The fast-tracking of a controversial measure for the creation of a Philippine sovereign wealth fund faces stiff opposition from critics who questioned where the fund’s seed capital will come from.
The Maharlika Investment Fund Bill seeks to use government assets for investment and has been certified by President Ferdinand Marcos Jr as urgent. A bill certified as urgent allows Congress to approve it with second and third readings on the same day, using a fast-track process usually used for national emergencies. By marking the bill as urgent, the legislation could be passed by the end of next week.
The fund is a key plank of Marcos’ political agenda. Following his landslide election victory last May, Marcos reiterated his commitment toward infrastructure developments, and continuing President Duterte’s ‘Build Build Build’ program. His campaign also promised to promote renewables to bring down the cost of electricity rates and to save the country’s environment and natural resources.
The fund would support the President’s Agenda for Prosperity and the eight-point socioeconomic roadmap, indicating that it would play a strategic role in the national economy similar to that of Singapore’s Temasek and Indonesia’s INA.
Marcos justified the move to hasten the passing of the bill due to “the downgrade of the global growth projection this year on account of debilitating inflation, fluctuating and unstable prices of crude oil and other fuels due to the protracted conflict between Ukraine and Russia, and continuing interest rate hikes in the international financial sector.”
He added that “there is a compelling need for a sustainable national investment fund as a new growth catalyst to accelerate the implementation of strategic and high-value infrastructure projects that will stimulate economic activity and development.”
The fast pace of the legislative process has raised fears that the constitution is being circumvented to rush through a poorly conceived law.
The House of Representatives approved the Bill on third and final reading, but its version differs from that of the Senate as the House excluded pension funds as a source for the investment fund. The Senate version allows the Government Service and Insurance System (GSIS), the Social Security System (SSS), and Pag-ibig (Home Development Mutual Fund) to contribute voluntarily to the Maharlika fund – potentially putting the national pension pot under heightened commercial risk.
The stability of the banking system is also at stake. The Senate’s Bill states that the Maharlika Investment Corporation (MIC), which will manage Maharlika, shall have authorized capital of PHP500 billion (US$8.9 billon), with PHP125 billion (US$2.2 billion) sourced from: the Land Bank of the Philippines (PHP50 billion), Development Bank of the Philippines (PHP25 billion), and the national government (PHP50 billion). For subsequent funding, it will tap the central bank’s declared dividends, Philippine Amusement and Gaming Corporation’s gaming revenue streams, and other sources, such as royalties and/or special assessments based on natural resources, proceeds from privatization of government assets, and borrowing.
Critics claim that using capital from state banks could undermine their ability to meet their capitalization requirements and makes them more vulnerable to failure. Moreover, siphoning off capital from the Land Bank deviates from its mandate to assist farmers and the rural population, denying them funding. In 2022, 3.4 million farmers and fishermen were given loans worth nearly PHP67 billion (US$1.2 billion). Without lending facilities, critics claim farmers would be more vulnerable to loan sharks, leading to potential financial ruin.
Other criticisms center on governance with concerns that the fund could be vulnerable to corruption with funds misused to consolidate power and wealth around the President and his allies. There is a lack of confidence in the transparency and accountability of the Philippine government, which is ranked by Transparency International as one of the most corrupt in the world. In addition, Maharlika’s detractors claim there are insufficient safeguards against the 1MDB sovereign fund corruption scandal in Malaysia occurring in the Philippines with fines at a low level.
The controversies surrounding the Maharlika fund’s seeding, governance and mandate are unlikely to end following the passage of the new law and could dominate the political debate for years to come – particularly if it fails to achieve economic diversification and merely enriches the few at the expense of financial sector stability and the interests of the rural poor.