'Maharlika fund' seed capital cut by more than half

RG Cruz, ABS-CBN News

Posted at Dec 09 2022 07:00 PM

MANILA — The Maharlika Wealth Fund's initial capitalization will be cut by more than half to just P110 billion from P275 billion after the House leadership dropped the Social Security System, Government Service Insurance System, and the national budget from its roster of financiers.

The President of the Philippines was also replaced by the Secretary of Finance as head of the MWF Corporation's governing board.

In the latest iteration of the bill, P50 billion from the Landbank of the Philippines, P25 billion from the Development Bank of the Philippines and 100% of the dividends of the Bangko Sentral ng Pilipinas the year before the approval of the law, will go into the capitalization of the MWF, as approved by the House Appropriations Committee. 

The panel reviewed the bill's funding requirements, in accordance with House rules, after it hurdled the Committee on Banks and Financial Intermediaries and the Committee on Ways and Means.

 House Appropriations Committee Senior Vice Chair and Marikina 2nd District Rep. Stella Quimbo announced the latest set of changes to the bill that was originally filed by Speaker Martin Romualdez and Senior Deputy Majority Leader Sandro Marcos.

"Each founding GFI will increase its investment above the required equity contribution. The founding GFIs shall be entitled to potential and other regulatory reliefs as may be determined by the BSP to ensure the financial soundness of these financial institutions while contributing to the overall objective of the MWF," Quimbo said.

"Investments of contributors may be in the form of marketable or convertible securities and other forms, as may be determined by the Board of Directors provided that security or debt instruments issued by MWFC to government financial institutions shall be guaranteed by the national government," she added.

"Other GFIs and GOCCs shall be authorized to contribute to the MWF subject to their respective investment and risk management strategies," Quimbo also said.

While the latest version of the bill states that the BSP shall remit 100 percent of its declared dividends as computed by RA 7653 and amended by RA 11211 to the fund, for succeeding fiscal years, the BSP shall remit 50 percent of its declared dividends to the fund and the remaining 50 percent to the national government to fund the increase in the capitalization of BSP in accordance with Section 2 of RA 7653 as amended by RA 11211 until the increase in the capitalization of BSP has been fully paid. 

Thereafter BSP shall remit 100 percent of its declared dividends to the fund. The BSP is required to have a capitalization of P200 billion.

Likewise the BSP, upon the discretion of the monetary board, will invest a portion of its surplus in the MWF.

Quimbo also said that PAGCOR and other government-owned gaming corporations shall contribute at least 10 percent of gross gaming revenue streams created after the effectivity of this act.

Other funding sources are royalties and or special assessments on natural resources based on the fiscal regime to be implemented by the national government, proceeds from the privatization of government assets, and public borrowings.

Quimbo also announced the new composition of the board of directors, which will have 15 members lead by the Secretary of Finance, who will sit as the chairperson; the chief executive officer of the MWFC; the president of the Land Bank of the Philippines, the president of the Development Bank of the Philippines, seven regular members representing the contributors to the fund with the seats distributed in proportion to their corresponding investments, and 4 Independent directors from the private sector.

BANGKO SENTRAL'S FORMULA

During the hearing, the BSP said it expects dividends of P35 billion this year as it proposed a formula for its investment in the Maharlika fund. This means the total capitalization could stand at just a little over P100 billion.

BSP Deputy Governor Francis Dakila told lawmakers that they will use their dividends to invest in the fund. 

The BSP proposed to divert its dividends to the MWF to fund the initial investment, after which it will split its dividends between the MWF and the capitalization of the BSP. Once the capitalization requirement is met, the BSP can invest all of its dividends into the MWF.

"Kung ito ay iinvest ng Maharlika Investment Fund, so ito ang ibig sabihin niya so tatanggalin niyo yan sa as capitalization ng BSP kasi invest yan ng Maharlika Investment Fund in the future itong 30-35B?" House Deputy Minority Leader France Castro asked.

"Tama po yun magkakaroon ng delay sa pagtaas ng capitalization ng BSP," Dakila said.

"We would also like to clarify that we've been remitting dividends pursuant to the provisions of the amended charter of the BSP since 2018. however we have not received from the NG additional capitalization. So far we've only received this year P10 billion so we've remitted about 50-54B since 2019 but we've only received P10 billion to augment our capitalization so hindi po lahat ng naremit namin na dividendo ay nabalik na po sa BSP," Rivera said.

Rivera said the BSP is still short of P140 billion to meet its P200-billion capitalization.

"Marami pa kayo hahabulin na capitalization ng BSP. Ano epekto natin na tayo may hinahabol na P200 billion as capitalization now meron tayong P70 billion kalahati dadalhin sa MIF, yun timeframe na mapupunan," Castro said.

"In this environment its much more important that we conserve our international reserves so yun po ang siansabi namin itong proposal walang impact sa ating international reserves kasi ang remittance would be in pesos. Medyo madedelay lang yung kapitalisasyon ng BSP pero after the funding of the Maharlika Wealth Fund, yung 2nd phase ng proposal 50-50 split hanggang sa mafully capitalize ang BSP," Dakila said.

Dakila also clarified that the BDP dividends cannot make contributions indefinitely.

The BSP assured lawmakers that tapping BSP dividends won't affect the country's gross international reserves.

PAGCOR, GCG EXPRESS CONCERNS

The Philippine Amusements and Gaming Corporation, which is also expected to help fund the MWF, proposed the inclusion of other agencies as contributors while limiting their own participation.

"May we request that PAGCOR's funding should be charged from the 50% government-mandated share in PAGCOR's income and number 2, may we also request that the funding be limited to a period of 2 years only to enable PAGCOR to support funding requirements of the Universal Health Care, its mandates under its charter, duly enacted laws, other pending bills as well as the priority projects of the government," Mae Almonte of PAGCOR Legal told the hearing.

"May we also suggest that the said funding requirement be similarly imposed to the gaming regulators such as APECO, AFAP and CEZA given that these agencies also derive income from the regulation and licensing of games of chance thus they are also expected to contribute to nation building?" Almonte added.

Meantime, Michael Pabalinas, Director IV of the Governance Commission for Government Owned and Controlled Corporations, warned lawmakers that some of the bill's provisions on exemptions may face litigation.

"We submit to this body our observation on the possibility that the provisions on the proposed exemption of the Maharlika Wealth Fund Corporation from the GCG law, and some of its provisions, the procurement law, the CSC rules, contract review and dividends law maybe assailed in the courts in view of the equal protection clause of our Constitution," Pabalinas said.

QUIMBO: MWF IS A 3RD WAY OF REVENUE GENERATION

Quimbo, meanwhile, said the MWF is a 3rd way of generating revenues for the government, after taxes and loans.

"The bill creates an investment vehicle that will pool surplus funds of the government and ensures that it will be managed professionally and transparently. Mamumuhunan tayo sa financial investments at sa mga proyekto na mataas ang tubo pero bitin ang kapital," Quimbo said.

She also assured her colleagues that they will put in place safeguards, acknowledging that while this is a high-yield investment, it also comes with high risks.

"Natuto na tayo sa Malaysia kung saan isa lang ang signatory at sisiguraduhin natin na hindi tayo matutulad sa kanila," she said.