MANILA - As the Senate deliberates on the Maharlika Investment Fund (MIF), several groups warned that the proposed sovereign wealth fund poses several risks to the Bangko Sentral ng Pilipinas.
The Management Association of the Philippines (MAP), the Foundation for Economic Freedom (FEF) and the UP School of Economics Alumni Association (UPSEAA) issued a joint statement on Wednesday saying the MIF “is fundamentally flawed and does not achieve the stated economic activities cited in its formation.”
“While we note that the State-managed pension funds have been removed as funding in the newly passed House Bill No. 6608, also known as the Maharlika Investment Fund Act, it is now the BSP, our government financial institutions (GFIs), and ultimately the national government (NG) that are in harm’s way,” the groups said.
In the version of the bill filed in the Senate, the MIF will be partially funded by the Bangko Sentral ng Pilipinas which will remit 100 percent of its dividends for 2 years to the Fund, and 50 percent in the succeeding years.
“In the succeeding fiscal years, the BSP shall remit fifty percent (50%) of its declared dividends to the Fund and the remaining fifty percent (50%) to the NG to fund the increase in the capitalization of BSP in accordance with Section 2 of R.A. No. 7653, as amended by R.A. No. 11211, until the increase in the capitalization of BSP has been fully paid. thereafter, BSP shall remit one hundred percent (100%) of its declared dividends to the Fund,” according to the bill filed by Senator Mark Villar.
MAP, FEF and the UPSEAA said “this not only amends the BSP’s mandate to promote monetary stability by adding an earnings factor for the MIF in its key performance indicators, but also effectively deprives the BSP of its ability to strengthen itself from its earnings to manage liquidity and inflation, as well as help distressed financial institutions.”
“It compromises the BSP’s autonomy, independence, and ability to deliver on its price and financial stability mandates,” the three groups warned.
The groups’ joint statement saidf the BSP’s monetary objectives could be at odds with the MIF’s need for funding through the BSP’s earnings and dividends.
They noted that the BSP imposes reserve requirements on banks, on which it may pay interest.
“Easing these requirements reduces the “income” of the BSP, and by extension its dividends, but it boosts the economy by lowering the costs of financial intermediation.”
They also noted that the BSP intervenes in the foreign exchange market, to create a more stable environment for companies.
“Such interventions can cause the BSP to gain or lose profits. Should the BSP’s forex stabilization efforts be tainted by pressure to maximize dividends for the MIF?”
The groups said the MIF was flawed as its “funding of the MIF will not come from significant surpluses from commodity earnings or government operating results.”
“Instead, the funding will be extracted from – and weaken – the BSP, GFIs, and other GOCCs. Weakening the BSP will reduce its ability to fulfill its primary purposes, and relying on the BSP’s dividends will engender systemic risks.”
President Ferdinand Marcos Jr. has called for a swift passage of the MIF bill, filed by his son and a cousin in the House of Representatives, saying this will allow the government to earn extra funds to finance projects.
The House passed the proposal in December. The Senate must pass a counterpart bill for the measure to become law.