“Using pension funds, remittances, yet no surplus cash:
Is it really the right time for a Sovereign Wealth Fund?”
Notes on the proposed sovereign wealth fund and why people critically sees it
Other countries established "Sovereign Wealth Funds" (SWF) because they had excess earnings from oil production, such as Norway, Saudi Arabia, Qatar, UAE, and Indonesia; excess mining resource revenues, such as Australia, Brazil, and South Africa; and excess export revenues, such as China and Singapore. All of the above, however, are lacking in the Philippines. There are no surplus funds available for investment, and since 2017, the nation has only experienced record deficits. A sovereign wealth fund can be established by a government with extra funds and resources. Simply put, these funds can act as a state's investment and revenue-raising tool while also luring firm investments.
However, there had been attempts in the past to establish a state-backed wealth fund in the Philippines. Former Sen. Paolo Benigno “Bam” Aquino filed Senate Bill 1212 that sought to form a sovereign wealth fund in October 2016. According to SB 1212, it stated that the Authorized Capitalization of the proposed “Philippine Investment Fund Corporation” shall be appropriated in the annual General Appropriations Act ("GAA") or in such manner as the Government, through the National Treasurer and the Secretary of Budget and Management, may determine.
Over a year later, Sen. Joseph Victor “JV” Ejercito filed similar legislation in March 2018. The latter was supported by former Finance secretary Carlos Dominguez III who had recommended pooling funds from the Social Security System (SSS) and the Government Service Insurance System (GSIS).
On the other hand, HB 6398 known as the “Maharlika Wealth Fund” or “Maharlika Investment Fund” (MlF) proposed by House Speaker Ferdinand Martin Romualdez and Congressman Ferdinand Alexander Marcos will get its initial P250 billion from the SSS and GSIS pension funds, plus P100 billion from the Development Bank of the Philippines, LandBank, and National Treasury, all of which rely on loans to survive, just like a third of the National Annual Budget. There are no surplus or excess funds that actually meant to support that Sovereign Wealth Fund, what more the state will even borrow 1.7 trillion pesos to complete the 2023 annual budget. And if the fund is to draw from the annual General Appropriations Act or supplemental appropriations according to the provisions of HB 6398, this can possibly reduce available funds for vital social services such as healthcare, housing, or even education.
To be honest this issue is first good to talk about it but likely to be implemented in the wrong time and situation. While experts admitted that having an SWF 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.
Even Senator Imee Marcos disagreed with the proposal, citing recession and debt issues.
“With all due respect to our bankers and economists who have recommended the measure, I think creating a sovereign fund at this time of gargantuan debt and an impending world recession seems heedless and extremely risky,” Imee said in a statement.
In that case, will loyalists agree on her statement, that is, against her cousin, her nephew, and even her brother who’s the president himself? Some would cling to that idea as if the Philippines is capable of doing it “today” but, given the situation where there’s a need to pay debts from moneylenders to that of addressing corruption in the bureaucracy, nor having no sound policy on who’s managing resources to serve as sources of funds, why on earth the need for a fund?
To make matters worse, beneficiaries of the fund are not informed of how their savings will be invested because GSIS and SSS funds are being used. These pensions, for which the government acts as trustee, were funded by those who paid the premiums, and HB 6398 would reduce benefits for both employees and retirees. People must understand and accept the SWF risk level without a doubt, especially since their hard-earned savings are on the line. People's appetites for risk and reward vary. Hard-earned savings are at risk because of this.
And given that the proposal was made during the Marcos regime and that the sources of funding include pension contributions and OFW remittances, expect trust issues on those who will administer the said fund. The question is: How do people prevent another corruption scandal? Will the general public scrutinise this? There’s no clear and solid provision for sufficient worker/employee representation in the fund's governing body, a mechanism to directly distribute profits to the people (especially SSS and GSIS members), a provision to prioritise investments in the creation of "green" jobs (especially in the renewable energy sector), agricultural modernization, rural empowerment, and industrialization, as well as a lack of a provision to prioritise investments in these areas the could potentially limit any real national benefits from the fund's operations.
Once more, the concept is intriguing, but given the current circumstances, it is pretentious. This could develop into a source of corruption like that of Malaysia or be mismanaged like what occurred in phosphate-rich Nauru, especially given the lack of transparency surrounding the management of the aforementioned fund and taking the reputation of the proponents into account. Singapore's Temasek, the best regional example of a sovereign wealth fund that functions reasonably well, has not been exempt from criticism for a lack of transparency and investments in projects that benefit well-connected interests more than they do the general public. The lack of a sound source to support the fund (other than OFW remittances or Pensions from both government and private sectors as what the proposed law said) also shows that the proposed SWF is a redundant entity since there’s the SSS and GSIS for its role (since its pension funds did also used in investing such as San Miguel).
On the other hand, this note would agree to that proposition if there should be a sound source of funds, that is, rather than depending on someone else’s savings and remittances. The funds in a country's SWF can come from numerous sources, including surplus from foreign reserves, revenue from exported natural resources, budgeting surpluses, and bank reserves. The country can have the capacity to have those to generate such funds, but given the situation such as those stated earlier would again say that the country has to address first the basic problem then let the people themselves decide in this kind of proposition.