PH eyes 80 infra projects through Maharlika fund

President Ferdinand R. Marcos, Jr. on Wednesday said the Philippines is eyeing to finance 80 potential infrastructure projects through the country’s first sovereign wealth fund.

“Currently, we have identified about 80 potential infrastructure projects that are financeable through the fund, the Maharlika Investment Fund (MIF),” he said in a speech at a Philippine economic briefing in San Francisco that was attended by executives from top US-based companies.

“These projects offer high rates of return and significant socioeconomic impact.”

Mr. Marcos did not mention the target projects for the Maharlika fund, but noted the government has prioritized 197 projects as part of the infrastructure push.

“We are prioritizing the implementation of 197 infrastructure flagship projects worth around $155 billion with a sharp focus on upgrading physical and digital connectivity, water, agriculture, health, transport, and energy.”

The government is targeting to spend 5-6% of the country’s gross domestic product (GDP) for infrastructure until 2028.

Mr. Marcos said the MIF, which he wants to be fully operational before the end of the year, is key to the future of the government’s infrastructure program as it could serve as an additional source and mode of financing.

Mr. Marcos flew to San Francisco, California on Tuesday night for the annual Asia-Pacific Economic Cooperation (APEC) Leaders’ Summit, which ends on Friday.

The Philippine leader said the country seeks to increase its participation in the US semiconductor value chain.

“You can depend on partners in the Philippines,” he said at a roundtable meeting with the Semiconductor Industry Association in California. “We are ready to work with you.”

The White House said a partnership in the semiconductor industry was tackled during Mr. Marcos’ meeting with US Vice-President Kamala Harris.

The partnership with the Philippines seeks “to grow and diversify the global semiconductor ecosystem under the International Technology Security and Innovation (ITSI) Fund, created by the CHIPS Act of 2022,” a readout from the White House said.

Mr. Marcos said the Philippines is ready to absorb and support the additional corresponding capacity for assembly, packaging, and test that will be required by the US’ plan to boost front-end wafer capacity for advanced technologies and products.

Mr. Marcos also proposed the establishment of a lab-scale wafer fabrication facility in the Philippines that can support a science and technology center proposed by the Semiconductor and Electronics Industries of the Philippines Foundation, Inc.

“Another viable alternative is to have a Philippine-based US Semicon company build a proof-of-concept wafer fab near their facility with the participation of promising candidates such as Texas Instruments and Analog Devices,” he added.

Semiconductors accounted for the highest share of the Philippines’ electronic product exports in 2022, accounting for about 47.4% of the country’s total export basket.

Meanwhile, the Philippines and the US signed various deals on the sidelines of the APEC Summit, including a pre-feasibility study on the potential of the Philippine nuclear energy and a proposed cancer hospital. 

Mr. Marcos said US-based Ultra Safe Nuclear Corp. and Manila Electric Co. (Meralco) signed a memorandum of agreement for pre-feasibility study on the potential use of micro-modular reactors in the Philippines.

He said an agreement between Ayala Healthcare Holdings, Inc. (AC Health) and US-based Varian Medical Systems for the establishment of the Philippines’ first cancer hospital “reflects the Philippines’ growing potential as a leading healthcare destination in Asia.”

The Philippines’ Lloyd Laboratories, Inc. and US-based Difgen Pharmaceuticals LLC, meanwhile, signed a deal for a collaboration on the filing of abbreviated new drug applications and the marketing of jointly developed pharmaceutical products within the US.

An investment of up to $20 million will also be undertaken by Lloyd Laboratories for the establishment and operation of the first US Food and Drug Administration-approved manufacturing facility in the Philippines.

Orbits Corp. and American company Astranis Space Technologies Corp. also signed a deal for the deployment of the first two internet satellites dedicated to the Philippines. It’s expected to generate $400 million worth of investment over the next eight years.

Source: Business World

Maharlika fund: New law, new lies

The Maharlika Investment Fund law remains problematic despite its enactment but what we can do is continue to be vigilant as this law is implemented – and try to hold the President accountable

Just less than eight months since it was first proposed in the House of Representatives, the Maharlika Investment Fund bill is now a law. On July 18, 2023, President Ferdinand Marcos Jr. signed Republic Act 11954 in Malacañang Palace amid smiles and cheers from lawmaker friends as well as his economic team.

