Maharlika fund a losing investment —Carpio

The proposed Maharlika Investment Fund (MIF) could be a losing proposition as the cost of putting up the fund could exceed the expected returns, retired Supreme Court Associate Justice Antonio Carpio said Friday.

“Simple lang eh. The cost of putting up the operating fund of MIF is 8% to 9% of the MIF, which will exceed the expected return of  [investments of] 7% to 8% every year. It is very clear, hindi investment ito kasi talo agad eh (This is not an investment because it is a losing initiative from the start),” Carpio, one of the convenors of opposition coalition 1Sambayan, said in a virtual news conference.

Carpio said that at least 29% of the P5.268 trillion budget for 2023 is already debt-funded, which should be addressed since it affects the country’s credit standing and capacity to borrow.

“Our debt is P7 trillion higher compared with pre-pandemic time. We should work on reducing that. Why go through this. We are putting this up at the worst possible time. This is a matter of wisdom and soundness, not legality,” he said.

Carpio issued his remarks a day after the House of Representatives approved House Bill 6608 proposing the creation of the Maharlika Investment Fund, which was earlier certified by the president as an urgent measure.

The MIF bill seeks to maximize the investible funds of state-run financial institutions and ultimately increase public funds for nation-building.

The initial funding of the MIF will come from the following:

• Landbank of the Philippines (LBP) (P50 billion)
• Development Bank of the Philippines (DBP) (P25 billion)
• 100% of  Bangko Sentral ng Pilipinas’ (BSP) declared dividends for first and second year of the law’s implementation and 50% in the succeeding years
• 10% from Philippine Amusement and Gaming Corporation and state-owned gaming operators’ revenue
• royalties and/or special assessments on natural resources based on  the fiscal regime to be implemented by the national government
• proceeds from privatization of government assets and borrowings by the MIF

Behest loans

Former Bangko Sentral ng Pilipinas Deputy Governor Diwa Gunigundo said that based on country’s experience during the Martial law years, the investment portfolio of the MIF could drive the public funds to people and firms with vested interests.

“This could be like our experience during the Martial law on behest loans. Under House Bill 6608, nothing can prevent the Maharlika Fund from doing that given that it allows guarantees on joint ventures, commercial real estate, among others, as may be approved by its Board,” referring to Maharlika Investment Corporation (MIC) which is mandated to manage the MIF.

Gunigundo was referring to Article 4, Section 13 of the MIF bill which states that allowable investments may include “loans and guarantees to, or participation into joint ventures or consortiums with Filipino and foreign investors, whether in the majority or minority position in commercial,  industrial, mining, agricultural, housing, energy, and other enterprises, which may be  necessary or contributory to the economic development of the country, or important to the public interest.”

These are subject to strict compliance to the investment and risk management guidelines and the review of the board of directors of the MIC.

“The authors are right to say that the policy of the state is to create jobs, promote trade and investments, expand infrastructure, achieve energy and food sufficiency, but there are definitely better ways to achieve these goals rather than putting up an MIF,” Gunigundo said.

He also said that the three fund sources of the MIF are mandated to cater to needs of specific sectors. The funds of LBP and DBP are used for programs for farmers, fisherfolk, micro, small and medium enterprises and government employees' payroll.

The BSP is tasked to provide assistance to the LBP and DBP to ensure that depositors of these banks, including the government itself, won’t suffer losses, the former central bank official added.

Gunigundo said that the MIF bill will affect BSP's standing to aid LBP and DBP during a crisis.  He cited Section 11 of the MIF bill which states that the founding GFIs LBP and DBP “will be entitled to prudential and other regulatory reliefs, as may be determined by the BSP, to promote the financial soundness of these financial institutions while contributing to the overall objective of the MIF.”

“What gives them the impression that this modality will produce better? Why not keep the fund with the GFIs? MIF says it can invest in foreign currencies, tradable commodities which are very cumulative and very risky. This would decrease loanable funds of the LBP and DBP for farmers, fisherfolk and MSMEs,” he said.

“P75 billion is a big amount, why not use it to do better in providing accessible and good financial solutions for their clients such as farmers, small businesses and LGUs? Why not directly invest in them? We are told to wait until the investment yields possible results. The people  need the fund now, not tomorrow. Let's drop the idea,” Gunigundo added.

Better economy

But for one of the MIF bill's authors, Majority Leader Mannix Dalipe of Zamboanga City, Congress did the right thing in addressing the needs of the people.

"We are happy that we were able to pass House Bill 6608 which would create the Maharlika Investment Fund. This is our best gift to our people as we all aspire for a better economy so that we can have the funds needed to uplift the lives of our people," he said in a separate statement.

"We need this law to jumpstart our economy which was badly hit by the coronavirus pandemic," he added.—LDF, GMA Integrated News