The Maharlika Fund: An Investment or A Mere Gamble?

by Mai Allauigan

Amid ballooning national debt and the ever-increasing inflation rate, the Marcos Jr. administration railroaded the passage of the controversial Maharlika Investment Fund (MIF) to ‘stimulate economic growth.’ In spite of its various amendments, the law remains unclear and marred by loopholes that may pose serious threats to the economy.

Signed into law last July 18, the MIF breezed through the legislative process as it was certified urgent by Marcos Jr. As one of the flagship economic measures of the current administration, it aims to widen the fiscal space, accelerate infrastructure development, and promote economic growth.

The fund will have an initial capital of Php 125 billion, which will come from the national government, the Land Bank of the Philippines (LBP), and the Development Bank of the Philippines (DBP).

Part of the government’s share will be sourced from the dividends of the Bangko Sentral ng Pilipinas (BSP), Philippine Amusement and Gaming Corp. (PAGCOR) earnings, and other privatization proceeds.

Meanwhile, the fund’s main overseer and manager will be the Maharlika Investment Corp. (MIC), a government-owned and controlled corporation (GOCC) comprising nine members. These include the presiding Finance Secretary, the chief executive officer (CEO) of the MIC, the presidents and CEOs of the LBP and the DBP, two regular directors, and three independent directors from the private sector.

Vague and redundant

Even at the onset, the MIF was already wrapped in controversy due to the lack of consultations and consensus among critical stakeholders.

In a 28-page discussion paper released last June 2023, the UP School of Economics (UPSE) delineated the MIF’s numerous defects. It primarily highlighted the lack of clearly defined, publicly disclosed policy goals of the fund.

While the law claims to spur development through high-impact investments such as big-ticket infrastructure, it does not explicitly state if there are any specific projects it shall focus on, nor does it specifically lay down how it is more advantageous than direct government spending.

It also does not explicitly mention how it is aligned with the Philippine Development Plan (PDP), the country’s economic blueprint, which already includes the administration’s infrastructure projects and their respective funding sources.

Meanwhile, it is unclear how it sets itself apart from the functions of existing government financial institutions (GFIs) and GOCCs; it merely adds another layer of bureaucracy, which directly contrasts with Marcos Jr.’s rightsizing plan.

Lack of fiscal capacity

The creation of a sovereign investment fund (SIF) entails that there should be existing surplus revenues that could finance it. However, the country has an outstanding budget deficit of Php 1.6 trillion in 2022, with a record-high debt-to-GDP ratio of 63%.

Enrico Patiga Villanueva, an economics lecturer at the University of the Philippines Los Baños, also asserted that the existence of idle surplus funds, if any, would mean that these were not managed and spent appropriately. Inasmuch, the diversion of such funds to the MIF would potentially undermine the institutions’ central mandates.

UPSE’s paper also highlighted that draining capital from the LBP and DBP runs the risk of reducing their lending capacity. This would harm taxpayers’ money, with the marginalized sectors bearing the brunt of its consequences as they are the primary beneficiaries of the said GOCCs.

Like the PDP, the country’s Medium-Term Fiscal Framework is nowhere to be found in any of the law’s provisions.

Toothless safeguards

Notably, MIC’s board members, its Advisory Board, and many members from the risk management unit are all presidential appointees. This flawed governance structure already poses a huge threat to political independence.

Moreso, it lacks adequate safeguards to ensure transparency and accountability.

Senator Risa Hontiveros previously slammed the low penalties initially proposed in the Senate and House bills, as these only ranged from a minimum of Php 10,000 to a maximum of Php 5 million. While it was revised upwards in its implementing rules and regulations (IRR) — now ranging from Php 1 million to Php 15 million — this is still insufficient given that the board will handle billions of taxpayer money.

The MIF also seeks various exemptions, which may make it more susceptible to corruption. Apart from tax exemptions, the law is also exempt from the GOCC Governance Act of 2011, the Government Procurement Reform Act, and the Salary Standardization Act.

UPSE’s paper also drew attention to the fact that no bankruptcy and resolution provisions exist. This suggests that public funds may be further imperiled if the MIF fails to achieve its expected outcomes.

Historical parallels

Critics said that the MIF is eerily resemblant to Marcos Sr.’s Coco Levy Fund (CLF), which turned into a well of corruption.

The CLF levied taxes on coconut farmers, promising to develop the coconut industry and support the farmers.

However, these funds were funneled to Marcos and his cronies, who entrenched themselves in wealth. Most notable of these personal investments were Eduardo “Danding” Cojuangco Jr.’s purchase of the United Coconut Planters Bank (UCPB) and his acquisition of a majority stake in San Miguel Corporation (SMC).

Former Solicitor General Florin Hilbay argued that the MIF “dwarfs the coconut levy scheme in both breadth and scale.”

Beyond concrete and steel

Various progressive groups staunchly opposed the law, asserting that the funds could have been allocated for more immediate and pro-people responses like direct cash aid and production subsidies.

With regard to investing in infrastructure — which the MIF touts it will ramp up — Sonny Africa, executive director at IBON Foundation, stated that these could instead be used in bolstering agricultural infrastructure.

“Because infrastructure on its own without corresponding agricultural industrial development plan will just reinforce that exact same service and export orientation that we have right now,” Africa said.

Furthermore, he also argued that instead of the MIF, the government can better generate revenue by enacting a wealth tax.

The wealth tax proposed by the Makabayan Bloc is seen to provide at least Php 480 billion annually, which would aid the government in pursuing anti-poverty measures and other social programs.