Is Maharlika worth saving?


“Congress vows passage of Maharlika,” said a recent headline. In a radio interview, Senator Chiz Escudero said that Senate Bill 2020 that creates the Maharlika Investment Fund (MIF) has a large chance of being approved before the Senate goes on recess on June 2.

Some Cabinet members, legislators, and policymakers have been all praises for the latest version of the MIF, claiming that it is now “unrecognizable,” compared to its first version due to its numerous revisions.

Despite its improvements, the bill in its current form is still dangerous. We commend the exclusion of the state-managed pension funds, the Government Service Insurance System (GSIS) and Social Security System (SSS), from Maharlika’s funding sources. But other conspicuously controversial provisions remain.

We first examine the bill’s objectives. State participation in economic enterprises is justified by correcting market failures as well as enabling or creating missing markets. The question therefore: Is there a market failure or a missing market that the current Maharlika fund wishes to tackle? If so, which market?

The MIF still lacks clarity in its objectives. There has yet to be a rationalization of the fund which justifies its creation and its differences from existing investment bodies.

Section 4 states that the objective of the bill is to “generate optimal returns on investments (ROIs), while contributing to the overall goal of reinvigorating job creation and poverty reduction by sustaining the country’s high-growth trajectory.” But tension can exist between having “optimal ROI” and contributing to job creation and reduction of poverty. ROI is about profitability, a financial matter; meanwhile, job creation and reducing poverty is about high social returns, which cannot be strictly measured in terms of financial profitability.

The functions in Section 9 of the bill are listed to be managing and growing the assets and financial investments. However, the declaration of policy in Section 2 states that the Maharlika Investment Corp. (MIC) is about “investing national funds… to promote economic growth and social development.”

Essentially, Section 9 is about managing a wealth fund, which is different from generating investments for development. But the bill’s title suggests that Maharlika is about generating investments.

The bill thus reveals confusion and incoherence as to what the MIC is truly about.

Further, the conceptualization of MIC has an unintended consequence of emasculating financial institutions. The bill still includes several provisions that undermine our financial institutions.

The bill’s Section 55 amends Section 2 of Republic Act (RA) 7653 (The New Central Bank Act). Section 2 of RA 7653 states “There is hereby established an independent central monetary authority, which shall be a body corporate known as the Bangko Sentral ng Pilipinas.” The core of RA 7653 found in Section 2 is the independence of the BSP. The proposed Maharlika amendment thus explicitly removes the BSP’s independence.

In the same vein, the BSP is enfeebled, and its independence frustrated by mandating it to permanently remit 100% of its dividends to the fund upon full payment of BSP capitalization.

If the government needs to capitalize MIC, it does not need to involve the BSP, constrain it, and shape its behavior. By ordering the BSP to remit its declared dividends to MIC, the bill is dragging the central bank into an entity that is inconsequential to its core mandate.

If the government’s interest is to find sources of capital for MIC, it does not need to pull in the BSP. The BSP’s declared dividends are directly remitted to the National Government, and the National Government should decide the appropriate and efficient use of its dividends.

The government must exercise sound economic judgment on how these dividends will be used. These dividends have alternative uses, which may be more efficient and cost effective than the creation of Maharlika.

Several pieces of legislation strengthening the country’s pandemic resilience, including bills creating the Philippine Centers for Disease Control and Prevention (CDC), the Magna Carta for barangay health workers, and the medical reserve corps, are currently pending in the Senate. These bills still lack a clear source of funding. Clearly, the resources being funneled towards Maharlika have opportunity costs. These resources could be used to build a more robust healthcare system, for example.

The latest proposal for Maharlika is to make it the mechanism to attract investments from official donors or creditors and private investors to finance heavy infrastructure and climate change projects. We indeed welcome Investments in these areas.

But does one need an all-encompassing Maharlika to catch all those investments? Or will the objective of investment mobilization be served by having corporations that are sector-specific or industry-specific?

Why create another layer of organization to manage and direct such investments when institutions already exist that perform such roles. The Land Bank and Development Bank of the Philippines, which the bill authorizes to provide capitalization to MIC, have the mandate to support and promote government’s development programs.

For climate change financing, we have the Philippines’ Green Climate Change Fund, which can be further strengthened.

With respect to having an all-encompassing investment body, the Philippines has a National Development Co. (NDC). Its vision is to be the country’s “leading state-owned enterprise investing in diverse industries, serving as an effective catalyst for inclusive growth.”

In this case, it would be more reasonable to review the NDC towards strengthening it and making it more responsive to the challenges of the 21st century. What is needed is not a new investment fund but rather an amendment of the NDC law.

The creation of the MIF is therefore redundant; the proposal merely adds another layer of organization to manage investments.

Further, as a state-owned corporation, Maharlika must be rationalized in the broader context and framework of industrial policy (IP). This IP framework for Maharlika remains unclear and needs to be spelled out in more specific terms. We quote Bangko Sentral ng Pilipinas Governor Felipe Medalla, who mentioned that “a more focused spending plan would also be good.”

We note that our Senators have been taking more time to study the bill. We appeal to our Senators to strike out the bad provisions that cripple our financial institutions and correct Maharlika’s misconceptions and inconsistent objectives.

Is Maharlika worth saving? Removing the bad provisions and clarifying the wrong concepts would lead us to a curious situation where the bill becomes a shell without anything substantial to offer.

Rather than passing an untimely bill creating an investment fund that upends financial institutions and strains public finance, we believe that we are better off focusing on key measures that address big bottlenecks to growth and investments. To wit: the narrower fiscal space, food inflation, inadequate power supply, and weak health system.

Political capital is scarce. We urge the Senate to use its political capital wisely. To quote our fellow BusinessWorld columnist, Diwa Guinigundo: “We would just have to ensure we choose our economic battles well.”

The co-authors Pia Rodrigo and Filomeno Sta. Ana III belong to Action for Economic Reforms.