The thing is, the entire thing remains problematic to this day, even after its enactment.

First, even the proponents still don’t know what it really is. In his speech, Marcos referred to Maharlika as the country’s first sovereign wealth fund – when in fact, it isn’t. It’s more properly called a “strategic investment fund” since it can invest not just in financial instruments (stocks, bonds), but also in economic projects. (Interestingly, the President at one point called Maharlika Investment Fund “IMF” rather than “MIF.”)

Second, the fund was signed into law way too fast by international standards. Other countries take years, not months, to carefully craft their own strategic investment funds, especially since public funds are on the line.

As a result of the railroading of this measure, Maharlika was passed without consulting the public whose monies will be put into this fund.

A Social Weather Stations survey showed that as of late March 2023, 47% or almost half of adult respondents, knew “almost nothing or nothing” about the Maharlika bill, and a full third said they had “only a little” knowledge about it. (Do they include some of the lawmakers who unthinkingly voted in favor of the bill?)

In his speech right after signing the law, Marcos said, “Perhaps it’s time that we clarify all the questions and answer all the questions that have been raised about the Maharlika fund. What is its intent? What is it supposed to be? How is it supposed to work?”

Wrong. All these questions should have been answered while the law was being deliberated in Congress. (This calls to mind how Marcos diligently avoided debates and fora during the 2022 campaign trail.)

Third, after both houses of Congress agreed to adopt the bill’s Senate version, some provisions were tweaked and fixed surreptitiously.

For instance, while the Senate bill included two prescriptive periods (10 years for crimes, 20 years for offenses), the final law includes only one (10 years for “crimes/offenses”). Who exactly made these tweaks? Are these secret amendments – made after the bill was approved by the Senate – valid?

Fourth, and most importantly, many of the fundamental defects of the law have not been fixed. As many UP School of Economics faculty members (including myself) wrote in a discussion paper dated June 6, Maharlika “violates fundamental principles of economics and finance and poses serious risks to the economy and the public sector…”

That remains true to this day.

Risks to the public coffers

Marcos said in his July 18 speech, Maharlika will “leverage a small fraction of the considerable but underutilized investible funds of government and stimulate the economy without the disadvantage of adding additional fiscal and debt burden.” Also, “Instead of taking on additional borrowings and having to work to pay for the interest and roll over the principal every so often, we now have a fund which will itself make money…”

Note, however, that Maharlika can issue debt instruments: Article II, Section 10 provides that “The MIC may issue all kinds of bonds, debentures, and securities…” Although it also says, “In no instance shall the Philippine government guarantee any Bonds issued by the MIC,” the government may still implicitly shoulder losses in the end.

More crucially, as we said in the UPSE discussion paper, “It is quite telling that the MIF bill contains no provisions regarding bankruptcy and resolution. This might mean that, implicitly, the Philippine government will still shoulder in the end any liabilities or losses that may arise from the MIF.”

In other words, public funds put into Maharlika may end up vanishing in thin air in the event of losses.

Rather than “widen the government’s fiscal space and ease pressure in financing public infrastructure projects,” Maharlika may very well add to the country’s already huge debt burden and crowd out funds for key government programs and investments.

Diversion of funds

Marcos also claimed that amid “underutilized” public funds, “The instincts of any financial manager is that money must work for you. It must not sit in the bank and earning…an interest rate that is almost up to the level of the cost of money and that’s why we go in and out of these accounts.” (What?)

This is wrong, too. It’s not as if those scarce public funds – coming from, say, the Land Bank of the Philippines (LBP), the Development Bank of the Philippines (DBP), the Philippine Amusement and Gaming Corporation (Pagcor), and the Bangko Sentral ng Pilipinas (BSP) – are idle.

The state-owned banks, for instance, need that capital to fulfill their mandates to “spur countryside development” and “[provide] banking services for the medium- and long-term needs of small and medium enterprises (SMEs) in the agricultural and industrial sector, particularly those operating in the countryside.”

