To assess the wisdom of House Bill No. 6608 or “An Act Establishing the Maharlika Investment Fund, Providing for the Management, Investment, and Use of the Proceeds of the Fund, and Appropriating Funds Therefor,” let us make sure that we know what exactly are the provisions contained in the final draft of the bill that was already passed in the Lower House, on which the Senate will start deliberating once it resumes its session this month. It is necessary to know the final form of the proposed bill because it has gone through a good number of modifications as a result of a most democratic process of feedback from all the sectors of Philippine society that will be affected by the law if it is finally passed and implemented.
Section 10 of the Act enumerates the functions of the Maharlika Investment Corp. (MIC). It states that in carrying out its objectives and functions, the MIC shall:
a.) Establish a diversified portfolio of investments in the local and global financial markets and in other assets that promote the objectives of the Fund;
b.) Manage and invest the initial and future contributions to the Fund in accordance with this Act;
c.) Accept and manage investment mandates whose investment purpose is to increase income for development goals;
d.) Develop and foster skills in finance, economics, risk mitigation, good governance and other related areas, consistent with the capacity and capabilities build-up of human resources in the industry; and,
e.) Implement international best practices in investing and managing assets in accordance with the internationally accepted standards and principles of transparency and accountability.
From the functions enumerated above, it is clear that the Government is not unnecessarily putting up a state enterprise like the former National Development Corp. (NDC) that invested in extractive and processing industries aimed at the export market. These state enterprises failed miserably as they were flawed with what national scientist Raul Fabella refers to as “the moral hazard arising from state intervention.”
The nature of the Maharlika Investment Fund is that of a passive investment instrument that can, if properly managed, pump prime billions of dollars of foreign direct investments into very capital-intensive infrastructure and large-scale agribusiness projects that will surely help create millions of jobs today and contribute to sustaining the Philippine GDP growth at its present rate as one of the most rapid in the Indo-Pacific region. At the same time, these investments in much-needed infrastructure in telecom, transport, energy, and large-scale agriculture will greatly benefit future generations, thus replicating what sovereign wealth funds in other countries are able to do, i.e., transfer benefits from one generation to another.
That is why it was predictable that one of the first to cite the benefits of the Maharlika Fund (in contrast with numerous naysayers from the academe and civil society) was the President of the Philippine Stock Exchange (PSE), Ramon Monzon, who pointed out that the fund’s goals of sustaining infrastructure spending would help spur investments, ultimately benefiting the country’s capital markets. In an official statement, Mr. Monzon said: “The PSE’s primary mission is to facilitate the flow of capital into more productive and beneficial channels and as a result contribute to efficient capital formation for the country. Since the MIF seeks to attract and invest capital for big ticket infrastructure projects, sustainable green and blue infrastructures and countryside development, we believe these investments will create a multiplier effect that would attract more fund-raising activities and portfolio investments and in turn contribute to the growth and development of the capital markets.”
With the abysmally low level of domestic savings and a government buried in debt for at least the next five years, the greatest challenge to the Philippine economy is the shortage of long-term funds that can be invested in much needed infrastructure projects and large-scale agricultural investments that will improve productivity. That is why the battle cry should be the words of Secretary of Economic Planning Arsenio Balicasan: “The more sources of funding we have, the better.”
If a small amount of very scarce funds investment (a beginning capitalization of only $5 billion) in the Maharlika Fund can unlock some 10 billion or more dollars of FDIs every year, then it is worth the sacrifice involved in diverting some of the funds to be contributed by the investing government financial institutions away from more urgent needs like education, health, and poverty alleviation.
The proponents of the Maharlika Fund are not blind to the opportunity costs of the P250 billion to be contributed by the government financial institutions, the Philippine Amusement and Gaming Corp. (PAGCOR), and other government-owned gaming operators as well as other sources such as royalties and/or special assessments on natural resources such as in mining. They, however, have made the prudential judgment that these opportunity costs are far outweighed by the financial as well as social benefits of the billions of dollars that will flow into the country, facilitated by a partnership with the Investment Fund.
