December 19th, 2022
By Rep. Joey Sarte Salceda, Technical Working Group Chair
As Chair of the Technical Working Group for refining the Maharlika Investment Fund Act, I thank the House for its favorable consideration of the enhanced version of the bill.
I also thank the President for certifying the refined version of the bill as urgent. It recognizes the President’s favorable view of the safeguards we have introduced.
1. Why the Fund is important?
The Fund utilizes the investible funds of government financial instruments with excess funds — because as government depositories, they have access to billions of low to non-interest bearing monies that they can invest towards national development.
The MIF begins with an initial capitalization using just 1.6% of LBP assets, and around 2.5% of DBP assets. In other words, there are very little to no financial systemic risks involved. At the same time, however, it allows GFIs to be more directly involved in infrastructure and investments that will contribute to lowering power and other costs — through dams, grid interconnectivity, and minority positions in energy and other key sectors.
I also cannot stress enough that the mere entry of government into a position that allows it greater oversight over traditionally oligopolistic sectors will encourage these firms to behave better, especially with regards to pricing.
In other words, with regard to criticisms that inflation should be the exclusive priority of the government, this Fund helps address structural price issues in key sectors of the economy.
At the same time, the Fund is not allowed to have a controlling stake or direct management involvement in investee firms – a safeguard to address fears of corporate takeover by the Government.
2. The painstaking process of refining the bill
On my end alone, the bill went through at least seven rounds of revisions. The Committee on Banks and Financial Intermediaries also held at least four meetings and briefings with stakeholders. The Committees on Ways and Means and Appropriations also held their own hearings of the proposal.
The House leadership also conducted at least three meetings with the GFIs. This is on top of all other informal meetings and briefings with stakeholders, including critics. In other words, this was deliberated by the TWG and the originating Committee as closely as it could.
The TWG also submitted to the amendments even of critics of the bill, including those who signed statements against the bill in public, but worked with us on refining the proposal in private. We even accepted several amendments from the Minority.
Of course, the debate does not end here. As TWG Chair, I will continue to study viable models and frameworks for the MIF. I will continue to work with counterparts in the Senate to improve this measure or explain the proposal better.
3. Safeguards
The safeguards introduced in the MIF are multi-layered and interlocking, to ensure that multiple channels of accountability and transparency are available.
The safeguards introduced will make the MIF one of the most transparent, if not the most transparent, GOCC in the country. In fact, the transparency standards exceed those of both government and private sector funds (FOI, parity with PSE-listed firms, GCG disclosure rules, SRC and Revised Corp. Code disclosures, records kept in the National Archives)
The PSE-like disclosure rules are especially important, because they will allow the public to monitor transactions as they happen.
The audit standards exceed those of the private sector, since they are not COAble.
There are also several safety valves, including
1. Mandatory review of annual contributions by the SOF every five years (if found not fiscally prudent, contributions will accrue to NG)
2. Closure of sub-funds unprofitable for three years
3. Management and board are separate, so incompetent management can be terminated
There are also penal provisions that hold directors and officers accountable for losses due to grave neglect or abuse of discretion. They are also held to account for the amount of such losses.
There are several other safeguards in the proposal. The TWG introduced provisions actually operationalizing the Santiago Principles for proper SWF governance, rather than merely mentioning them.
4. Costs and risk profile of investments
While any investment has risks and possible rewards, the risk profile of the Fund is extremely limited.
We have prohibited investments in derivatives. Even ETFs have to be invested in underlying assets. In other words, they have to be invested in real businesses that create real value.
A risk management unit along with guidelines on risk management ensures that the portfolio of the Fund abides by sound asset management and risk management principles and practices.
5. Limited exemptions
The exemptions cited by critics as being contrary to good governance are also extremely limited, and made so only to the benefit of the State.
The tax exemptions inure exclusively to the Fund. There is an explicit provision against the use of the exemptions by third parties.
The exemption from the procurement law is only for professional and technical services so that we can hire the best foreign talent for asset management and research.
The exemption from the GCG Law only extends to compensation and composition of the Board (because the MIF’s guidelines for these are stricter) and as far as controlling or acquiring of corporations is concerned (only because unlike most GOCCs, the MIF cannot acquire a controlling stake in corporations). Otherwise, public disclosure, audit, and fiduciary responsibility provisions apply.
The civil service law, the Securities Regulation Code, the rest of the Procurement Law, the rest of the GCG Law, and all other laws, rules, and regulations on financial institutions apply.
6. Conclusion: Let’s elevate the national conversation
Overall, I expect the conversation on the bill to continue. I welcome the spirited public discussion of the MIF.
Rather than being reasons not to enact this measure, the country’s economic recovery and inflation situation ARE reasons for enacting the bill.
Several countries in fiscal deficit positions, including the most recent one (Indonesia) have already created SWFs precisely to address their public investment gaps. Much of our inflation comes from structural gaps in our infrastructure and public investments in key sectors.
It bears emphasizing that we are not funding this bill out of borrowings or incremental fiscal deficit. Rather, the MIF will help us finance additional programs and projects despite our limited fiscal means.
My channels, as always, remain open for suggestions, proposals, recommendations, and even points of criticism for the measure.