September 30, 2023

On July 24, President Ferdinand Marcos, Jr. will deliver his second State of the Nation Address (SONA). For sure, one of the highlights of his SONA will be his pet idea, the Maharlika Investment Fund (MIF).
The MIF is a sovereign fund that seeks to raise enough capital to incorporate the government so that it can enter into commercial transactions, thereby gaining profit to ease the burden of taxes in defraying public expenditures.
Indeed, the idea is noble. But whether it will work or not is another matter.
According to the President, he signed the MIF into law because he has to upgrade the financial competency of the country. By having a sovereign fund, the government can invest in various commercial transactions like foreign currency exchange, corporate bonds, real estate, and infrastructure projects.
But even without the MIF, the government is able to do these projects, owing to its dual nature of being a sovereign state and a judicial person. Hence, from the onset, it would seem apparent that even for an ordinary layman like me who has limited knowledge on finance and economics, the MIF is inherently flawed.
For one, constitutional considerations dictate that a sovereign fund can only be created if there are surplus funds available in the government’s coffer. As it stands, the Philippines has an outstanding international debt amounting to about $75 billion or roughly P13 trillion. The country almost always operates on a budget deficit year in and year out. To relegate this truth by covering it up with a sovereign fund is to deceive the people into believing that our financial condition is okay.
The President digresses from the normal way of capitalizing the MIF by sourcing the funds from government-owned and controlled corporations. Around P50 billion shall be provided by the Land Bank of the Philippines, P25B shall be provided by the Development Bank of the Philippines, and another P50B shall be provided by the national treasury or a total of P125B. That is a lot of money to spend and to spare.
The P125-B sovereign fund shall be entrusted to a nine-member committee chaired by an independent director who is given sole discretion to determine whether the fund will be invested. This likewise poses a problem. You see, the MIF does not provide for accountability. Neither does it detail an investment portfolio. The law equates the fund into profits without regard to losses. There is an outright presumption that all investments done pursuant thereof will be profitable as if commercial enterprise is free from risks.
Also, the President did not take into consideration the temptation that accompanies the management of the fund. There are precedents that have shown how a sovereign fund can bring the economy of a country to its knees.
For instance, when the Malaysian government created its own version of a sovereign fund, it had very noble and pristine intentions. All it wanted was to improve the standard of life of its citizens. Did it?
The investment fund was systematically embezzled by the very persons to whom it was entrusted for management. They treated it as their own, buying everything at their disposal without compunction that so many of their countrymen are going hungry.
Well, President Marcos assuaged our fears and assured us that this will never happen in our country. Sapay kuma apo. We can only hope that he is correct on his assessment given the history of graft and corruption in this country.
Yet, as patriotic citizens, we have to trust our government. For the meantime, we have to close our eyes to the profitable pitfalls that accompany a sovereign fund and fervently pray that what the President and his economic advisers are intending to implement will be correct.
We only have to wait and see.