GSIS warned against offshore investments

Catanduanes Rep. Joseph Santiago has cautioned the Government Service Insurance System (GSIS) against pursuing its plan to invest overseas up to $200 million (P11 billion) this year, pointing out that the state-run pension fund should wait for more favorable conditions before taking much-needed dollars out of the country.

"This is not exactly the best time for the GSIS, or for any public entity for that matter, to be taking badly needed foreign exchange out of the country," Santiago said.

"We need all the dollars we can lay our hands on at this difficult time, considering the national government has to refinance some $5-billion worth of debt obligations this year," he pointed out.

Santiago was reacting to GSIS executive vice president Reynaldo Palmieri’s disclosure that the pension fund has decided to diversify into the international market, initially earmarking at least $200 million for possible investments abroad this year.

Santiago, however, warned that the GSIS’ move to park a substantial amount of capital offshore would send the wrong signal to foreign investors.

"We find it awkward, even absurd, that while government is desperately trying to lure badly needed foreign investments into the country, the state-run pension fund will be doing just the opposite – taking money out of the country," Santiago said.

He said both the country and the GSIS would be better served if the latter’s investment funds are kept here at home. "This is the patriotic course at this time," he added.

However, Santiago acknowledged the need for the GSIS to diversify its investment portfolio in order to boost returns and reduce risk, and that the pension fund is authorized to stash up to 10 percent of its money abroad, if necessary.

"Still, this is really just a question of timing. We are not out of the woods yet insofar as the threat of a fiscal crisis is concerned. Surely the GSIS can (afford to) wait for a better time," Santiago said.

"Meantime, the GSIS can choose to invest some of its funds in dollar-denominated instruments domestically. There are a number of alternative (investment) instruments available locally, in dollars or other foreign currencies," he stressed.

The country incurred a net $500-million balance of payments deficit last year. This means the foreign exchange that left the country (due to debt servicing, import payments and other outbound transfers) was $500 million more than the dollars that flowed in (from export receipts, foreign purchases of local debt papers and stocks, foreign direct investments, remittances, etc.).