Maharlika mess: Where is the development framework?

In the case of the Philippines, the MWF initiative appears to be an anomaly, as various critics have duly noted. The country has no budgetary surplus and is deeply in debt. Its budgetary deficit for 2023 is estimated to reach P2 trillion.

THe authors of the Maharlika Wealth Fund claim they started on a wrong foot. The truth is that the original proposal was a total disaster. The discerning public could not believe that the proposed bill creating a sovereign wealth fund would have the following features: sequestration of workers’ pension savings as seed capital, wholesale disregard of government rules on fund handling such as the conduct of customary audit, sky-is-the-limit compensation for the fund managers with the removal of standard rules on pay and eligibility, and lack of concrete safeguards against bribery and possible investment failures. Above all, there is the arrogant presumption that a few wise men and women can manage for the country a huge amount of government funds and, in the process, secure for the Philippines “its place not only as the Rising Star of Asia but as a real economic leader in the Asia Pacific.”

The public outcry against the MWF was swift and widespread. Hence, the Maharlika authors had to beat a hasty retreat and had to craft a new Maharlika version sans any references to pension contributions. They also had to remove the patently objectionable features of the original fund project such as exemptions from government audit.

The reality, however, is that it is the task of every government, especially in a country that still has not recovered from Covid recession, to find the means to generate growth, including searching for ways to mobilize funds in order to finance recovery and sustained development. The question is “how?” Sadly, this is where the Maharlika proponents have also failed and continue to fail. They cannot spell out how allocating huge funds for possible investments in projects at home and bonds abroad can create wealth and jobs for the nation—now. The need for quality jobs and sustainable recovery is in the present, not in an uncertain distant future when the MWF is supposedly bearing profits for the nation.

Now everybody knows a little more on what is a sovereign wealth fund. It is a fund set up by governments enjoying extra budgetary surpluses for investment to achieve long-term economic development goals for the well being of their citizens. Norway, United Arab Emirates and Alaska are often cited as models. Their sovereign wealth funds were organized to take advantage of surplus funds generated by their oil revenues; these funds, in turn, are invested in stocks, bonds and profitable enterprises. In Alaska, citizens get an annual dividend from the earnings of their sovereign wealth fund.

But a sovereign wealth fund can also be used for very clear nationbuilding tasks. Thus, in the case of Singapore, Temasek was established in 1974 to help the then f ledgling city state, after its secession in the1960s from the Federation of Malaysia, manage some of the productive assets left behind by the British colonial rulers. Temasek was also used by Singapore to develop and maintain “government-linked” corporations and industries such as Singapore Power, Singapore Air Lines, Keppel and Singapore Telecom, which is a part-owner of Globe Telecom. Temasek also helps manage the Central Provident Fund, which is a major source of retirement funds for Singapore citizens.

In the last 20 years or so, China and Russia have joined the sovereign wealth fund bandwagon. This time the reason is more than having budgetary surpluses or rich mineral exports. In the case of China, the Communist Party of China, staunchly committed to build “socialism with Chinese characteristics,” saw the need to tame the runaway trend towards the development of a free-wheeling capitalist order lorded over by a few corporate behemoths such as Jack Ma of Alibaba. In the 1970s and 1980s, more than half of the state-owned enterprises (SOES) built during the Maoist era disappeared. However, since the turn of the millennium, a number of sovereign wealth funds have sprouted and are now occupying the commanding heights of the Chinese economy. They include the China Investment Corporation, which is a major player in spreading the “global reach” of China through its Belt and Road Initiative.

In the case of Russia, the government of Vladimir Putin tried to “correct” the destruction of the public sector of Russia due to the implementation of the Imf-led neoliberal “shock therapy” in the 1990s. Of course, Russia has huge oil and mineral resources to back up the formation of sovereign wealth funds.

In the case of the Philippines, the MWF initiative appears to be an anomaly, as various critics have duly noted. The country has no budgetary surplus and is deeply in debt. Its budgetary deficit for 2023 is estimated to reach P2 trillion.

The timing is also bad. The country’s growth prospects in the coming years are very uncertain given the volatility in the global economic order. Even the World Bank took note of this in its 2022 Philippine update. The World Bank projected a growth rate of five percent or so for 2023 and the years thereafter; in contrast, the government technocrats have never tired talking of 7-8 percent growth rate for the coming years.

Given the foregoing, some civil society organizations such as the Third World Network, Freedom from Debt Coalition and the Nagkaisa Labor Coalition are advocating instead for the adoption of a wealth tax to finance the national budgetary shortfall, reduce the country’s mounting debt problem and yes, finance development projects needed to rev up the economy and create more and better jobs. On this last point, there are many promising areas where the government, if it has the money, can steer or even channel investments. These include the agri-food sector, which has been flattened by decades of neglect and one-sided trade liberalization.

PBBM has also mentioned in his recent speeches the importance of building up domestic manufacturing, blue economy and green economy. These are all laudable targets for development. The problem is that the government has not released enough details on how these targets can be developed. As the country’s experience with the controversial Maharlika proposal, the angel or the devil is in the details.