Proposed Philippine sovereign wealth fund raises fears of corruption, mismanagement

Citing fears of corruption and mismanagement, business groups, politicians and civil society organizations in the Philippines are pushing back against a move by the president’s relatives in government to create a national sovereign wealth fund with state-owned pension money.

Family members of President Ferdinand Marcos Jr., who serve as lawmakers in the House of Representatives, have filed a bill to create the Maharlika Wealth Fund with an initial 275 billion Philippine pesos (U.S. $4.9 billion) investment to raise revenues for the cash-strapped government.

His relatives in the legislature are cousin and House Speaker Ferdinand Martin Romualdez, son Ferdinand Alexander “Sandro” Marcos and Romualdez’ wife, Yedda Marie Romualdez, who were joined by three other lawmakers pushing the bill.

“It is essential for the government to improve investment opportunities, promote productivity-enhancing investments and ensure that the Philippines becomes an investment destination,” Ferdinand Romualdez said, adding the fund “will provide for the management, investment and use of the proceeds.

The House speaker said the proposal was patterned after sovereign wealth funds in Singapore, China, Hong Kong, South Korea, Malaysia, Indonesia, Taiwan, Vietnam, and East Timor, adding that it was necessary to meet goals set by the president who took office five months ago.

“Sovereign wealth funds are state-owned investment funds typically financed by a country’s surplus revenues or reserves. Governments invest these funds in an array of both real and financial assets to stabilize national budgets, create savings for their citizens or promote economic development,” he said.

Of the 275 billion pesos in start-up cash, 25 billion pesos would come from the national budget. The rest of the money would come from four government agencies.

These include two state-owned pension funds, the Government Service Insurance System and the Social Security System. The other two sources for start-up money would be a pair of state-owned banks, the Land Bank of the Philippines and the Development Bank of the Philippines.

While Marcos has not commented publicly on the proposal presented in the House on Nov. 28, his son and Finance Secretary Benjamin Diokno said he greenlit it. 

A day after the bill was filed, the House Committee on Banks and Financial Intermediaries approved it “in principle,” meaning other committees will vet it.

Diokno said he expected the House to pass the bill by mid-2023 and send it to the Senate.

Detractors

Not everyone in government has a positive outlook on the proposed sovereign wealth fund.

Central Bank Gov. Felipe Medalla expressed reservations, citing Malaysia’s corruption-ridden 1Malaysia Development Berhad (1MDB) that saw former Prime Minister Najib Razak sentenced to prison. 

“To me the experience of 1MDB Malaysia is the biggest risk, right?” Medalla said in an interview with Bloomberg TV on Dec. 2. “Even if the current guys are OK, will the guys five years from now still be OK? To me, it’s a governance issue.” 

The president’s sister, Sen. Imee Marcos, expressed concerns as well, saying the fund could be prone to corruption. 

“Retirement funds should be zero risk. Their values are depleting due to inflation and rising prices, and yet these will be placed elsewhere?” she said in a statement on Monday. 

Across the aisle, Senate Minority Leader Aquilino Pimentel III said the country’s institutions were not capable of handling a sovereign wealth fund, adding that now was not the right time given the unstable world financial markets and local economy. 

“A corrupt country like the Philippines cannot yet run a successful sovereign wealth fund because we lack the controls and the discipline to keep the capital intact and away from interested itchy hands,” Pimentel told BenarNews. 

Ernesto Pernia, who served as socioeconomic planning secretary under former President Rodrigo Duterte, said the Philippines had the lowest gross domestic product per capita, highest poverty incidence, highest debt to gross domestic product ratio and highest budget deficit in Southeast Asia.

The country, he said, has “no spare investible funds from natural resources” unlike Indonesia and other countries that have sovereign wealth funds. 

“The [wealth fund] is a long-term investment but, given our dire economic situation, we need funds now or yesterday, not a distant tomorrow,” Pernia told BenarNews in an email.

The Philippines’ inflation rose to 8 percent last month, the highest level in 14 years and more than twice the 3.7 percent posted in November 2021. 

In addition, the nation’s debt was 13.52 trillion pesos ($241.7 billion) by the end of September.  

“The Philippines does not have any windfall from any recent development or discovery, nor do we have budget surpluses. In fact we are heavily in debt. No way should we fund the sovereign wealth fund with debt, that would leave debts as the fund’s legacy to future generations of Filipinos,” Pimentel said. 

Business groups, including the Management Association of the Philippines and the Makati Business Club, oppose the proposal. 

Instead of resorting to an untested approach with “many potential” flaws, the government should “continue to implement existing initiatives that can boost productivity and lower inflation,” the groups said in a statement.

Myth of Maharlika 

Pimentel and minority Sen. Risa Hontiveros questioned the fund’s name, calling it a tool to rehabilitate the Marcos family name.

“Maharlika,” which means “warrior class,” has been used in one of the myths by Marcos’ late father, the dictator Ferdinand E. Marcos, who claimed to have led a Filipino guerilla unit by that name under the Japanese occupation during World War II. 

“The proposed name of the fund ‘Maharlika’ is so political. Making the president the chairman of the fund is so political. Giving the president the power to appoint the members of the fund management group will make the entire machinery a political group,” Pimentel said. 

In January 1986, The New York Times reported that the U.S. Army had rejected the requests by the elder Marcos for official recognition of the unit because his claims were distorted and the unit itself had never existed.  

“It’s part of the legacy of the martial law dictatorship, the myth making that they are really milking to rehabilitate those images to the detriment of accountability for human rights violations and plunder of the past,” Hontiveros said on Dec. 2. 

Not new 

Among the defenders of the bill, Sandro Marcos and former President Gloria Macapagal Arroyo say it is not a new idea. They cited former Sen. Paolo Benigno “Bam” Aquino IV, who filed a similar bill in October 2016, and Sen. J.V. Ejercito, who filed one in March 2018. 

“Yes, it became apparent that the president was in support of creating a sovereign wealth fund, but the idea did not come from him per se because this is something that has been in the works or something that has been pushed by not even this administration, but administrations past,” Sandro Marcos said on Dec. 5. 

Arroyo, who serves as a House deputy speaker, said the success of this or any fund lies with the quality of management.

“This is a powerful statement that the highest official of the land will hold himself as ultimately accountable to the Filipino people for the performance of the fund,” Arroyo said.

An economist, Arroyo faced graft and corruption complaints that were eventually dismissed in 2016. She touted economic improvements as among her achievements during her presidential term from 2001 to 2010. 

Aquino, meanwhile, questioned the timing. 

“First, the economy then and now are different. In 2016, the economy was doing well, with high economic growth, low debt, and low inflation,” Aquino said in a Twitter post.

“Next, the capital for the sovereign wealth fund should come from surplus budget, and not from pension funds,” he said. 

Aquino is the nephew of democracy icon Benigno Aquino Jr. and the cousin of the late President Benigno Aquino III.

When the younger Benigno Aquino finished his presidential term in 2016, he left the Duterte administration with a budget of 1 trillion pesos ($17.9 billion) and 6.37 trillion pesos ($114 billion) in debt. Under Duterte, the country’s debt more than doubled to 13.4 trillion pesos ($241 billion).