(The President said that the DBP “will pull together non-debt financial resources as to not crowd out other lending obligations that they need to fulfill under their respective mandates.” But this will eat away at much-needed capital.)

Meanwhile, the BSP needs money to raise its own capital based on its amended charter. By diverting public funds from these institutions, Maharlika will compromise the ability of these institutions to fulfill their respective mandates.

As we said in the UPSE discussion paper, the proponents of Maharlika failed to explain the opportunity cost of “using the MIF to invest in projects versus direct government spending on public goods today.”

Can government projects really be implemented faster through Maharlika than through the budget process? Will it be able to spur rural development better than what the LBP and DBP are currently doing? Who knows.

Governance risks

Marcos said, “Let us make sure that the fund is well run. Let us make sure that these are professionals. Let us make sure that the decisions that are being made for the fund are not political decisions, that they are financial decisions…”

He even said that they studied the experiences of other countries so past mistakes are not repeated.

But they are precisely going to repeat past mistakes.

For instance, everyone in the board of the Maharlika Investment Corporation will be presidential appointees. Where’s the political independence there?

The President laughed off supposed criticisms that public funds ought to be put in key sectors like agriculture and energy development – instead of a strategic investment fund. He said, “Where do you think we will spend that money? Buying luxury cars, big yachts? It makes me laugh because that is so far from the truth.”

But we just have to look at what happened to Malaysia’s sovereign wealth fund called 1MDB, from which $4.5 billion were “diverted to offshore bank accounts and shell companies” – precisely because of lack of independence from politics.

Marcos claimed that we have the “best economic managers” whom we can count on to run the Maharlika fund properly. Is he talking about the PhD economists who so blatantly disregarded the lessons of economics and provided all-out support for this inherently flawed fund?

Marcos also said, “Inevitably, if you put me or the secretary of finance or in the decision-making loop, those decisions will be colored by political considerations, and that must not be the case [applause].” He added, “We removed the political decisions from the fund…”

Does he even know what he signed? Because Article V, Section 20(a) of the new law provides that “The Secretary of Finance shall sit as the Chairperson [of the Maharlika board] in an ex officio capacity.” Embarrassingly, the President is contradicting himself. Did he even read the law?

Picking winners

Marcos added, “The fund will fail if we do not make money on the fund. But there are so many that we cannot allow to slip by.” Maharlika will supposedly allow the government “to join in those investments, be part of that, put in the government counterpart for any of these projects…” This is disturbing since Maharlika may very well be used to finance companies or businesses of politicians; in economics this is called “picking winners.” For instance, in the three-page (yes, three) business proposal submitted by the Treasury to the Senate, some of those investments will include “stock price of a reputable real estate organization listed in the [Philippine Stock Exchange or PSE]” as well as “companies developing mixed-use and commercial properties.”

Which political families are heavily involved in real estate again? Can you name some?

Lofty claims

Even more basically, Maharlika’s goals and objectives remain confused. What is it for, really?

Marcos said that previous ways of attracting capital, like public-private partnerships (PPPs), joint ventures, government-to-government (G2G) arrangements, all “come under the category of borrowings.”

This is wrong. Many PPPs, for example, involve the private sector setting up infrastructure projects then recouping their investments for certain years – without entailing extra debt on the part of government.

(Marcos then mentioned that, “We are at present, if I’m not mistaken, 63% GDP-to-debt ratio.” He is mistaken: the correct term is “debt-to-GDP ratio,” and the correct number is 61% as of March 2023.)

He added that Maharlika is “designed to drive economic development” and “provide us the seed money for investments and to attract other foreign investments and for us to be able to participate in those operations, in those investments, without additional borrowings.”

Marcos makes it sound like we have great difficulty attracting investments. But government officials themselves have repeatedly claimed that, through the President’s myriad foreign trips in his first year in office, they were able to secure P3.48 trillion in investment pledges. So what is it really? Are investors flocking in droves or not? Their story isn’t consistent.

