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Wednesday, June 19, 2024

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REALITY CHECK: High risk, high rewards? – The ballad of the Maharlika Investment Fund (MIF) 

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By Paul Anthony A. Isla

THE grandiose vision of setting up a sovereign welfare fund, which the government may use to invest in various opportunities, has been stirring a lot of buzz from government supporters and its critics. 

The optimists and pessimists of this world have presented good views as they express support or opposition to this proposed measure. On the one hand, some claim that the effort would help the government raise much-needed cash through various investment opportunities within its horizon. On the other hand, some argue the fund itself could be abused or even corrupted.  

For the record, putting up a sovereign welfare fund is nothing new and has even existed in some economies as early as 1816 in France. Various sources, such as trade surpluses, bank reserves from accrued savings, and windfall collection, could be used to finance the said fund.  

Government economic managers have been assuring the public that establishing a social welfare fund, or the Maharlika Investment Fund, in our case, has already been used by the government in both developed and developing countries to achieve their economic targets.  

Notwithstanding the assurances given by legislators and government economic managers, many remain skeptical given the country’s fiscal imbalances, where our debt obligations are way higher than our actual and projected revenues, and the rich history of corruption spanning across generations.

But how would the proposed investment mechanism help every Juan dela Cruz? For a simpleton like this writer, one could only hope that proceeds or revenues generated for every peso invested would redound to better social services that would benefit every Filipino and not just the marginalized. 

Before the Holidays, Congress passed the latest bill to set up the Maharlika Investment Fund (MIF). Not surprisingly, legislators approved the bill following President Ferdinand R. Marcos Jr.’s move to certify it as urgent.

The latest version includes the Land Bank of the Philippines, Development Bank of the Philippines (DBP), Philippine Gaming and Amusement Corp. (Pagcor), and the Bangko Sentral ng Pilipinas as the MIF’s main contributors. The Land Bank and DBP will contribute Php5 billion and Php25 billion to the fund. BSP will apportion 100 percent of its dividends, and Pagcor will allocate 10 percent of its gross gaming revenues to the MIF.

Thankfully, Congress has removed the Social Security System and the Government Service Insurance System – pension funds for the private sector and government workers – from the list of contributors following the backlash it received from pension fund members.

Given GSIS and SSS’ actuarial lives are estimated to last until 2045 and 2054, had Congress insisted on including these two pension funds (GSIS and SSS), you could imagine the risk of these funds being unavailable to support the financial needs of its members.

Setting up this fund may be challenging for some, given the risks it may entail during its implementation and the financial challenges most Filipinos face. 

Instead of funding the MIF, some may appeal to the government to use the cash to subsidize the increasing cost of commodities to soften the impact of inflation on consumers.  

Indeed, generating much-needed revenues through investments could come in handy or be inconvenient if not appropriately managed. The recent increases in commodity prices, soaring inflation rate, and the volatility of the Philippine peso would serve as a REALITY CHECK for government economic managers to consider realigning the targeted contributions to address the challenges Filipinos face every day. 

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