December 4th, 2022
House Ways and Means Chair Joey Sarte Salceda (Albay, 2nd district) issued a statement in response to comments by the Foundation for Economic Freedom about the Maharlika Sovereign Wealth Fund. Salceda is the Chair of the technical working group (TWG) assigned by the House leadership to hammer out the bill.
Salceda responded to five key points raised by the FEF in its official statement, which Salceda says “the TWG considers very seriously.”
On fiscal prudence
Salceda responded to concerns of the FEF that the government should focus on reducing the deficit instead of capitalizing the Fund.
“The infusions by the GFIs will not increase the country’s deficit. In fact, since all of the GFIs are wholly-owned by the NG, any infusion in the SWF by these GFIs is neutral to the Consolidated Public Sector Fiscal Position (CPSFP),” Salceda said.
“We are also open to limiting subsequent annual NG infusions only to incremental increases in taxes from the mining sector or other natural resource taxes,” Salceda added. Salceda has already mentioned to news outlets the possibility “of infusing the Fund with mining and natural gas revenues.”
“This could be a similar provision to the annual subscriptions by PAGCOR, which is limited to 10% of new gross gaming revenue streams after the enactment of the SWF charter.”
On additionality
FEF members also raised the concern that the Fund might not serve any additional purpose, since the GFIs can invest in certain instruments anyway.
“The SWF allows the GSIS and the SSS limited exposure (less than 10% of their assets) into potentially higher-yield investments, such as foreign growth stocks in the tech sector (no similar stocks in the Philippine market) or in direct or more active investments and project financing,” Salceda said.
Actuarial solvency of pension funds
Salceda also answered concerns about the possibility that investing in the Fund will shorten the fund life of the GSIS and the SSS, which already have sizable contingent liabilities.
“Part of an overall strategy to extend the solvency of pension funds must be to ensure that the GSIS and the SSS generate returns at a better rate than their currency 5.89% medium-term annual average. Otherwise, extending their solvency will require greater contributions from members and higher subsidies from the national government,” Salceda said.
On increasing contingent liabilities of the GFIs
Salceda also responded to comments about the Fund possibly increasing contingent liabilities of the GFIs.
“The SSS and the GSIS will not incur contingent liabilities as a result of investing through preferred shares and convertible debt securities, as they will be government guaranteed. The risk-weighting of such investments, then, should be zero.”
Salceda said that he emphasized the need for this provision during the TWG meetings on the matter.
On the use of BSP dividends:
Salceda also responded to the concern that BSP dividends, 50% of which are being proposed to be infused into the fund, should be retained by the BSP to capitalize the national government’s P200 billion-stake in the central bank.
“We are open to an amendment that the BSP’s contributions will only begin once the NG’s capitalization of the BSP is fully subscribed.”
“I also emphasize that under the amended BSP Charter which took effect on 6 March 2019, the BSP shall remit fifty per cent (50%) of its net profits to the NG. That means the other 50%, which can be remitted to the Fund, is available.”
On the SWF’s role in the economy
Salceda also addressed concerns that the Fund will have an outsize role in intervening in the economy, particularly the FEF’s concern that the Fund could be a “dominant decision maker” in the markets.
“The SWF will not be a “dominant decision maker” as it will only account for, at best, around 1.3 to 2% of GDP of assets under management at the initial stages. Subsequent infusions will not significantly outpace nominal economic growth, so you’ll see the Fund staying within that range.”
Salceda also pointed out that “Its assets under management will be dwarfed by such companies as SM Investments Corporation (P1.3 trillion), Ayala Corporation (P2.4 trillion), GT Capital Holdings (P2.46 trillion), LT Group (P1.1 trillion), and other major private sector market participants.”
“There are much bigger private sector investors than the Fund, which will be just another market participant, not a regulator, not a direct competitor of the private sector, and certainly not an intended as a replacement for the private sector.” Salceda added.
Salceda says the House intends to conduct a briefing with the GFIs on these concerns on Monday, while the TWG continues to study the bill for possible enhancements.
“Although I am not among the original authors of this bill, as TWG chair, I will discharge my obligation to make this as viable and as agreeable as possible. I welcome all relevant comments, and consider all suggestions,” Salceda said.