Moreover, if the Philippines is really such an attractive investment destination now, investors should be entering the country by themselves, even without a new strategic investment fund.

The problem is that Maharlika does nothing to solve barriers to entry of foreign investors, including red tape, high cost of power, and lack of rule of law. Empty promises

Now that the Maharlika fund is law, certain groups can now contest the constitutionality of the law before the Supreme Court. In matters of policy, however, the Supreme Court tends to give Congress much leeway and discretion. Chances of a successful legal challenge are slim.

So I guess what we can do is to continue to be vigilant as this law is implemented – and try to hold the President accountable.

Marcos gave assurances the fund “will be managed by highly competent personnel with a good track record and outstanding integrity,” in keeping with a commitment to “transparency, accountability, and good governance.” Also, he assured the public that “the resources entrusted to the fund are taken care of with utmost prudence and integrity.”

Given his own track record, though, these will likely be promises as concrete and believable as his campaign vow (which later became an “aspiration”) of reducing rice prices to P20 per kilogram.

Source: Rappler

Marcos signs Maharlika bill into law

President Ferdinand R. Marcos, Jr. on Tuesday signed into law a measure creating the Philippines’ first sovereign wealth fund, despite concerns raised by economists over its financing and management.

“The establishment of a sovereign wealth fund will widen the government’s fiscal space and ease pressure in financing public infrastructure projects,” he said in a speech at the signing of Republic Act No. 11954 or the Maharlika Investment Fund (MIF) law in Malacañang.

Through the P500-billion ($9.19 billion) fund, Mr. Marcos said the government will be able to accelerate the implementation of 194 flagship projects approved by the National Economic and Development Authority (NEDA)Board.

Mr. Marcos and his economic managers have been pitching the wealth fund during his foreign trips, including at the World Economic Forum in Davos, Switzerland in January.

Malacañang has yet to release a copy of the newly signed law, but based on the information released by the Presidential Communications Office, the sovereign wealth fund will issue P500 billion worth of preferred and common shares that can be bought by the National Government (NG), state-run corporations and financial institutions.

The P125 billion in initial funding will also be taken from the NG’s share in the Philippine Amusement and Gaming Corp. (PAGCOR) and other government-owned gaming operators’ and regulators’ income, privatization proceeds and transfer of assets, and other sources such as royalties and special assessments, the palace said.

“Nothing much has changed from the initial draft to the final version,” former Bangko Sentral ng Pilipinas (BSP) Deputy Governor Diwa C. Guinigundo said in a Viber message, noting that the law does not address the issues of the country’s “lack of surplus funds, the trade-off between budgetary allocations for infrastructure, health, education etc., and diversion to investment via MIF.”

Mr. Guinigundo also cited issues related to governance and the “abdication by Congress of its power over the purse.”

He lamented that the law “represents an act” undermining the independence of the BSP, since it will be required to contribute its total declared dividends.

“The BSP recapitalization will be postponed for the next two years in favor of the MIF,” he said, adding it would now take 17 years instead of eight years to recapitalize the central bank. “At this time of global uncertainty and volatility, the monetary authorities should be strengthened unequivocally rather than weakened.”

Mr. Guinigundo had said that to replenish public money that will be used for the Maharlika fund, the government would be forced to either increase taxes or borrow money domestically or abroad — or do both.

In a statement, Taumbayan Ayaw sa Maharlika Fund Network Alliance raised fears the MIF would reduce available public funds for social services such as healthcare, housing and education.

“Almost all known groups of economists in the country — representing all colors of the political spectrum — also oppose the passage of the MIF bill, as there are not enough safeguards in the bill to ensure that the people’s money would yield profits and/or that public funds won’t be plundered or used to favor certain corporations,” the coalition said.

In a statement, NEDA Secretary Arsenio M. Balisacan said there are strategic areas in the energy sector that the government wants the MIF to invest in.

“There are many areas that are in great need of capital, so we will never run out of investment opportunities,” he said.

The MIF will also be an alternative to debt financing when the country becomes an upper middle-income country and would no longer qualify for concessionary loans such as official development assistance, Mr. Balisacan said.

