Metro Manila (CNN Philippines) — It was late November when leaders of the House of Representatives pushed for the creation of a sovereign wealth fund for the Philippines, in a bid to accrue profits of government assets.
The House bill filed by Speaker Martin Romualdez, senior deputy majority leader Ilocos Norte Rep. Sandro Marcos, and four other lawmakers, however, faced scrutiny from the public amid concerns on its capital sources and timing.
READ: PH still drowning in debt to support Maharlika fund — solon
But despite the widespread backlash, an overwhelming majority in the lower chamber voted in favor of the measure, passing the Maharlika Investment Fund (MIF) bill on final reading on Dec. 15 — or just around two weeks since the idea was first proposed.
But will the MIF be beneficial for the country in the long run? CNN Philippines breaks down what you need to know about the proposal:
What is a sovereign wealth fund? What is the MIF?
A sovereign wealth fund (SWF) is a state-owned investment fund commonly financed by a country's surplus revenues or reserves. The government invests these funds in financial and real assets with the target of stabilizing budgets, increasing savings, and promoting economic development.
The Maharlika fund, in particular, will be used by the government to invest in key sectors like foreign currencies, domestic and foreign corporate bonds, commercial real estate, and infrastructure projects — to help fund the country's priority programs.
It is patterned after the SWFs of dozens of other nations, including Singapore, China, Hong Kong, South Korea, and Malaysia.
President Ferdinand Marcos Jr. said his administration aims to establish the MIF for investments in agriculture, energy, digitalization, and the fight against climate change, among others.
Where will the gov't source funds?
Initial capital will be sourced from the Bangko Sentral ng Pilipinas (100% of dividends), as well as government financial institutions (GFIs) Land Bank of the Philippines (₱50 billion) and the Development Bank of the Philippines (₱25 billion).
According to House Bill No. 6608, the GFIs may also hike their respective investments above the required contribution, and will likewise be entitled to "prudential and regulatory reliefs" to protect their financial soundness.
Subsequent annual contributions will also come from the gross revenue streams of the Philippine Amusement and Gaming Corporation and other government-owned gaming operators.
An earlier version of the bill included pension funds Government Service Insurance System and the Social Security System as among the sources for the seed capital, but lawmakers decided to remove them from the provision after taking flak from the public.
RELATED: Solon urges Congress to clarify role of SSS, GSIS in Maharlika fund
But in mid-January, Albay 2nd District Rep. Joey Salceda revealed in a television interview that a “re-engineered” MIF proposal will drop the dividends from the BSP as a capital source. It will be funded instead by surpluses from government-owned and controlled corporations before it is listed on the Philippine Stock Exchange and before the conduct of an initial public offering.
As of publishing, the said provision has yet to be reflected in available copies of the MIF bill in both chambers of Congress.
Who will oversee the fund?
There will be a set board of directors who will govern and oversee operations related to the MIF.
Chaired by the finance secretary, the body will be comprised of executives from Landbank and DBP, representatives of the contributors to the fund, as well as "independent directors" from the academe and business sectors. The Philippine president was set to sit as the chairperson but concerns on possible politicking were raised.
What are the concerns?
With the country's inflation rate still on the rise, several lawmakers and groups have questioned the proposed sovereign wealth fund, saying there are more urgent needs for the marginalized and poor sectors.
For urban poor group Kadamay, the government must instead prioritize meeting the country's housing backlog by allocating a ₱36-billion interest subsidy for amortization sought by the Department of Human Settlements and Urban Development.
"Bakit hindi ito ang isa sa mga unahing pondohan ng gobyerno imbis na antayin pang tumubo mula sa alanganing Maharlika Fund…kung may tutubuin pa nga ba talaga o baka bubulsahin na lang?" said Kadamay Secretary General Mimi Doringo.
[Translation: Why not fund this first instead of waiting for the uncertain Maharlika Fund to grow…is there really profit there or will it only be pocketed?]
The name "Maharlika" also did not sit well with some. Economist Michael Batu suggested for the fund to have a more politically neutral name to avoid associating it with anyone.
