billion, that means that you reduce Landbank’s borrowing capacity by P500 billion — not P50 billion — and you reduce DBP’s lending capacity not by P25 billion but by P250 billion.”

Thus, forcing the two state banks to give those respective amounts to Maharlika would mean that Landbank’s ability to lend to the agricultural sector and the DBP’s to infrastructure, have been severely reduced.

“And that’s the problem when you don’t carefully study the implications of what you’re legislating,” Cuunjieng said.

Earlier this month, less than a year after both Villanueva and Cuunjieng expressed their apprehensions about the hastily enacted law that created the MIF, both the LBP and DBP have asked the Bangko Sentral ng Pilipinas for regulatory relief as seeder-funders of the administration’s MIF.

Both state banks had already turned over their respective contributions to the Fund in September, less than three months after the law enacting the MIF was passed by Congress in July.

Cuunjieng said he was “very disappointed” that no one — no lawmaker or economic manager — had given the matter any thought after he had expressed his apprehensions about the Fund in June.

“Four months later, here we are, with Landbank and DBP requesting regulatory relief from the BSP and the government on declaring dividends to the national government and on capital adequacy, followed by the President announcing a suspension of the rules and regulations governing the implementation of the Fund; in effect, suspending its operation.”

Still and all, Cuunjieng, who sits on the boards of over ten companies and had once been managing director at Salomon Brothers and Merril Lynch & Co., lauds the President for admitting that a “mistake” had been made.

“It’s never nice to admit you’re wrong — prior administrations probably would have been too proud to do that, so let me give him credit for that,” he said.

Putting aside the IRR on the MIF, what is needed now is a comprehensive review of the law that created the Fund. For the international investment banker, the most important takeaway from the President’s press conference where he announced the suspension of the MIF’s IRR was his reference to the MIF as a national development fund.

Pointed out Cuunjieng, “If that’s indeed what it is, then by all means, let’s limit the powers of the IRR; rather than make it broader, let it be made narrower so that the Fund is not abused and used for weird foreign investments, parking it in strange instruments. The Fund’s focus should just be limited to national development because there is absolutely an urgent need for that.”

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