The Philippines is classified as a lower middle-income economy by the World Bank, but the government is targeting to reach upper middle-income status by 2025.

NOT POLITICIZED

In his speech, Mr. Marcos said the Maharlika Investment Corp. (MIC), which will manage and control the sovereign wealth fund, will be run by professionals and will not be politicized.

“Let us make sure that the decisions that are being made for the fund are not political decisions [but] are financial decisions because that is what the fund is,” he said. “It is essentially a fund that we will continue to invest in, and the fund will fail if we do not make money on the fund. It’s that simple.”

Based on the Palace document, the MIC will have a board of directors composed of nine members, including the Finance secretary.

However, Mr. Marcos said in his speech that the Finance chief, as well as the incumbent President, should not be part of the MIC’s board, saying that “if you put me or the secretary of Finance in a decision-making loop, those decisions will be colored by political considerations.”

“That must not be the case,” he said. “Structurally, we removed the political decisions from the fund, and those political decisions are left with the bureaucracy, the political bureaucracy, and the fund is left to be a fund and operating on a sound and proactive financial basis.”

In a statement, Finance Secretary Benjamin E. Diokno clarified that the President was just “stating his preference that the sovereign investment fund should not be headed by him or his Finance secretary.”

“Even at the early stage of the formulation of the sovereign investment fund, the President was clear: he didn’t want to politicize the Fund,” he said.

Nevertheless, the Secretary of Finance will only serve in an ex officio capacity and will not run the MIF, he said. “The Independent Chairperson of the 9-member Maharlika Investment Corp., a non-politician, will manage the Fund.”

The MIC will be guided by an advisory body composed of secretaries of the Department of Budget and Management, NEDA, and the National Treasurer on investment and risk management, according to the palace document.

The MIC, which will be required to adhere to the Santiago principles and other internationally accepted standards of transparency, is mandated to adopt relevant and stringent financial reporting and audit systems and will be subject to strict examination and audit by an Audit Committee, Internal Auditor and External Auditor, and the Commission on Audit.

“The law provides for heavy fines ranging from P1 million to P15 million, and imprisonment term from 6 to 20 years for various offenses, such as willfully holding office while in possession of any disqualification, knowingly certifying the corporation’s financial statements despite its gross incompetencies or inaccuracy, willing allowing oneself to be used for fraud, failure to sanction, report or file appropriate action for graft and corrupt practices, among others,” the palace said.

Senate President Juan Miguel F. Zubiri told reporters after the signing event that the implementing rules and regulations (IRR) for the law will likely be finished within the year.

The MIC is expected to be fully operational by end-2024.

* What is a sovereign wealth fund?

A sovereign wealth fund (SWF) is a state-owned investment fund that is established by a country's government to manage and invest its surplus financial reserves. These funds are typically created by countries that have significant reserves of foreign currency, typically from exports of natural resources such as oil, gas, or minerals, or from large trade surpluses.

The primary objective of a sovereign wealth fund is to preserve and grow the wealth of a nation for the benefit of future generations. SWFs are designed to diversify a country's assets and reduce its dependence on volatile commodities markets. They are also used to stabilize the economy during times of economic volatility or financial crises.

Sovereign wealth funds can have different investment strategies and asset allocations. Some funds focus on traditional asset classes like stocks, bonds, and real estate, while others invest in alternative assets such as private equity, infrastructure projects, or venture capital. The specific investment strategy of a sovereign wealth fund depends on the goals, risk appetite, and investment mandate set by the government.

SWFs vary in size and structure. Some of the largest sovereign wealth funds, such as the Government Pension Fund Global of Norway and the Abu Dhabi Investment Authority of the United Arab Emirates, manage hundreds of billions or even trillions of dollars. These funds often operate with a high level of independence from the government, employing professional investment managers to make investment decisions.

It's important to note that sovereign wealth funds are distinct from central banks. While central banks focus on monetary policy, managing interest rates, and maintaining price stability, sovereign wealth funds are specifically dedicated to managing and investing the financial reserves of a nation.

Source: BusinessWorld and Ziggurat Real Estate