This is not pure theorizing. I have tested the concept with large foreign infrastructures companies from Spain, South Korea, and Japan. A good number of them are already preparing unsolicited proposals to build and own international airports, seaports, renewable power plants, data centers, railways, and subways. They are looking at the Mactan International Airport (our most modern international airport) that was a partnership between the Indian GMR and Megawide as a model. But instead of having a private company as partner, they would be more than happy to have a government entity like the Maharlika Fund as the one to “hold their hand” as they navigate the difficult waters of the Philippine investment environment.
Those who fear incompetence or corruption in the management of the fund (with constant reference to the Malaysian case) should be reassured by the provision of Section 16 of the proposed bill by the House of Representatives: The management of the MIF shall be subject to a set of investment policies, guidelines and risk management limits and procedures, as approved by the Board of Directors, upon due of the recommendations of the Advisory Body. Investment and risk management strategies of the MIC shall be in line with the policies and objective hereunder stated to ensure the long-term viability of the Fund. The Chairperson of the Board will not be a politician but will be the Secretary of Finance, a position in the Executive Department that has always been occupied for the last 40 years by some of the best, brightest, and honest professionals, whatever the quality of the political leadership.
This criterion of appointing only those among the best and brightest can readily be applied to the key positions of the MIF. They are the Chief Executive Officer of the MIC, President of Land Bank of the Philippines, President of the Development Bank of the Philippines, five independent directors from the private sector, the academe, business sector, and investment sector. The independent directors shall be chosen by the advisory body which shall be composed of the Secretary of the Department of Budget and Managment, the Directory General of the National Economic and Development Authority (NEDA), and two members from the private sector: the President of the Philippine Stock Exchange and the President of the Bankers Association of the Philippines.
Humility aside, I have been so deeply involved in advising Philippine banks, business corporations, civil society organizations like the Makati Business Club, the various chambers of commerce and industry, and business schools on a wide range of business issues, that I can, at the spur of the moment, recommend a list of the best and the brightest that can be considered by the Advisory Board for both the key executive positions and the independent directors of the MIC. From my close interaction with literally hundreds of business executives, especially in the financial sector, the following is a list of very experienced and highly respected investment bankers and investment specialists who can be considered (among others) by the Advisory Board (they are listed at random): Cesar Consing, Roberto de Ocampo, Francis Sebastian, Francisco del Rosario, Jr., Anton Periquet, Robert Panlilio, Omar Cruz, Lorenzo Tan, Jerry Kilayko, Raul de Mesa, Michael de Guzman, Rex Mendoza, Melo Bautista, Vaughn Montes, Edwin Bautista, Jose Teodoro Limcaoco, Rabboni Francis Arjonillo, Eugene Acevedo, Emmanuel Herbosa, Fabian Dee, Hans Sicat, Antonio Itchon, and Antonio Mancupa. There are some who are equally if not more qualified whom I did not include in this list because I have certain information that, for political reasons, they will never accept a position in this present Administration. Some of the persons listed are still very active in banking and may not find the time to be independent directors.
What I want to illustrate is if the present Administration is really intent in making the MIC truly a competent and honest instrument for drawing long-term funds to development projects, they will seriously consider choosing at least some of the executives and independent directors of MIC from this long list. It will be very easy for the Advisory Body to find the biodata of each of my nominees on the internet. They are very public figures, having occupied top positions in both domestic and multinational banks as well as in professional organizations that have to do with banking such as the Bankers Association of the Philippines and the FINEX.
(To be continued.)
Bernardo M. Villegas has a Ph.D. in Economics from Harvard, is professor emeritus at the University of Asia and the Pacific, and a visiting professor at the IESE Business School in Barcelona, Spain. He was a member of the 1986 Constitutional Commission.