What is the Maharlika Investment Fund (MIF)?
The MIF is a sovereign wealth fund. It is a pool of money for investment that will be managed by a government company called the Maharlika Investment Corp (MIC).
The MIF will be established by the government "by investing national funds, and coordinating and strengthening the investment activities of the country’s top-performing government financial institutions to promote economic growth and social development," according to the bill creating it that Congress passed last May 31.
Other countries operate similar funds. Norway has the biggest valued at $1.2 trillion as of the end of 2022. Singapore's Temasek Holdings meanwhile was worth $403 billion at the end of 2022.
Norway uses excess earnings from its oil industry for its sovereign fund. Temasek meanwhile holds and manages assets previously directly held by the Singaporean government.
Who will fund the MIF?
The government will be funding the MIF, which will have an authorized capital of P500 billion.
According to Senate Bill 2020 that the House of Representatives adopted, the MIF will initially get the following contributions:
- P50 billion from the National Government
- P50 billion from LandBank
- P25 billion from DBP
Another P125 billion will come from the National Government and GOCCs or GFIs.
The Bangko Sentral ng Pilipinas is mandated to give 100 percent of its dividends to the MIC for the first two years of the MIC's operation.
The Philippine Amusement and Gaming Corp (Pagcor) meanwhile will give 10 percent of its income to the MIC for five years.
Additional funding will come from the privatization of government assets.
The MIF will not get funding from the Social Security System (SSS), Government Service Insurance System (GSIS), Philippine Health Insurance Corporation (PhilHealth), Home Development Mutual Fund (Pag-IBIG Fund), Overseas Workers Welfare Administration (OWWA), and Philippine Veterans Affairs Office (PVAO) Pension Fund.
Despite this provision in the bill, President Ferdinand Marcos, Jr. said it is up to pension fund agencies to invest in the MIF. As of press time, there is no announcement yet from government whether Marcos has signed the proposed measure into law.
When Maharlika was first proposed, the SSS and GSIS were mandated to invest in it. But these state-led pension funds were dropped as seed funding sources following concerns that their ability to make pension payments may be affected if the MIF loses money.
What is the governing body of the MIC?
The MIC's Board of Directors will have nine members composed of the following:
Chairperson - Secretary of Finance (ex-officio capacity)
Vice Chairperson - President and Chief Executive Officer of the MIC
- President and CEO of LandBank
- President and CEO of the DBP
- two regular directors (to be appointed by the President of the Philippines upon recommendation of the Advisory Body for a term of three years; they should not hold any other public office or or have any private financial and business interest while in office)
- three Independent Directors from the private sector (to be appointed by the President of the Philippines upon the recommendation of the Advisory Body for a term of one year)
The Advisory Body is composed of the Secretary of the Department of Budget and Management, the Secretary of National Economic and Development Authority, and the Treasurer of the Philippines.
The MIC will also have a President and CEO to be appointed by the President of the Philippines, as recommended by the Advisory Body, for a term of three years, as well as a Chief Investment and Operating Officer.
The Board is tasked to create a Risk Management Committee.
What are the functions of the MIC?
The MIC is mandated, among others, to "establish a diversified portfolio of investments in the local and global financial markets and in other assets that promote the objectives of the Fund," the bill said.
It may issue "all kinds of bonds, debentures, and securities, and/or the renewal or refunding thereof..., within and/or outside the Philippines."
The MIC may engage in the following investments:
- Cash, foreign currencies, metals, and other tradeable commodities
- Fixed income instruments issued by sovereigns, quasi-sovereigns and supranationals
- Domestic and foreign corporate bonds
- Listed or unlisted equities, whether common, preferred, or hybrids
- Islamic investments, such as Sukuk bondS
- Joint Ventures or Co-Investments, mergers and acquisitions
- Mutual and Exchange-traded Funds invested in underlying assets
- Real estate and infrastructure projects: Provided, That investments in infrastructure projects shall be directed towards the fulfillment of national priorities such as 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)
- Programs and projects on health, education, research and innovation, and other such investments that contribute to sustainable development
- Loans and guarantees to, or participation into joint ventures or consortiums with Filipino and foreign investors, whether in the majority or minority position in commercial, industrial, mining, agricultural, housing, energy, and other enterprises, which may be necessary or contributory to the economic development of the country, or important to the public interest; and
- Other investments with sustainable and developmental impact aligned with Section 17 of the proposed law, as may be approved by the Board
The books and accounts of the MIC are subject to examination by the Commission on Audit, while Congress will also have oversight.
The bill has provisions on offenses and penalties such as those on graft and corrupt practices.
The MIC will exist for a term of 35 years from the date of the effectivity of the proposed law, unless sooner repealed or extended by Congress, the bill reads.
Maharlika Investment Fund Act of 2023
What do the critics say?
Critics say the sovereign wealth fund remains flawed because of the following reasons:
- No money -
Economist Solita Monsod said the Philippines cannot afford to have a sovereign wealth fund because it does not have any surplus income that can be invested.
Other economists noted that instead of a surplus, the country has a large debt, fiscal deficit and balance of payments deficit.
- Risk to BSP -
Former BSP Deputy Governor Diwa Guinigundo warned that using dividends of the central bank for the MIF may affect the BSP’s ability to keep prices and the financial system stable.
He said the BSP needs adequate financial resources to fulfill its mandate, and making it give its dividends to the MIF could impair this.
- Risk to Landbank, DBP and banking system -
The Foundation for Economic Freedom has pointed out that the P50 billion seed funding from the Landbank and P25 billion from the DBP already represent 25 percent and 33 percent, respectively, of the capital of these banks.
The group warned that if the MIF’s value falls, this will impact the two banks which might even spread to the rest of the banking system.
- Risk of corruption -
Other groups warned that MIF may go the way of Malaysia’s sovereign fund 1MDB, which was plundered by high level officials and their associates.
Guinigundo and Monsod have said that this may also happen to the MIF.
Senator Risa Hontiveros, who was the lone senator to vote against the bill, called for clear punishments for MIC officials who will be proven to be corrupt.
What do the proponents say?
Budget Secretary Amenah Pangandaman said the approved bill has safeguards in place to protect the fund including a Congressional oversight committee and the scheduled reviews by the Commission on Audit.
Finance Secretary Benjamin Diokno downplayed concerns the MIF may lead to the collapse of state-run banks since the GFIs would only be investing three percent of their total investable fund.
Diokno also said the MIF will boost the country's revenues and support the administration's economic goals.