Creation of sovereign wealth fund pushed

MANILA, Philippines — The Department of Finance (DOF) is pushing for the establishment of a sovereign wealth fund (SWF) with safeguards to protect the hard-earned money of investors.

During the Kapihan sa Manila Bay forum, Finance Secretary Benjamin Diokno said the proposed sovereign fund was conceptualized when he was still governor of the Bangko Sentral ng Pilipinas (BSP) to take care of future generations of Filipinos.

Countries with SWF include Australia, Singapore and Norway, and recently Indonesia.

Lawmakers through House Bill 6398 called for the establishment of the Maharlika Wealth Fund (MWF) to be supported by pension fund managers Government Service Insurance System (GSIS) and Social Security System (SSS) as well as state-run financial institutions Land Bank of the Philippines (Landbank) and Development Bank of the Philippines (DBP).

Under the bill, the four institutions are mandated to invest equity with a combined total of P250 billion to start up the fund. The GSIS will provide an initial investment of P125 billion, P50 billion for both SSS and Landbank and P25 billion from the DBP.

House Deputy Minority Leader France Castro expressed doubt on the plan to put up MWF, saying it is better to impose wealth tax that use pension funds and taxes for investments.

Castro warned that under the program, the premium contributions and taxes being paid by Filipinos would be pooled into the MWF.

The funds, she said, would then be invested in local and global financial markets by one government-owned and controlled corporation named Maharlika Investments Corp. that the proponents themselves formed.

During a hearing of the House committee on banks and financial intermediaries on the bill filed by Speaker Martin Romualdez, GSIS president and general manager Jose Arnulfo Veloso,  SSS president and chief operating officer Michael Regino, Landbank president and CEO Cecilia Borromeo as well as DBP president Emmanuel Herbosa unanimously backed the creation of the MWF.

Castro said that currently, the SSS and GSIS could not even provide efficient services to its members and yet the government would “gamble” again using public funds.

“It is worrisome and suspicious because the companies set up by the proponents will be the ones to invest the money that they do not own,” she said.

She made the statement after the GSIS, SSS, LandBank and DBP backed the passage of House Bill 6398 during the hearing of House committee on banks and financial intermediaries on Tuesday.

Diokno said the investment opportunities of both GSIS and SSS are currently restricted mostly in treasuries with low returns.

“That fund can be used to fund some of the projects like tollways with a rate of return of 20 percent compared to retail treasury bills with a return of only about five percent,” Diokno said.

An interagency committee including the Department of Budget and Management as well as the National Economic and Development Authority  helped drafted the bill for the creation of a sovereign wealth fund.

“I told them just to make sure that it will not be identified with the President so that whoever is the president cannot meddle with the use of the funds,” Diokno said.

He said there should be a government council totally independent from the government.

The members of the council can be appointed for maybe seven years so it will not coincide with the term of the president.

Aside from the private sector, Diokno said foreign investors would be invited to invest in the sovereign wealth fund.

To protect the fund and prevent a repeat of the collapse of Malaysia’s state-owned investment fund 1MDB, Diokno said there are safeguards such as total independence from the government. – Sheila Crisostomo