Contrary to the recent criticisms and/or reservations on the timeliness of House Bill 6398 or the establishment of the Maharlika Wealth Fund, I think its creation is an idea whose time has come.
If properly established, the MWF has the potential to be a solid catalyst for the achievement of the economic development and poverty reduction goals of the Marcos administration.
House Bill 6398 or now known as the “Maharlika Wealth Fund Act” was recently filed in Congress by Speaker Martin Romualdez and Reps. Sandro Marcos, Yedda Romualdez, Mannix Dalipe, Stella Quimbo and Jude Acidre. Patterned after sovereign wealth funds from other Southeast Asian countries, the MWF is a sovereign wealth fund drawing inspiration from the positive experiences of Singapore’s GIC Private Limited and the Indonesia Investment Authority.
The MWF will be capitalized initially from various state-owned enterprises and from the government budget itself: GSIS — P125 billion; SSS — P50 billion; LBP — P50 billion; DBP — P25 billion; and Bureau of Treasury — P25 billion, for a total of P275 billion.
According to House Bill 6398, subsequent annual contributions to the fund are as follows: Bangko Sentral ng Pilipinas — foreign currency equivalent of 10 percent of the remittances from Overseas Filipino Workers; Business Processing Outsourcing sector — 10 percent; Philippine Amusement and Gaming Corporation — 10 percent from its gaming proceeds; General Appropriations Act or supplemental Appropriations; and other sources (e.g., special assessments on natural resources, public borrowings, and the like).
It is interesting to note that critics of the MWF Bill are not so much opposed to the establishment of the MWF itself but merely question its timing given the present economic conditions. I recently watched an interview of Senator Imee Marcos stating her reluctance about the suitability of the measure citing projections that the country’s economy will slow down in 2023.
However, foreign financial institutions remain upbeat about the growth prospects of the country. The latest Asian Development Bank outlook for the Philippine GDP Growth Rate in 2023 is currently pegged at 6.3 percent. Although lower than the 6.5 percent projected for 2022, the country’s rate is still substantially higher than the Southeast Asian GDP growth rate of 5 percent. In fact, for the coming year, the Philippines will register the second-highest GDP growth among the Southeast Asian economies, next only to Vietnam with a 6.7 percent projected GDP growth rate for 2023. (Source: adb.org).
There is also the argument that ballooning government debts make the creation of the MWF unwise. On the contrary, the establishment of the MWF itself can be viewed as a wealth creation mechanism and may be considered by our creditors as another financial scheme or an alternative economic development tool that may in the long term make debt payments more sustainable.
I laud the bold and creative vision of the MWF proponents, and I can understand the support given to the bill by President BBM and DoF Secretary Ben Diokno. If properly established, it can be a tool for wealth creation and a stabilization tool during shocks brought about by external factors.
In the electricity sector alone, the MWF can be employed as an economic development tool. The main SWF can create a subsidiary, e.g., the Electricity Stabilization Fund, to invest in power generation projects in rural areas to help lower electricity rates (more supply means cheaper) and at the same time promote countryside development. The SWF can be utilized too as a policy tool to fund renewable energy projects, i.e, wind, solar, and hydro, to reduce dependence on imported energy and help alleviate the ill effects of climate change.
In fact, Senator Imee Marcos hit the nail on the head when she stated that there is a benefit in pooling funds in utilities, such as water, and alternative sources of energy. She may well be aware that companies engaged in utilities such as electricity, water, communications, and expressways, are essentially regulated (profitable) monopolies where the regulating arm of government guarantees their monetary returns while it fixes the rate of services charged to consumers.
The electricity business is relatively risk-free as future returns are already determined (as with other utilities). The government may well explore acquiring equity stakes in the power sector and increasing ownership, accumulation, and control of national assets. The MWF can be a powerful promotion tool, for example, to lure foreign direct investments in renewable energy projects by putting government equity in, say, wind farm projects, such as the Bangui and Burgos wind farms in Ilocos Norte, to replicate them in other parts of the country.
This year, the country experienced the inflationary effects of the increase in electricity rates, among others, due mainly to the price shock in oil and coal brought about by the Ukraine-Russia conflict.
Wholesale Electricity Spot Market data show that the average WESM prices for the first 10 months of 2022 have averaged to P8.25 per kilowatt hour from P5.40 per kWh in 2021. Market prices for electricity have increased to more than 52 percent in one year.
Indeed, the establishment of the MWF may catalyze the reform and development of our electricity sector. Not only that it can help stabilize electricity prices in the country and make the sector free from external shocks or boom and bust cycles from reliance on imported fossil fuels, but it can also boost countryside development with a lesser carbon footprint.
In the long term, the MWF may help the whole electricity sector provide better services and more competitive prices for Filipino consumers.