‘MIF MAY POSE THREAT TO FINANCIAL STABILITY’
JUST drop the idea. Thus said former Bangko Sentral ng Pilipinas (BSP) Deputy Governor Diwa Guinigundo about the just approved House Bill (HB) 6608, which creates the Maharlika Investment Fund (MIF). In the Tapatan online forum hosted by 1Sambayan on Friday, he warned of a serious upending of the country’s financial system if investments of the MIF fail, considering the contributions made by government financial institutions (GFIS).
Under Section 11 of the bill, the Land Bank of the Philippines and the Development Bank of the Philippines (DBP) are required to contribute P50 billion and P25 billion to the MIF, respectively. The bill also provides the MIF to invest in foreign currencies and metals and other tradeable commodities, “which could be speculative and therefore risky,” he said, adding, “Nothing prevents Maharlika from lending and providing guarantees to ventures or consortiums, even to commercial real estate and ‘other investments as may be approved by the Board.’”
As such, Guinigundo stressed, “If they fail because of this scheme, that could send tremendous shockwaves to the Philippine banking system.”
He noted the bill’s authors are quite aware of this possible investment outcome, as HB6608 also mandates the BSP, the country’s independent monetary authority, to bail out the GFIS, “‘to promote the financial soundness of these financial institutions while contributing to the overall objective of the Maharlika.’” This is because Section 18 of the bill allows withdrawal of proceeds from the MIF “only after 5 years,” he said.
Higher yield from investing in infra, jobs
DUE to the uproar to an earlier version of the bill creating a sovereign wealth fund, HB6608 dropped the requirement for pension funds to initially contribute their investible funds to the MIF, but doesn’t rule out their future participation. The bill also requires only 10 percent of the gross revenues of government’s gaming arm, the Philippine Amusement and Gaming Corp., as contribution to the MIF.
“We should forget HB6608. In other words, just drop the idea,” said Guinigundo, when asked how poverty will be reduced in the country without an MIF.
“What we need is to fix the public finance of our government. We should optimize the more than P5.3-trillion budget for 2023. It has a lot of excess funds that we can squeeze into a fund [for investment], if we want that. But what our citizenry really need are education, health, appropriate wages especially for those in government.
“When we spend wisely on creating livelihood, for infrastructure, the public goods value is strong, which we will not earn 7-8 percent in the capital markets,” he added.
The bill also overrides the provision in the BSP charter that provides the use of its dividends for its recapitalization, as HB 6608 requires 100 percent of BSP dividends to be contributed to the MIF for the latter’s first two years, instead. In the following years, only 50 percent of the BSP’S declared dividends will be contributed to the MIF.
‘Less independent, less autonomous BSP’
“THIS provision of directly contributing its dividends to Maharlika, to me, violates Section 128 of the BSP charter as amended by RA 11211 Section 45, which provides that the BSP ‘shall not acquire shares of any kind…or shall not participate in the ownership or management of any enterprise, either directly or indirectly.’ It further violates the prohibition against development banking or financing. There are good reasons for these prohibitions, and they are all for ensuring the independence and effectiveness of the BSP as monetary regulator,” said the former BSP executive.
“I don’t have to detail what could happen to the economy when serious shocks hit us again with a central bank, which to me could be less independent, less autonomous. It could have been stronger and more robust until this Maharlika came around,” he pointed out.
The funds of the GFIS, he added, will be put to better use when loaned to their mandated clients such as farmers, fisherfolk, smaller-capitalized enterprises, and local government units.