Bangko Sentral ng Pilipinas (BSP) Governor Felipe Medalla assured senators Thursday that the regulator’s financial strength would not be affected even if it extends 100 percent of its dividends to the proposed Maharlika Investment Fund (MIF).
At a hearing before the Senate committee on banks, financial institutions and currencies, Medalla said the BSP supports the objectives of Senate Bill No. 1670 or the “Maharlika Investment Fund (MIF) Act” filed by Senator Mark Villar.
The measure, whose counterpart in the House has already been approved, proposes to establish an MIF, an independent sovereign wealth fund that adheres to the principles of good governance, transparency and accountability, and promotes economic development and other objectives to develop the economy.
He said he supported in particular provisions that explicitly mention the BSP and how its dividends could be used to fund the MIF.
Medalla acknowledged that this would postpone the buildup of the BSP’s capitalization, but said their balance sheet was strong and could easily absorb this postponement.
Under the proposal, BSP will pay 100 percent of its dividends to the MIF while state-run financial institutions Land Bank of the Philippines and Development Bank of the Philippines will contribute P50 billion and P25 billion, respectively.
Medalla also said he supports the provisions that say BSP might extend regulatory relief to DBP and LandBank of the Philippines.
“Some critics may say that it gives undue advantage to Landbank and DBP relative to private banks, but one must be aware too that Landbank and DBP are also quite restricted by their mandates [as government financial institutions] and don’t really directly compete very much with the private banks. So we do not see that as [posing] a major competition problem,” Medalla said.
Medalla said this measure requires a whole-of-government approach, great focus, and proper implementation to achieve its objectives.
The BSP is authorized—under the amended 2019 BSP Law—to recapitalize to P200 billion, which is significantly higher than the previous P50 billion. But based on Republic Act 11211 or the New Central Bank Act, its increased capitalization will only be funded solely from its declared dividends.
House Bill No. 6608, or the Maharlika Investment Fund Act, was approved on third and final reading by the House of Representatives on Dec. 15, 2022. Senate Bill No. 1670 was filed on Jan. 12, 2023, which serves as the counterpart bill for the measure approved by the House.
Earlier, the Department of Finance welcomed the release of the timely report from the Milken Institute’s Financial Innovations Labs on the “Best Practices of Sovereign Wealth Funds: The Case for the Philippines” as Senate deliberations on the proposed MIF started.
The report highlighted the three major principles behind successful sovereign wealth funds. These are clear funding sources, objectives, and strategies; robust governance structure and effective operational and management systems; and appropriate investment and performance metrics, consistent with the objectives and the mandates of the MIF. (See full story online at manilastandard.net)
The report also highlighted the value proposition of the Maharlika Investment Fund for both the investors and the country. As demonstrated by the 7.6-percent gross domestic product growth rate in 2022, the report said the Philippines’ strong economic fundamentals ensure that it will enjoy a high growth trajectory in the coming years.
It said the MIF will provide an opportunity to invest in critical infrastructure projects in the logistics, telecommunications, and transportation sectors. These projects will increase the future growth potential of the Philippine economy, it added.
But Senate Minority Leader Aquilino imentel III said he believes there is no need for the MIF and said he would work to block it in the Senate.
“I see no reason why we should be putting up this kind of a corporation where we are so confused as to their objectives and sources of funding,” Pimentel said.
What started out as a sovereign wealth fund was now an investment fund, he said, and the model used to be Norway, but this was changed to Indonesia.
“So we do not know what we want because we cannot justify it,” he said.
He likened the MIF to a gambler given the power to borrow money.
He also said there are no clear surplus or excess funds, no newly-discovered wealth or new source of funds that can be the reasons for the creation of a sovereign wealth fund.
He said the MIF, which can either earn or lose money, is just based on theories. He said it is also likely that the country will suffer losses similar to what happened to the Norwegian sovereign wealth fund.
Senator Alan Peter Cayetano, meanwhile, renewed his proposal for the government to kickstart an infrastructure investment fund as an alternative to the MIF.
“Why not have a platform for Juan dela Cruz where they can invest in these projects and get a board seat? ” he asked.
“With that, you have the same result as the Maharlika Investment Fund with safeguards,” Cayetano said.
He pointed to infrastructure projects like skyways and highways that have been making money for their investors.