State assets should finance Philippine sovereign wealth fund

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* BusinessWorld, December 5, 2022.
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At the BusinessWorld Economic Forum on Nov. 29 at the Grand Hyatt Manila in Bonifacio Global City in Taguig, Finance Secretary Benjamin Diokno outlined in his keynote speech an optimistic growth trajectory for the Philippines, the overall fiscal resources and debt reduction needed, and investment liberalization policies that have been institutionalized. He also briefly mentioned the establishment of a state-owned sovereign wealth fund (SWF).

THE MAHARLIKA INVESTMENT FUND (MIF)

The MIF, the Philippines’ SWF as proposed by the House leadership under House Bill 6398, ‘has attracted mostly negative reactions from researchers and corporate players in the country. See for instance these reports and columns in BusinessWorld:

“Medalla voices caution over plans to create $4.9B sovereign fund” (Dec. 2),

“PHL not ready for sovereign wealth fund — analysts” (Dec. 5),

“The Maharlika Wealth Fund,” Yellow Pad by Filomeno S. Sta. Ana III (Dec. 4),

“Some leadership gaps and uncertainties,” Introspective by Romeo L. Bernardo (Dec. 4).

What makes the proposed MIF controversial is that it will get funds from these four government agencies: the Government Service Insurance System (GSIS), P125 billion; the Social Security System (SSS), P50 billion; Land Bank of the Philippines (LBP), P50 billion; and Development Bank of the Philippines (DBP), P25 billion. The initial investment totals P250 billion.

Then it will get P25 billion from the National Government, plus foreign currency reserves from the Bangko Sentral ng Pilipinas (BSP) equivalent to 10% of OFW remittances and 10% of contributions from the Business Processing Outsourcing (BPO) sector.

These are indeed objectionable because GSIS and SSS funds are not tax money but private contributions by members and their employers meant for emergency and retirement needs of those members. The BSP also needs to keep a high level of gross international reserves (GIR) so that anytime external financial shocks occur, it will have sufficient foreign currency for companies to buy important imported commodities for several months.

To address these objectionable provisions, SWF should be sourced from government assets. In particular (a) Malampaya royalties, currently around P16 billion/year, (b) privatization of some wide government lands, and (c) privatization of many government-owned and -controlled corporations (GOCCs).

I propose five GOCCs and their assets as priorities for quick privatization, and about 20 others for long-term privatization (Table 1).

To avoid further public suspicion, this should not be rushed. Have the Malampaya royalties remain intact for at least 2023–2024, hasten the privatization of hydro power plants in Mindanao managed by PSALM, and fast track the privatization of PAGCOR and PCSO.

It is possible that by 2024–2025, the P275 billion initial investment target can be raised without compromising private funds like SSS and GSIS, taxes from the public, and GIR of the BSP.

This column has advocated large-scale privatization of GOCCs and other government assets mainly to pay and reduce public debt, not earmarked for whatever programs or agencies. And spare the taxpayers of higher and/or new taxes. Now should be the time to have wider public discussion on this subject....

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