Salceda says GSIS, SSS to have limited gains from proposed Maharlika Wealth Fund

RG Cruz, ABS-CBN News

Posted at Dec 08 2022 02:00 AM

GSIS SSS

MANILA - Albay Rep. Joey Salceda, vice chair of the House Committee on Banks and Financial Intermediaries, said Wednesday that state pension firms will have limited gains from investing in the proposed "Maharlika Wealth Fund" (MWF).

Salceda, who led the technical working group that crafted the latest versions of the bill creating the MWF, said "the (Social Security System) and (Government Service Insurance System) have more limited gains from being invested in the fund compared to the potential gains for state banks with funds they could leverage to maximum advantage."

He made the statement shortly after Marikina 2nd District Rep. Stella Quimbo announced the House leadership’s decision to drop the GSIS and SSS and the annual national budget as funding sources for the controversial sovereign wealth fund proposal.

Salceda gave media copies of his handwritten analysis.

“Now that I have already dispensed with my role as TWG Chair, allow me to make my own personal assessment of the Maharlika Investment Fund Act as currently structured,” he said in his statement.

“The SSS and GSIS stand to suffer a reduction in cash flow during the gestation period of long-term projects like dams and grids, while foreign financial instruments will slightly reduce cash flow in the short-term, not to mention that friction cost of foreign currency conversion."

“Meanwhile, the SSS and GSIS overall returns will suffer a reduction initially before the long-gestation projects make ROI, but will increase significantly as the dams and grids start getting ROI, since the return on equity for dams and grids can be as much as 40-50%. Meanwhile, foreign financial instruments offer the chance for higher-beta investments that could increase returns, but probably at a maximum of 2% increase in the GSIS and SSS’s total returns,” he said.

According to Salceda, "the long-term investments will reduce the GSIS and SSS liquidity, which could affect their ability to meet claims." 

"Foreign financial instruments offer better liquidity than long-term domestic investments. But the Fund could miss profit opportunities if GSIS and SSS have to liquidate investments every so often to meet claims,“ he said.

Salceda floated an alternative.

“My idea is to recapitalize the National Development Company with Landbank resources (around P700 billion) so that it becomes something like Landbank InfraCapital as an allied undertaking pursuant to LBP’s classification as a Universal Bank. This would allow the bank to more vigorously invest in dams (90% of water use is by farmers), grid connectivity for rural communities, among other major projects that the President wishes to undertake,” he said.

In the same statement, the lawmaker also explained the need to delete Section 38 so that it is covered by reviews of contracts by the Office of the Government Corporate Counsel, and Section 41, to ensure full disclosure of documents and records. 

”The deletion would make the bill more consistent with GAPP 1-4 of the Santiago Principles,” Salceda said.

The MWF has been met with concern from some business groups, economists, activists and opposition figures, who questioned the need for a sovereign wealth fund in the debt-laden country.

They argue pension funds were already being invested and that diverting them to the MWF would expose them to additional risk.

In announcing the exclusion of funds from SSS and GSIS as contributors in the proposed MWF and and instead utilize profits of the Bangko Sentral ng Pilipinas, Quimbo said they also decided to drop the MWF funding from the annual national budget because it would affect the fiscal deficit. 

She said they decided to limit MWF contributions to the Land Bank, DBP and dividends from the BSP to ensure that Maharlika will be “deficit-neutral.”

In a statement over the weekend, retired Supreme Court Senior Associate Justice Antonio Carpio underscored that since SSS and GSIS funds are personal contributions of their respective members, the income of SSS and GSIS investible funds must benefit only their respective members.

"The income of the Maharlika Sovereign Wealth Fund is for the benefit of all Filipinos, including non-SSS and non-GSIS members. The law cannot give the income from SSS and GSIS funds to non-members who did not contribute to the funds," he said.

"This is taking of private property for a public purpose without just compensation, which is unconstitutional," he added.

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