Statement in response to the UPSE Discussion Paper on the Maharlika Investment Fund

June 7th, 2023

By Rep. Joey Sarte Salceda
Technical Working Group Chair and Member of the Bicameral Conference Committee
Maharlika Investment Fund Act
7 July 2023

I would like to respond to some issues raised by members of the UPSE faculty in their discussion paper on the recently ratified Maharlika Investment Fund Act. I hope this clarifies, provides context, and addresses some of the key points in the paper.

1. On the double bottomline approach. First, the emphasis on the “double bottomline approach” as if it is something to be avoided. Every major company in the world, by virtue of complying with Environmental, Social, and Governance (ESG), is pursuing this approach in some manner.

Furthermore, there is no implication in the bill or in the discussions towards the bill, that the developmental outcomes were to be a substitute to real financial returns. If anything, we emphasized during the discussions in the House that projects such as dams, grids, and toll roads are very profitable, if long-gestating projects.

I also specifically explained during House discussions that at certain points, you will need a portfolio mix of long-gestating development projects and short-to-medium-term financial investments, so you can make immediate absolute returns while the longer-term investments mature. It would be bad if social and economic returns were presented as a substitute for absolute financial returns. That is clearly not the case here – and it’s never a bad idea to hit two birds with one stone.

2. On the policy objective of the MIF, and whether it is a development fund. Now, clearly stating whether the MIF is a developmental fund or a financial investments fund is a false dichotomy. Of course, at the core, the MIF is developmental. The President has repeated this, and this is the main direction of the Fund. But it has to make money to be sustainable.

Section 13 also makes it clear that it is a development fund above all else. In unequivocal terms, it states that “The objective of MIF is to promote socio-economic development.” End of story there. What follows that provision are ways to do it, not objectives. So, it’s mainly a development fund, and if it takes on the characteristics of an investment fund in some respects, it does so only because it necessarily has to be involved in the financial markets.

3. On alignment with the Philippine Development Plan. The argument of vagueness in its development objectives also misses very specific references to infrastructure having to align with the “national infrastructure program of the Department of Public Works and Highways (DPWH) and other infrastructure agencies, the inclusive innovation industry strategy of the Department of Trade and Industry (DTI), and the public investment programs of the National Economic Development Authority (NEDA).” That includes the Philippine Development Plan, without having to mention it.
4. On the National Development Corporation: I advocated for the absorption of the NDC into MIF to streamline their objectives, both in the House discussions and during the pre-bicameral meeting. But the economic managers who steered the discussions were concerned about branding the MIF as different from the NDC. What would give the MIF additionality over the NDC is (1) size, (2) broader access to the capital markets, and (3) having multilaterals as strategic partners at inception. I urge the economic managers to take this direction.
5. On redundancy with investment functions of GFIs: The GFIs have very specific objectives for pursuing certain objectives. LBP and DBP, for example, as banks, pursue investment activities with securing the depositor interest in mind. The MIF has very different objectives – although naturally, investments in similar sectors will produce similar socioeconomic outcomes. But this is no argument against pursuing the MIF.
6. On return on investments: To contextualize, when the House introduced prioritization for infrastructure and other developmental projects which would yield the highest return on investment, it was discussing grids, dams, and toll roads, which generated returns as high as 50% of gross revenue, making them both desirable development projects and attractive investments. So, from the perspective of the House, returns on investment is the commercial, financial return.
7. On encroaching upon the budget process and Congress’s power of the purse: The MIF is a creation of Congress, so we do not perceive this to be an attempt to supplant the Congressional power of the purse. The payment for subscription of shares by the National Government will be appropriated by Congress. The increase in capitalization has to be approved by Congress. There is a Joint Congressional Oversight Committee on the MIF. Even the corporate life can be sooner revoked by Congress. So, as far as the powers and existence of the MIF is concerned, Congress giveth, and Congress taketh away.
8. On governance structure: I do not see how installing a private sector-led board will make the MIF more accountable than installing a board of government officials who are liable to more laws, rules, and regulations than private sector individuals – who may have vested interests – are. I also do not see why a focus on domestic investments (a tendency, the paper suggests, when political leaders are on the Board) constitutes a problem. As earlier discussed, the MIF is above all else a development fund.
9. On the need to “crowd in” investments: I strongly urge the economic managers to take the course of action where multilaterals are engaged as strategic partners early on. I also urge them to make an action plan for listing the MIF in local and global stock exchanges. This are the easiest ways to “crowd in” investment. That will also give additionality to the fund, instead of depending on government funds, as the discussion paper appears to warn against. That will also reduce the cost of capital for development projects pursued by the MIF, and catalyze FDIs.

Countless experts, institutions, and opinion leaders have already argued for this approach. I reiterate my point that the language of the bill we ratified allows for this approach.

An unequivocal public pronouncement from the President, ideally during the State of the Nation Address, giving flesh to the development objective of the MIF as stated in Section 13 of the ratified bill.

I look forward to working with the economic managers in crafting the implementing rules and regulations of the measure.