Maharlika or "warrior class" was linked to the late dictator Ferdinand E. Marcos, who claimed to have led an anti-Japanese guerilla unit of the same name during World War II. It has been debunked many times.
Meanwhile, the Philippine Chamber of Commerce and Industry (PCCI) also joined major business groups in recommending to put the proposal on hold, noting how it may affect the country's credit standing.
"One important thing we need to take care of is our credit standing. Now it's pretty good. That's important also because all key projects that the president did mention may require foreign loans. Having a good credit rating allows us to have lower rates in our loan," PCCI president George Barcelon earlier told CNN Philippines.
What are the safeguards?
Lawmakers pushing for the MIF have repeatedly assured the public that safeguards will be put in place.
The amended House bill added penal provisions — with higher penalties to be imposed against those who commit fraudulent acts related to the fund. These include fines of up to ₱5 million and imprisonment of up to 20 years.
A joint Congressional oversight committee will also be established to monitor and evaluate the MIF's implementation should it be passed into law. Transactions and accounts will likewise be subject to audit pursuant to the Constitution.
Do experts approve of the proposal?
Carlos Manapat, chairperson of the University of Santo Tomas Economics Department, said the MIF has a good objective that needs fine-tuning. He added he was more concerned with the personalities that would handle the sovereign wealth fund.
"'Yung [The] source of corruption is not the system itself but more of the personalities kaya kailangan very careful tayo dun sa pagpili ng team [That's why we must be careful in choosing the team]," Manapat warned.
He also suggested a measure of checks and balances for chosen members of the MIF board — one that should be heavily scrutinized by lawmakers.
Manapat also raised: "'Yung meron kang rule na ito dapat 'yung ibigay mo sa akin parang dun ako medyo may question kasi pipilitin ng institution na maglabas ng gano'ng kalaking pera pero di naman nila kaya or meron silang funds na madi-deplete because they need to give that amount, 'yun ang worry ko dun."
[Translation: I'm somehow questioning having a rule requiring what amount should be given to the fund because it would force institutions to shell out such a big money but they cannot afford it or their funds would be depleted if they need to give that amount, that's my worry.]
READ: Carpio: Maharlika Investment Fund will be a losing proposition
On the other hand, public advocacy group Foundation for Economic Freedom (FEF) and other economic policy bodies argued there is no creation of wealth when the LBP and DBP fund the MIF, even if it's to invest in government securities.
They also said requiring the BSP to contribute its dividends to the national government is a "direct assault" on its constitutional mandate "as an independent central bank in promoting price stability and managing exchange rate volatilities."
"The House Bill fails to realize that sequestering the dividends of GOCCs to the SWF will also impair the national government's own ability to fund the fiscal deficit and increase the pressure to borrow more from both domestic and foreign sources," they stressed.
Think tank IBON Foundation also criticized the fund's exemptions from certain laws, explaining these could enable the fund to support "big business allies and cronies or, worse, creating the conditions for corruption with impunity."
Marcos' economic team, however, has defended the MIF, saying it would boost the administration's development plan. Budget Secretary Amenah Pangandaman also said the Asian Development Bank, International Monetary Fund, and US-based think tank Milken Institute are backing its establishment.
What's next?
While the House swiftly approved the MIF proposal — a bill certified as urgent by the President — the Senate vowed to thoroughly study it, with the first committee hearing set on Feb. 1.
Senate President Juan Miguel Zubiri told his colleagues not to rush discussions on the proposed wealth fund and "give time to all sectors" concerned. He also suggested conducting weekly hearings on the matter.
RELATED: ‘We have to get it right’: Marcos wants Senate to scrutinize Maharlika bill
The Senate version was filed on Jan. 12 by Sen. Mark Villar, who chairs the Senate Committee on Banks and Financial Institutions. The bill was identical to third and final version of the lower chamber.
The MIF was likewise “soft-launched” to the international community during Marcos’ attendance at the World Economic Forum — which Senate Minority Leader Koko Pimentel called “premature” and a “move to tie the hands of Congress.”
This story will be updated as soon as new information comes in.