Proposed Philippine Wealth Fund Sparks Jitters
Shades of Marcoses past
By: Viswa Nathan
A legislative initiative to create a sovereign wealth fund to support President Ferdinand Marcos Jr’s national development agenda has evoked widespread controversy.
Sovereign wealth funds are widely used investment vehicles for governments to channel inactive reserves for beneficial applications. They are usually created with the country’s idle surplus funds. The largest and best-known such funds are those of countries with sustained surpluses, whether produced by oil, such as Norway and Kuwait, or by a combination of high savings and current account surpluses, such as Singapore. The Philippines currently has neither. So unless that changes, any such fund could only be created by extraction from existing savings or investment vehicles or by a de facto tax on foreign earnings and remittances.
The name Maharlika is of controversial origin, and it is tied in more ways than one to the president’s father, Ferdinand, who ruled the country for over two decades—part of which by martial law. Marcos père was among the few who believed Maharlika was an ancient name for a part of these islands. He even wanted to rename the country Maharlika to celebrate the free spirit of the Filipino, thus also cleansing itself of the colonial past the name the Philippines projected. Marcos Sr. also claimed that he commanded a guerilla group known as the Maharlika Unit against the Japanese during the Second World War and won US medals for heroism. But that did not go unchallenged. The New York Times reported on January 23, 1986, that no records in the US government archives support the claim. There is also the claim that the name is linked to the Marcoses’ massive wealth, particularly probably mythical gold holdings.
Then there is the question about the bill’s sponsors for creating the Maharlika fund—Speaker of the House, Marcos’ cousin Martin Romualdez, and the senior deputy majority House leader, the president’s son, Ferdinand “Sandro” Marcos III. They also want the president to become chairman of the fund.
There is also concern over the haste in pushing the bill into law before congress goes into Christmas recess. Why are they rushing its approval, asked Senator Jinggoy Estrada, among others. Estrada is not against the idea but said senators have yet to discuss the matter, considering the fund will rely primarily on contributions from state pension funds and state-owned lenders.
The bill, filed on Nov 28, was read on the same day, approved at the committee level two days later, and moved for public consultation to start within a week, with the chairman of the House Ways and Means panel aiming to have it approved on second reading within nine days since its filing.
Some of the fears raised by those who are doubtful of the Maharlika Fund initiative could well be “products of imagined fears of people who are stuck in the past and would rather dwell in it than innovate,” said Manila Times columnist Antonio Contreras in his December 6 commentary.
Even among Marcos’s finance team, opinion is divided. Finance Secretary Benjamin Diokno supports it. Media reports quoted him as saying the fund would benefit the current and future generations of Filipinos. “I think we should have a sovereign wealth fund like other ASEAN countries,” he said, though Singapore is the only one with a noteworthy one; Malaysia’s 1Malaysia Development Bhd offers a glaring example of how easily such funds can become sources of corruption and national loss on a gigantic scale. Central bank governor Felipe Medalla raised concern about requiring the central bank to invest in the fund. Bloomberg TV reported that citing Malaysia’s experience with its 1MDB. He asked: “Even if the current guys are OK, the guys five years from now will still be OK?” To Medalla, it is a governance issue and could infringe on the BSP’s independence.
The problem is not just one of trust in management but of sourcing the fund. The Philippines’ trade has long been in deficit. Despite US$36 billion in annual remittances, the current account deficit has ballooned and is expected to reach US$20 billion, or 5 percent of GDP, this year. International reserves, at US$94 billion now, are no more than adequate to keep the currency stable. Reserves have peso has fallen by about $14 billion over the past year and will likely continue to fall in 2023.
The original idea for Maharlika was to tap the two pension funds—the Government Services Insurance System and the Social Security System—for the lion’s share of the PHP275 billion startup funding and the rest from the government-owned LandBank and the Development Bank of the Philippines as well as the national government. Additionally, annual contribution from the foreign currency equivalent of 10 percent of the remittances of overseas Filipino workers, 10 percent of the yearly contribution of the business process outsourcing (BPO), and 10 percent of the gaming proceeds of the Philippine Amusement and Gaming Corp (Pagcor).
Drawing from the pension funds, which belong to the retirees, touched a raw nerve. Sovereign funds are expected to produce high rewards but are also high-risk ventures. The pension funds buy government debt and investments in private companies, so requiring them to divert cash flow to a new fund would simply mean less for other investments. Likewise, a 10 percent tax on overseas worker remittances and BPO earnings would be deeply resented by recipients as it would cause hardship to millions of families reliant on remittances.
Some skeptics wonder if this initiative for a wealth fund this early in the second Marcos administration, and with the president—who is also one of the executioners of his father’s will—as its chairman, could turn out to be a covert move to launder the vast Marcos wealth hidden abroad. Should that be true, said Manny SD Lopez, an unsuccessful candidate in the vice-presidential election in May, in a Facebook posting, “the final act of Ferdinand E. Marcos Sr’s statesmanship will be etched in history.”
Otherwise, even if capital for it can be generated, the low level of public trust in the propriety of politicians and officials—not least the Marcos family—would likely be a cloud forever hanging over the Maharlika Fund.